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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from..............to..............
Commission file number ...........
AFC ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 58-2016606
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Six Concourse Parkway, Suite 1700
Atlanta, Georgia 30328-5352
(Address of principal executive offices) (Zip Code)
(770) 391-9500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Exchange Act: None
Securities registered pursuant to Section 12 (g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Not applicable.
The aggregate market value of the common stock of AFC Enterprises, Inc. held by
non-affiliates of AFC Enterprises, Inc. is not applicable as the common stock of
AFC Enterprises, Inc. is privately held.
As of March 29, 1999, there were 39,233,441 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The exhibit index is contained in Part IV herein on page 61.
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AFC ENTERPRISES, INC.
INDEX TO FORM 10-K
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PART I
<S> <C>
Item 1. Business................................................. 1
Item 2. Properties............................................... 20
Item 3. Legal Proceedings........................................ 23
Item 4. Submission of Matters to a Vote of Security Holders...... 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters.................................. 24
Item 6. Selected Consolidated Financial Data..................... 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 28
Item 8. Consolidated Financial Statements and Supplementary Data. 45
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 45
PART III
Item 10. Directors and Executive Officers of the Registrant....... 46
Item 11. Executive Compensation................................... 50
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 58
Item 13. Certain Relationships and Related Transactions........... 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 61
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PART I
ITEM 1. BUSINESS.
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended. Such forward-looking
statements relate to the plans, objectives and expectations of the Company for
future operations. In light of the risks and uncertainties inherent in any
discussion of the Company's expected future performance or operations, the
inclusion of forward-looking statements in this report should not be regarded as
a representation by the Company or any other person that these will be realized.
Such performance could be materially affected by a number of factors, including
without limitation those factors set forth in this section.
GENERAL
AFC Enterprises, Inc., a Minnesota corporation and its wholly-owned
subsidiaries (collectively "AFC" or the "Company"), are principally engaged in
the operation, development and franchising of quick-service restaurants,
bakeries and cafes ("QSRs") under the primary trade names of Popeyes Chicken and
Biscuits ("Popeyes"), Churchs Chicken ("Churchs"), Cinnabon Bakeries
("Cinnabon"), Seattle's Best Coffee and Torrefazione Italia ("Seattle Coffee")
and Chesapeake Bakery Cafes ("Chesapeake"). Total restaurants, bakeries and
cafes by brand as of December 27, 1998 were as follows:
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Domestic International
------------------------ ------------------------
Company- Company-
Operated Franchised Operated Franchised Total
-------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Popeyes......... 171 899 - 222 1,292
Churchs......... 491 615 - 293 1,399
Cinnabon........ 212 140 - 17 369
Seattle Coffee.. 57 11 2 1 71
Chesapeake...... 4 103 - - 107
------- ---------- -------- ---------- -----
Total...... 935 1,768 2 533 3,238
======= ========== ======== ========== -----
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The Company is also engaged in the business of selling premium brand
coffees through wholesale and retail distribution channels. In addition, the
Company has a small manufacturing plant that produces gas fryers and other
custom-fabricated restaurant equipment for sale to Company-operated and
franchised chicken restaurants and to other restaurant operators.
The Company's principal executive offices are located at Six Concourse
Parkway, Suite 1700, Atlanta, Georgia 30328-5352 and its telephone number is
(770) 391-9500.
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BRAND PROFILES
The Company franchises and operates restaurants, bakeries and cafes
catering to different segments of the QSR industry.
POPEYES CHICKEN AND BISCUITS. Popeyes Chicken and Biscuits was founded in
New Orleans in 1972 and is the market leader in the Cajun segment of the QSR
industry. With 1,292 restaurants worldwide as of December 27, 1998, Popeyes was
the second largest quick-service chicken restaurant chain in 1998, in terms of
sales. System-wide sales for fiscal year 1998 totaled $954.3 million. Popeyes
specialty menu item is fresh, hand-battered, bone-in fried chicken sold in two
flavors--New Orleans Spicy(TM) and Louisiana Mild(TM). Popeyes chicken is
complemented with a wide assortment of signature Cajun cuisine side dishes,
including red beans and rice, Cajun rice, Cajun fries and fresh buttermilk
biscuits. Popeyes is positioned as a premium fried chicken for customers who
seek its full flavor and specialty blend of seasonings and spices. Popeyes is
also known for its unique items that complement its core menu, including its
Louisiana Legends (TM) menu of jambalaya, crawfish etoufee' and chicken and
seafood gumbo. Popeyes spicy fried chicken and other Cajun menu offerings have
also proven to be popular in Far East countries. Popeyes restaurants are
generally found in urban areas in traditional stand-alone locations, as well as
in non-traditional formats such as airports and other travel centers and
supermarkets.
CHURCHS CHICKEN. Churchs Chicken, founded in San Antonio, Texas in 1952, is
one of the United States' oldest QSR chains and as of December 27, 1998 had
1,399 restaurants worldwide, making Churchs the second largest quick-service
chicken restaurant chain, in terms of number of outlets. Total system-wide sales
for fiscal year 1998 totaled $755.1 million. Churchs restaurants focus on
serving traditional Southern fried chicken in a simple, no frills restaurant
setting. Churchs menu items also include other Southern specialties including
fried okra, coleslaw, mashed potatoes and gravy, corn on the cob and honey
butter biscuits. Churchs is positioned as a value-oriented brand, providing
simple, traditional meals to price conscious consumers. Churchs restaurants are
traditionally found in urban areas where their reputation as a "neighborhood"
restaurant has been established. With its small footprint and a simple operating
system, Churchs is rapidly expanding into non-traditional formats such as
convenience stores, grocery stores and co-branding locations. Internationally,
Churchs has been very popular in the Far East, operating under the brand name
Texas Chicken(TM).
CINNABON. On October 15, 1998, the Company acquired Cinnabon International,
Inc. ("CII"), the operator and franchisor of 363 retail cinnamon roll bakeries
operating in 39 states, Canada and Mexico. The Company acquired CII for $64.0
million in cash. Founded in Seattle, Washington in 1985, Cinnabon International,
Inc. is the leading cinnamon roll bakery retailer in North America. Located in
high traffic shopping malls, airports, train stations, travel plazas and
supermarkets, Cinnabon bakeries serve fresh cinnamon rolls made with Indonesian
cinnamon and topped with a sweet, rich cream cheese-based frosting. Cinnabon has
built a reputation for offering fresh, aromatic, oven-hot cinnamon rolls at
affordable prices. Continually evolving and improving since
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the original Cinnabon opened in Seattle in 1985, today's product offerings are
built upon the foundation recipe begun by "CinnaMom" Jerilyn Brusseau. After
nine arduous months of testing and re-testing more than 200 recipes, Jerilyn
invented the original Classic Roll. The Classic Roll laid the foundation for
Cinnabon's high standards and commitment to quality and freshness. Some of the
Company's successful new product offerings include the Pecanbon and the
Berrybon. In addition to the cinnamon roll related products, the Company offers
a variety of proprietary beverages including the Mochalatta Chill and Vareva
Orange Juice.
SEATTLE COFFEE. On March 18, 1998, the Company acquired all of Seattle
Coffee Company's ("SCC") common stock for an adjusted purchase price of
approximately $68.8 million plus the assumption of approximately $4.8 million of
debt. Seattle Coffee Company was created as a result of combining Seattle's Best
Coffee, Inc. and Torrefazione Italia, Inc. in May 1994. Seattle's Best Coffee is
one of the oldest companies in the specialty coffee business in the United
States. Currently, SCC has more than 5,000 wholesale accounts, 59 Company-
operated cafes and twelve franchised cafes.
Founded by Jim Stewart in 1969 in Coupeville on Whidbey Island, Washington,
the coffee roasting operation was moved to a store in Seattle in 1971. In 1983,
the first Stewart Brothers Coffee retail store was opened in Bellevue Square, a
regional mall and management adopted a strategy of using retail stores to
promote the brand name and drive wholesale sales. This strategy has remained
basically unchanged to the present. SCC's brand name was changed from Stewart
Brothers Coffee to Seattle's Best Coffee ("SBC") in the 1980s, after being
honored by Seattle's leading chefs as "Seattle's best coffee." SBC markets
several "coffee house blends" under names such as Seattle's Best Blend, Post
Alley, Saturday's, Grand Central and Henry's. Each blend has a unique flavor
profile, allowing SBC to meet a full range of taste preferences.
Torrefazione Italia ("TI") was founded in 1986 by Umberto Bizzarri and Dawn
Zervas. Like SBC, TI has opened retail locations to support and build brand
awareness for its primary business of wholesaling premium brand coffees. TI
presents a classic Italian coffee experience. TI coffees are positioned at the
highest end of the quality and price range and are marketed with an Italian
image. With names such as Venezia, Milano, Perugia and Napoli, these coffees are
the creations of the Bizzarri family. The Italian heritage is enhanced by
serving TI coffees in hand-painted ceramics imported from Deruta, Italy. The TI
cafes project the brand's European flavor and are designed to accommodate those
who are on-the-go as well as those who wish to relax and sip their coffee while
listening to classic music.
CHESAPEAKE. On May 5, 1997, the Company acquired all of the intangible
assets of the franchise business of Chesapeake from The American Bagel Company.
Located primarily in Washington, D.C., Maryland and Virginia, Chesapeake
operates four Company-operated bagel bakeries and franchises 103 bagel bakeries.
System-wide sales for the year totaled $61.5 million in 1998. Chesapeake bagel
bakeries offer a variety of freshly made items, including a wide assortment of
bagels and other baked goods,
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sandwiches, salads, fountain drinks and specialty coffees. Several of the
restaurants have viewing areas that allow customers to experience the bagel
making process. The acquisition of Chesapeake gives the Company a presence in
the bagel and sandwich segment of the QSR industry.
WHOLESALE OPERATIONS
SEATTLE COFFEE. Seattle Coffee roasts and blends specialty coffees in its
28,000 square foot automated roasting facility on Vashon Island, near Seattle.
Management believes that the roasting and packaging facility may be one of the
most technically advanced in the U.S., for its capacity. Seattle Coffee selects
its coffee beans from the best quality Arabica beans from the finest growing
regions of the world, which have been prepared by growers and producers who take
great care with their coffees. Seattle Coffee is one of a few specialty coffee
roasters in the U.S. that travels to the producing countries to purchase green
coffee beans. Management believes this buying strategy will be increasingly
important to ensure supply of the highest quality green beans, as the demand for
specialty coffee expands in the U.S. and around the world.
Seattle Coffee's wholesale sales are made primarily to other food service
retailers, supermarkets and to its own coffee cafes. Food service wholesale
sales are targeted to such food service providers as hotel chains, fine
restaurants, specialty coffee retailers, espresso carts, delis, and theaters,
among others. Seattle Coffee has opened 14 regional offices to support the
expansion of its wholesale food service sales. Seattle Coffee has been
successful in initiating strategic alliances with multi-market retailers such as
Books-A-Million, Eddie Bauer, Mrs. Fields Cookies and Albertson's Supermarkets.
In addition, Alaska Airlines recently announced that it will serve Seattle's
Best Coffee on all of its flights beginning in April, 1999.
Seattle's Best Coffee whole bean bulk and pre-packaged coffee is
distributed to supermarkets throughout the Pacific Northwest and other parts of
the country. The brand has achieved a high degree of penetration in the Pacific
Northwest with settings in most major supermarkets, including QFC, Safeway,
Albertson's and others. SCC initiated the entry of Torrefazione Italia into
supermarkets in late 1995 and the brand is now carried in selected high-end
chains and independents in Western Washington and Oregon. The prospects for
growth in the supermarket channel appear to be significant. Management believes
that the increasing presence of its brands in retail cafes and key food service
accounts around the country will, in turn, stimulate opportunities for long-term
growth of bean sales through supermarkets. Seattle Coffee operates 14 regional
wholesale offices throughout the U.S. and one in Canada.
MANUFACTURING OPERATIONS
ULTRAFRYER SYSTEMS. The Company's Ultrafryer Systems ("Ultrafryer")
division (f.k.a. Far West Products) is a manufacturer of restaurant equipment
and is located in San Antonio, Texas. Ultrafryer's focus is to provide
equipment for Company-operated
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and franchised Popeyes and Churchs restaurants domestically and internationally,
as well as other QSR customers. Ultrafryer's main product is the Ultrafryer(TM)
gasfryer.
RESTAURANT LOCATIONS
As of December 27, 1998, the Company's 3,238 systemwide restaurants were
located in 47 states, the District of Columbia and 24 foreign countries.
POPEYES. Popeyes restaurants are located in 39 states, the District of
Columbia and 18 foreign countries. The 171 Company-operated Popeyes restaurants
are located in the states of Texas, Louisiana, Georgia, North Carolina and South
Carolina. Over 70% of the 899 domestic franchised Popeyes restaurants are
located in the states of Texas, Louisiana, Florida, California, Illinois,
Maryland, Mississippi and Georgia. Over 65% of the 222 international franchised
Popeyes restaurants are located in Korea.
CHURCHS. Churchs restaurants are located in 29 states and nine foreign
countries. The 491 Company-operated Churchs restaurants are concentrated
primarily in the states of Texas, Louisiana, Georgia, Oklahoma, Alabama,
Florida, Mississippi and Arizona. Almost 65% of the 615 domestic franchised
Churchs restaurants are located in Texas, California, Louisiana, Georgia,
Florida, Michigan, New York and Illinois. Over 95% of the 293 international
franchised Churchs restaurants are in Canada, Puerto Rico, Indonesia, Taiwan and
the Philippines.
CINNABON. Cinnabon bakery cafes are located in 40 states and three foreign
countries. The 212 Company-operated Cinnabon bakeries are heavily concentrated
in the states of California, Washington, Florida, Illinois, Ohio, Texas,
Massachusetts, Michigan and Pennsylvania. The 140 domestic franchised Cinnabon
bakeries are heavily concentrated in the states of Minnesota, Massachusetts,
Illinois, Arizona, California, Nevada, New Jersey and New York. The 17
international franchised Cinnabon restaurants are open in Canada, Mexico and
Saudi Arabia.
SEATTLE COFFEE. Seattle Coffee cafes are located in eight states and two
foreign countries. The 57 Seattle Coffee domestic Company-operated cafes are
located primarily in the states of Washington, Oregon, California and Illinois.
There are two Seattle Coffee Company-operated cafes in Canada. The 11 franchised
Seattle Coffee cafes are located primarily in Washington and Oregon. There is
one international franchised Seattle Coffee cafe in Saudi Arabia.
CHESAPEAKE. Chesapeake bagel bakeries are located in 23 states and the
District of Columbia. The four Company-operated Chesapeake bagel bakeries are in
the states of Georgia and Maryland. The 103 franchised Chesapeake bagel bakeries
are concentrated primarily in Virginia, Maryland, Pennsylvania, Florida and the
District of Columbia.
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STRATEGY
GLOBAL STRATEGY. The Company has adopted a global strategy to increase
revenues and profits by (i) the franchise development of its existing Popeyes,
Churchs, Cinnabon, Seattle Coffee and Chesapeake brands and (ii) the multiple-
channel distribution of specialty coffee products, penetrating both at-home and
away-from-home consumption. The Company's strategy is to (i) deliver world class
service and support to its franchisees by capitalizing on the Company's size,
state-of-the-art technology and leadership position, (ii) promote franchisee
development of traditional and non-traditional formats in new and existing
markets, (iii) provide new and existing franchisees with investment
opportunities in high value/high growth branded concepts and (iv) expand
wholesale and retail channels of distribution for its specialty coffees. The
Company believes that by following this strategy it will become Franchisor of
Choice(TM) which, when combined with the Company's market leadership position,
superior brand awareness, strong franchisee relationships and expanding channels
of distribution will result in continued growth.
INCREASE DOMESTIC FRANCHISED RESTAURANTS, BAKERIES AND CAFES. The Company
believes that significant opportunities exist to increase the number of domestic
franchised restaurants, bakeries and cafes operated by both new and existing
franchisees and that growth through franchising can provide significant
additional revenue growth at relatively low levels of capital expenditures by
the Company. The Company intends to target restaurant growth in markets where it
has or can achieve sufficient penetration to justify television advertising
because sales at restaurants, bakeries and cafes in the Company's media
efficient markets are generally 5% to 10% higher than sales in non-media
efficient markets. The number of domestic franchised restaurants, bakeries and
cafes has increased from approximately 990 at the beginning of 1993, to 1,768 at
December 27, 1998. Domestic franchised restaurant openings during fiscal year
1998 are as follows:
Fiscal Year
1998
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Popeyes............. 83
Churchs............. 51
Cinnabon............ 3
Seattle Coffee...... 1
Chesapeake.......... 10
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Total........... 148
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INCREASE INTERNATIONAL FRANCHISED RESTAURANTS, BAKERIES AND CAFES.
Management believes that international expansion is an attractive growth
opportunity due to (i) advantageous per unit economics, resulting largely from
lower food and/or labor costs and less QSR competition abroad, (ii) foreign
economies with an expanding group of QSR consumers and (iii) well established
markets for quick-service restaurants, bakeries and cafes in a substantial
number of countries around the world. The Company's international operations
have increased from 172 franchised restaurants in 14 foreign
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countries at the beginning of 1993, to 533 franchised restaurants, bakeries and
cafes in 24 foreign countries at December 27, 1998. Additionally, commitments to
develop international franchised restaurants have risen from 161 at the
beginning of 1993, to 815 at December 27, 1998. International franchised
restaurant openings during fiscal year 1998 are as follows:
Fiscal Year
1998
-----------
Popeyes.............. 46
Churchs.............. 25
Cinnabon............. 2
Seattle Coffee....... 1
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Total............. 74
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INCREASE SPECIALTY COFFEE WHOLESALE BUSINESS. The Company's goal is to
develop Seattle's Best Coffee and Torrefazione Italia into nationally recognized
brand names in the premium segment of the specialty coffee industry. Quality
restaurants, hotels, offices, specialty retailers, clubs, universities and other
places where people consume food and beverages are now potential outlets for
specialty coffee. Supermarkets will remain the dominant source of coffee for
home consumption and specialty coffee's share of this market is expanding
rapidly. Management anticipates significant growth in specialty coffee
distribution through retail, wholesale food service and grocery over the next
few years.
CAPITALIZE ON ADDITIONAL GROWTH OPPORTUNITIES. The Company intends to
aggressively pursue selected growth opportunities by (i) expanding its existing
brands to new domestic and international markets, (ii) promoting the development
of new points of distribution, (iii) expanding the channels of distribution for
its specialty coffees and (iv) acquiring additional branded concepts to provide
franchisees with a broad range of investment opportunities, thereby generating a
larger and more diversified stream of franchise revenues to the Company. These
initiatives include the following:
. NON-TRADITIONAL FORMATS. In response to new marketing opportunities
and consumer demand, the Company intends to continue to promote the
expansion of the number and type of non-traditional formats from which
it sells Popeyes, Churchs, Chesapeake, Cinnabon and Seattle Coffee
food products. In addition to the traditional stand-alone models, the
Company has franchised and opened Popeyes, Churchs, Cinnabon, Seattle
Coffee and Chesapeake restaurants, bakeries and cafes within community
shopping plazas, convenience stores, mall food courts, airports and
other transportation centers and grocery stores.
. CO-BRANDING INITIATIVES. The Company intends to selectively enter into
co-branding arrangements in which Popeyes and Churchs restaurants
share facilities with other QSRs. Management believes that co-branding
represents an attractive revenue growth opportunity that provides
brand
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awareness in new markets and faster opening times (as restaurants are
constructed within existing QSR facilities), together with reduced
costs of entry and lower ongoing capital expenditures. The Company has
entered into several such arrangements including franchising Churchs
restaurants in 91 Cara Operations Limited Harvey's hamburger
restaurants in Canada and in 76 White Castle hamburger restaurants
throughout the Midwest, Southeast and Northeast.
. NEW DISTRIBUTION CHANNELS. Management intends to aggressively pursue
new and expanded distribution channels for its premium coffee
products. Marketing efforts will be aimed at developing key accounts
with such food service providers as espresso carts, quality
restaurants, hotels, independent coffee cafes, delis, theaters,
colleges, corporate offices and general merchandise retailers.
Marketing efforts will also be aimed at developing strategic alliances
with larger hotel chains, quality restaurant chains and specialty
retailers doing business in multiple regions or on a national basis.
Management believes that significant opportunities exist to expand its
distribution channels into regional and national supermarkets.
. NEW BRANDED CONCEPTS. Management has identified and acquired
additional high value/high growth brands which it believes will
benefit from the Company's operating efficiency, management
experience, state-of-the-art technology, service commitment to
franchisees and shared administrative infrastructure. In line with
this strategy, in May 1997 the Company acquired all of the intangible
assets relating to the franchise business of Chesapeake Bagel. In
March 1998, the Company acquired Seattle Coffee Company and its two
specialty coffee brands Seattle's Best Coffee and Torrefazione Italia.
Further, in October 1998, the Company acquired Cinnabon International.
Management currently plans to focus on integrating and growing these
concepts but intends to continue to seek out additional high
value/high growth brands to acquire, operate and franchise in the
future.
INCREASE OPERATIONAL EFFICIENCIES AND LEVERAGE INFORMATION TECHNOLOGY. The
Company's customized management information systems, typically not affordable by
smaller QSR chains, provide both the Company and its franchisees with the
ability to quickly capitalize on restaurant sales enhancement and profit
opportunities. The Company utilizes its management information systems to (i)
minimize waste and control labor costs, (ii) effectively manage inventory and
(iii) analyze product mix and various promotional programs using point-of-sale
information. In 1998, management launched AFC Online, an intranet for
franchisees that provides operational support, a restaurant development roadmap,
a business planning template, marketing information and certain other relevant
information on a 24 hours a day, seven days a week basis.
MAINTAIN HIGH QUALITY PRODUCTS, SUPERIOR CUSTOMER SERVICE AND STRONG
COMMUNITY RELATIONS. The Company seeks to ensure overall customer satisfaction
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through consistency in food quality, service and restaurant appearance. The
Company maintains rigorous and ongoing quality control procedures over suppliers
and distributors to ensure that its product specifications are maintained. In
addition, the Company has taken an important leadership role in the
neighborhoods and communities it serves. Through its involvement in Habitat for
Humanity, the United Negro College Fund and the Hispanic Association of Colleges
and Universities, among others, the Company has established a meaningful
presence in the local communities it serves, while building customer loyalty and
brand awareness.
FRANCHISOR OF CHOICE(TM). The Company has adopted the Franchisor of
Choice(TM) global strategy, which will be implemented by (i) promoting
distinctly positioned brands, currently Popeyes, Churchs, Cinnabon, Seattle's
Best Coffee, Torrefazione Italia and Chesapeake with other branded concepts to
be acquired in the future, (ii) developing multi-unit development territories,
(iii) providing high quality service and support to franchisees, (iv) providing
franchisees with alternative formats in innovative market settings, (v)
redesigning business processes to provide additional support to franchisees,
including a multi-million dollar investment in new technology, (vi) eliminating
barriers to growth for existing and new franchisees through new financial and
real estate support mechanisms and (vii) providing on-site or field support
including site selection, construction expertise, multi-national supply and
distribution, marketing, operations and training.
SITE SELECTION
The Company has an extensive domestic site selection process for the
establishment of new Popeyes, Churchs, Cinnabon, Seattle Coffee and Chesapeake
restaurant, bakery and cafe locations, commencing with an overall market plan
for each intended area of development compiled by the Company and the relevant
area developer, if any. The Company emphasizes free-standing pad sites and end-
cap locations with ample parking and easy dinner-time access from high traffic
roads for its Popeyes and Churchs brands. Cinnabon, Seattle Coffee and
Chesapeake brands emphasize mall food courts, in-line shopping centers,
transportation facilities and office buildings.
The Company's involvement in the international site selection process is
less significant due to the relative size and sophistication of the Company's
international franchisees, who independently conduct extensive site
investigations. International sites are often located in highly concentrated
urban areas and are built with a multi-floor layout to accommodate the higher
percentage of dine-in customers.
FRANCHISE DEVELOPMENT
The Company's global strategy includes the opening of substantially all new
restaurants, bakeries and cafes through franchising additional restaurants,
bakeries and cafes to new and existing franchisees. The Company enjoys strong
relationships with its franchisees as a result of its ongoing efforts to (i)
develop Popeyes, Churchs, Cinnabon
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and Seattle Coffee globally and Chesapeake in the U.S. by investing capital to
re-image and renovate Company-operated restaurants in each of the systems, (ii)
provide strong operational, marketing and technological support to franchisees,
(iii) deliver operating efficiencies and economies of scale to its franchisees
and (iv) promote the expansion of points of distribution to non-traditional
formats and new markets for existing brands, and by acquiring and franchising
high value/high growth branded concepts.
DOMESTIC DEVELOPMENT AGREEMENTS. Domestic development agreements provide
for the development of a specified number of restaurants, bakeries and cafes
within a defined domestic geographic territory in accordance with a schedule of
restaurant opening dates. Development schedules generally cover three to five
years and typically have benchmarks for the number of restaurants, bakeries and
cafes to be opened and in operation at six-month to twelve-month intervals. Area
developers currently pay a development fee of $10,000 for the first restaurant
to be developed and $5,000 for each additional restaurant to be developed under
the same development agreement. Such development fees are non-refundable and
paid when the area development agreement is executed.
INTERNATIONAL DEVELOPMENT AGREEMENTS. The Company enters into development
agreements with qualifying parties to develop Popeyes, Churchs, Cinnabon or
Seattle Coffee franchised restaurants, bakeries and cafes in jurisdictions
outside of the United States ("International Development Rights"). International
Development Rights may include one or more countries or limited geographic areas
within a particular country. The terms of the development agreements for
International Development Rights are, in most respects, similar to domestic
development agreements. International development agreements also require a pre-
payment of a portion of the franchise fee for each franchised restaurant to be
developed under the agreement. International development agreements also include
additional provisions necessary to address the multi-national nature of the
transaction (including foreign currency exchange, taxation matters and
international dispute resolution provisions) and are also subject to
modifications necessary to comply with the requirements of applicable local
laws, such as laws relating to technology transfers, export/import matters and
franchising.
FRANCHISE AGREEMENTS. Once a site has been approved by the Company and the
property has been acquired by the developer either by purchase or lease, the
Company and the area developer enter into a franchise agreement under which the
area developer becomes the franchisee for the specific restaurant to be
developed at such site. Current franchise agreements typically provide for
payment of a franchise fee of $15,000 per restaurant. Franchise fees for mass
merchandise locations (including department stores and supermarkets) are
generally $10,000 for the first location and $5,000 for each additional mass
merchandise location under the same development agreement. In addition, the
Popeyes and Churchs franchise agreements require franchisees to pay a 5% royalty
on net restaurant sales and a 3% (with respect to Popeyes) and 4% (with respect
to Churchs) national advertising fund contribution (reduced to a maximum of 1%
if a local advertising co-operative is formed). The Cinnabon franchise
agreements require franchisees to pay a 5% royalty on net restaurant sales and a
1.5% national advertising
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fund contribution. Franchise agreements for Seattle Coffee franchisees require a
3% royalty on net restaurant sales and a 2% national advertising fund
contribution. The Chesapeake franchise agreements require franchisees to pay a
4% royalty on net restaurant sales and a 1% to 2% national advertising fund
contribution. Certain of the Company's older franchise and area development
agreements provide for lower royalties and reduced franchise and area
development fees. Such older forms of agreements constitute a decreasing
percentage of all franchise agreements.
All of the Company's franchise agreements require that each restaurant
operates in accordance with the operating procedures, adheres to the menu
established by the Company and meets applicable quality, service and cleanliness
standards. The Company may terminate the franchise rights of any franchisee who
does not comply with such standards. The Company is specifically authorized to
take accelerated action if any franchised restaurant presents a health risk. The
Company believes that maintaining superior food quality, a clean and pleasant
environment and excellent customer service are critical to the reputation and
success of the Popeyes, Churchs, Cinnabon, Seattle Coffee and Chesapeake systems
and it intends to aggressively enforce applicable contractual requirements.
Franchisees may contest such terminations.
The terms of international franchise agreements are substantially similar
to domestic franchise agreements, except that such agreements may be modified to
reflect the multi-national nature of the transaction and to comply with the
requirements of applicable local laws. In addition, royalty rates may differ
from domestic franchise agreements due to the relative size and sophistication
of international franchisees. The international developer is required to
partially pre-pay a franchise fee up to $30,000 at the time the development
agreement is entered into, along with a development fee up to $10,000 for each
development commitment.
TURNKEY DEVELOPMENT. In order to expedite development of domestic
franchised restaurants, the Company may build restaurants in certain markets,
which will be subsequently sold to qualifying franchisees as franchised
restaurants ("Turnkey Units"). In 1997, the Company entered into an agreement
with Banco Popular De Puerto Rico to provide up to $15 million in revolving
construction financing to AFC and permanent financing to qualifying franchisees
for these Turnkey units. As of December 27, 1998, the Company has eleven turnkey
sites in various stages of development.
MARKETING AND COMMUNITY ACTIVITY
Popeyes, Churchs, Cinnabon, Seattle Coffee and Chesapeake products are
marketed to their respective customer bases using a predominantly three-tiered
marketing strategy. First, electronic media (local TV and radio) create
awareness for the products and spark consumer interest in particular product
offerings. Second, print media (newspaper ads, free-standing inserts and direct
mail) generate trial by offering a purchase incentive--often a coupon--to buy a
new product or promotional item. Finally, signage and point-of-purchase
materials at Popeyes, Churchs, Cinnabon, Seattle Coffee and Chesapeake
restaurants, bakeries and cafes support the promotional activity.
11
<PAGE>
Each of the brands offers consumers a new program each month to maintain
consumer product interest. New product introductions and "limited time only"
promotional items also play major sales building roles and create regular repeat
customers.
Both franchised and Company-operated Popeyes, Churchs, Cinnabon, Seattle
Coffee and Chesapeake restaurants, bakeries and cafes contribute to a national
advertising fund to pay for the development of marketing materials. Franchised
and Company-operated Popeyes, Churchs and Chesapeake restaurants and bakeries
also contribute to local advertising funds to support programs in their local
markets. For the fiscal year ended December 27, 1998, the Company contributed
approximately $21.7 million to these various advertising funds.
AFC is also heavily involved in community activities and support programs
that often have an educational theme. Through The AFC Foundation, Inc., a non-
profit foundation, the Company has sponsored and helped construct 200 homes
worldwide through Habitat For Humanity, a non-profit sponsor of housing
construction for the poor. In addition, the Company supports the United Negro
College Fund and the Hispanic Association of Colleges and Universities with
promotional fund raisers. The Company also sponsors Adopt-A-School programs.
COMPETITION
The restaurant industry, and particularly the quick service restaurant
("QSR") segment, is intensely competitive with respect to price, quality, name
recognition, service and location. Other QSR competitors include chicken,
hamburger, pizza, Mexican, sandwich and Chinese food QSRs, other purveyors of
carry-out food and convenience dining establishments, including national
restaurant chains. Numerous well-established QSR competitors possess
substantially greater financial, marketing, personnel and other resources than
AFC. In addition, the QSR industry is characterized by the frequent introduction
of new products, accompanied by substantial promotional campaigns. AFC must
respond to various factors affecting the restaurant industry, including changes
in consumer preferences, tastes and eating habits, demographic trends and
traffic patterns, increases in food and labor costs, competitive pricing and
national, regional and local economic conditions. In recent years, a number of
companies in the QSR industry have introduced products, including non-fried
chicken products, which were developed to capitalize on a growing consumer
preference for food products which are, or are perceived to be, healthful,
nutritious, low in calories and low in fat content. It can be expected that AFC
will be subject to increasing competition from companies whose products or
marketing strategies address these consumer preferences. There can be no
assurance that consumers will continue to regard AFC's products favorably, as
compared to such competitive products, or that AFC will be able to continue to
compete successfully in the QSR marketplace. In addition, AFC's chief
competitors in the chicken segment of the QSR industry, KFC Corporation ("KFC"),
and in the specialty coffee business, Starbucks, are larger, better capitalized
and have greater access to financing at favorable rates, all of which may affect
AFC's competitive abilities.
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<PAGE>
Chesapeake bagel bakeries and Cinnabon bakeries compete with other QSR's,
bagel bakeries and traditional bakeries in the bagel and cinnamon roll business.
While national chains such as Einstein/Noah Bagels, Big City Bagels and others
compete directly with the Company for the sale of bagels and other bakery
products, there are few direct competitors in cinnamon rolls. Cinnabon is one of
the leaders in the cinnamon roll segment of the QSR business and is the only
national cinnamon roll retailer in North America.
SCC's whole bean coffees compete directly with specialty coffees sold at
retail through supermarkets, specialty retailers, and a growing number of
specialty coffee stores. SCC's coffee beverages compete directly with all
restaurant and beverage outlets that serve coffee and a growing number of
espresso kiosks, carts, and coffee cafes. Both SCC's whole bean coffees and its
coffee beverages compete indirectly with all other coffees on the market,
including specialty retail companies such as Starbucks, and conventional coffee
from several large companies such as Kraft General Foods, Procter & Gamble, and
Nestle.
SUPPLIERS
Franchisees are generally required to purchase all ingredients, products,
materials, supplies, and other items necessary in the operation of their
businesses solely from suppliers who (i) demonstrate, to the continuing
satisfaction of the Company, the ability to meet the Company's standards and
specifications for such items, (ii) possess adequate quality controls and
capacity to supply franchisees' needs promptly and reliably and (iii) have been
approved in writing by the Company.
SUPPLY CONTRACTS. Notwithstanding the above, Popeyes and Churchs Company-
operated restaurants are obligated by various agreements to serve certain Coca-
Cola(R) or Dr Pepper(R) beverages exclusively. The Company also has an agreement
with Diversified Foods and Seasonings, Inc. ("Diversified"), which terminates in
March 2029, under which the Company is required to purchase certain proprietary
products made exclusively by Diversified. Moreover, Diversified is the sole
supplier of certain proprietary products for the Popeyes system. Diversified
sells only to Company approved distributors who in turn sell to franchised and
Company-operated restaurants. In the fiscal year ended December 27, 1998, the
Popeyes system purchased approximately $40.7 million of proprietary products
made by Diversified. The Popeyes and Churchs systems purchase fresh chicken from
14 suppliers from 33 plant locations.
With respect to SCC's wholesale operations, SCC's principal raw material is
green coffee beans. The Company typically enters into supply contracts to
purchase a pre-determined quantity of green coffee beans at a fixed price per
pound. These contracts usually cover periods up to a year as negotiated with the
individual supplier. At December 27, 1998, the Company had commitments to
purchase approximately 5.3 million pounds of green coffee beans at a total cost
of approximately $7.7 million. The contract terms cover a period from January
1999 to September 1999. SCC purchases 50% of its green coffee beans from two
suppliers and purchases the remaining 50% from
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<PAGE>
15 other suppliers. To the extent the two major suppliers cannot meet SCC's
coffee orders, SCC has the option of ordering its coffee from the other fifteen
suppliers.
PURCHASING COOPERATIVES. Supplies are generally provided to franchised and
Company-operated restaurants in the Popeyes and Churchs systems pursuant to
supply agreements negotiated by Popeyes Operators Purchasing Cooperative
Association, Inc. ("POPCA") and Churchs Operators Purchasing Association, Inc.
("COPA"), respectively, each a not-for-profit corporation that was created for
the purpose of consolidating the collective purchasing power of the franchised
and Company-operated restaurants and negotiating favorable terms. COPA also
purchases certain ingredients and supplies for Cinnabon and Chesapeake
franchised and Company-operated restaurants, bakeries and cafes in order to
further leverage the collective buying power of AFC. Currently, the Company
purchases cinnamon for Cinnabon products from one supplier. The purchasing
cooperatives are not obligated to purchase, and do not bind their members to
commitments to purchase any supplies. Membership in each cooperative is open to
all franchisees. Since 1995, the Company's chicken restaurant franchise
agreements have required that each franchisee joins its respective purchasing
cooperative as a member. All Company-operated Popeyes and Churchs restaurants
are members of POPCA or COPA, as the case may be. Substantially all of the
Company's domestic chicken restaurant franchisees participate in POPCA or COPA.
SCC CAFES. SCC's Company-operated and franchised cafes purchase all their
coffee from SCC's wholesale distribution centers. The cafes purchase non-coffee
food and supply items from Unisource Worldwide, Inc., a large food service
supply distributor.
TRADEMARKS AND LICENSES
The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including the
marks "Popeyes", "Popeyes Chicken and Biscuits", "Churchs", "Cinnabon World
Famous Cinnamon Roll", "Seattle's Best Coffee", "Torrefazione Italia",
"Chesapeake Bagel Bakery", "Ultrafryer" and each brand's logo utilized by the
Company and its franchisees in virtually all Popeyes, Churchs, Cinnabon, Seattle
Coffee and Chesapeake restaurants, bakeries and cafes domestically. The Company
also has trademark registrations pending for a number of additional marks,
including "Gotta Love It", "Day of Dreams", "Love That Chicken From Popeyes",
"New Age of Opportunity" and "Franchisor of Choice". In addition, the Company
has registered or made application to register the marks (or, in certain cases,
the marks in connection with additional words or graphics) in approximately 150
foreign countries, although there can be no assurance that any mark is
registrable in every country registration is sought. The Company considers its
intellectual property rights to be important to its business and actively
defends and enforces them.
FORMULA AGREEMENT. The Company has a perpetual formula licensing agreement,
as amended (the "Formula Agreement"), with Alvin C. Copeland, the former
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<PAGE>
owner of the Popeyes and Churchs restaurant systems, and Diversified, which
calls for the worldwide exclusive licensing to the Popeyes system of the spicy
fried chicken formula and certain other ingredients used in Popeyes products.
The Formula Agreement provides for monthly royalty payments of $237,500 until
April 1999 and, thereafter, monthly royalty payments of $254,166 until March
2029.
KING FEATURES AGREEMENTS. The Company currently has a number of domestic
and international agreements with The Hearst Corporation, King Features
Syndicate Division ("King Features") under which the Company has the exclusive
license to use the image and likeness of the cartoon character "Popeye" (and
certain companion characters such as "Olive Oyl") in connection with the
operation of franchised and Company-operated Popeyes restaurants worldwide.
Under such agreements, the Company is obligated to pay to King Features a
royalty of 0.1% of the first $1 billion of Popeyes systemwide sales and 0.05%
for the next $2 billion of such sales. The King Features agreements
automatically renew annually.
YEAR 2000 ISSUES
In the process of customizing the Company's management information systems,
the Company established procedures to ensure that its new systems were year 2000
compliant. In addition, during 1997 the Company formalized a plan to analyze all
of its financial and operating computer systems to ensure any corrective action
necessary to eliminate problems before the beginning of the year 2000. This plan
includes analyses of existing systems, new systems to be implemented in 1998 and
1999, systems used by its vendors and customers that are needed for the proper
functioning of the Company's systems and all other known Company processes that
use computer systems to function. While the analysis phase of the plan has not
been completed as of December 27, 1998, the Company believes that, with the
completion of its system upgrades, a significant portion of the potential year
2000 issues will be resolved. Although the analysis is not yet complete, the
Company believes that the cost, if any, to make other systems year 2000
compliant will not be material to its results of operations. See "Item 7.
Management's Discussion and Analysis - Year 2000".
EXPANSION; DEPENDENCE ON FRANCHISEES AND DEVELOPERS
The Company's global strategy will depend heavily on growing its franchise
operations. At December 27, 1998, the Company franchised 1,768 Popeyes, Churchs,
Cinnabon, Seattle Coffee and Chesapeake restaurants, bakeries and cafes
domestically and 533 Popeyes, Churchs, Cinnabon and Seattle Coffee restaurants,
bakeries and cafes internationally. The Company's success is dependent upon its
franchisees and the manner in which they develop and operate Popeyes, Churchs,
Cinnabon, Seattle Coffee and Chesapeake restaurants, bakeries and cafes. As the
Company expands it will also need to find new franchisees who are capable of
promoting the Company's strategy. The opening and success of franchised
restaurants, bakeries and cafes will depend on various other factors, including
the availability of suitable sites, the negotiation of acceptable
15
<PAGE>
lease or purchase terms for new locations, permitting and regulatory compliance,
the ability to meet construction schedules, the financial and other capabilities
of the Company's franchisees and developers, the ability of the Company to
manage this anticipated expansion and hire and train personnel, and general
economic and business conditions. Not all of the foregoing factors are within
the control of the Company or its franchisees or developers.
INTERNATIONAL OPERATIONS
As of December 27, 1998, the Company franchised 533 restaurants, bakeries
and cafes to franchisees in 24 foreign countries and plans to expand its foreign
franchising program significantly in the future. There are no Chesapeake
operations outside the U.S. The Company currently operates two Seattle Coffee
cafes and a wholesale distribution center that are located in Canada. The
Company operates no other restaurants outside of the U.S. Included in the
Company's revenues are foreign franchise royalties and other fees that are
based, in part, on sales generated by its foreign franchised restaurants,
bakeries and cafes, including a significant number of franchised restaurants in
Asia. Therefore, the Company is exposed, to a limited degree, to changes in
international economic conditions and currency fluctuations. The Company has not
historically and did not at the end of 1998 maintain any hedges against foreign
currency fluctuations, although management entered into a foreign currency
hedging agreement in February 1999 with respect to the Korean Won. Losses
recorded by the Company during the past three years related to foreign currency
fluctuations have not been material to the Company's results of operations. For
fiscal years 1998, 1997 and 1996, royalties and other revenues from foreign
franchisees represented 1.9%, 2.4% and 2.4%, respectively, of total revenues of
the Company.
FOOD SERVICE INDUSTRY
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants, bakeries
and cafes. Multi-unit food service chains such as Popeyes, Churchs, Cinnabon,
Seattle Coffee and Chesapeake can also be adversely affected by publicity
resulting from food quality, illness, injury or other health concerns or
operating issues stemming from just one restaurant or a limited number of
restaurants. Dependence on frequent deliveries of fresh food products also
subjects food service businesses such as the Company to the risk that shortages
or interruptions in supply caused by adverse weather or other conditions could
adversely affect the availability, quality and cost of ingredients. In addition,
material changes in, or the Company's or its franchisees' failure to comply
with, applicable Federal, state and local government regulations, and such
factors as inflation, increased food, labor and employee benefits costs, such as
Federally-mandated increases in the minimum wage, regional weather conditions
and the unavailability of experienced management and hourly employees may also
adversely affect the food service industry in general and the Company's results
of operations and financial condition in particular.
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<PAGE>
FLUCTUATIONS IN COST OF CHICKEN
The Company's and its franchisees' principal raw material is fresh chicken.
For fiscal years ended December 27, 1998 and December 28, 1997, approximately
50% and 60%, respectively of the Company's restaurant cost of sales were
attributable to the purchase of fresh chicken. As a result, the Company is
significantly affected by increases in the cost of chicken, which can be
affected by, among other factors, the cost of grain, the price for other
alternative domestic meats and overseas demand for chicken products. Due to
extremely competitive conditions in the QSR industry, following increases in raw
material costs such as chicken, the Company has generally not raised retail
prices sufficiently to pass all such costs on to the consumer.
The market price for chicken changes on a weekly basis. While the Company's
purchase agreements with its fresh chicken suppliers in 1998 and prior generally
provided for a "ceiling", or highest price, and a "floor", or lowest price, that
the Company would pay for chicken over the contract term, the ceilings were
generally set at prices well above the current market price, exposing the
Company to a risk of price increases. Additionally, such supply contracts were
generally for one to two years, thereby exposing the Company to regular cost
increases if the price of fresh chicken continued to rise. In order (i) to
ensure favorable pricing for the Company's chicken purchases in the future, (ii)
to reduce volatility in chicken prices and (iii) to maintain an adequate supply
of fresh chicken, the Company has or will enter into two types of chicken
purchasing arrangements with its suppliers. The first of these contracts is a
grain-based "cost-plus" pricing arrangement that provides chicken prices based
upon the cost of feed grains, such as corn and soybean meal, plus certain agreed
upon non-feed and processing costs. The other contract is similar to the grain
based "cost-plus" arrangement but contains price provisions which limit how far
up or down prices may move in any year. Both contracts have terms ranging from
three to five years with provisions for certain annual price adjustments as
defined in the contracts.
AVAILABILITY AND COST OF GREEN COFFEE BEANS
The supply and prices of green coffee beans are volatile. Although most
coffee beans trade in the commodity market (the "C market"), coffee beans of the
quality sought by Seattle Coffee tends to trade on a negotiated basis at a
premium above the C market coffee pricing, depending upon the supply and demand
at the time of purchase. Availability and price can be affected by many factors
in producing countries, including weather and political and economic conditions.
17
<PAGE>
INSURANCE
The Company carries property, liability, business interruption, crime, and
workers' compensation insurance policies, which it believes are customary for
businesses of its size and type. Franchisees are also required to maintain
certain minimum standards of insurance with insurance companies satisfactory to
the Company pursuant to their franchise agreements, including commercial general
liability insurance, workers' compensation insurance, all risk property and
casualty insurance and automobile insurance. Under the current form of franchise
agreement, such insurance must be issued by insurers approved by the Company.
SEASONALITY
The Company has historically experienced the strongest operating results at
Popeyes, Churchs and Chesapeake restaurants and bakeries during the summer
months while operating results have been somewhat lower during the winter
season. Cinnabon and Seattle Coffee have traditionally experienced the strongest
operating results during the Christmas holiday shopping season between
Thanksgiving and Christmas. Certain holidays and inclement winter weather reduce
the volume of consumer traffic at quick-service restaurants and may impair the
ability of certain restaurants to conduct regular operations for short periods
of time.
REGULATION
The Company is subject to various Federal, state and local laws affecting
its business, including various health, sanitation, fire and safety standards.
Newly constructed or remodeled restaurants, bakeries and cafes are subject to
state and local building code and zoning requirements. In connection with the
remodeling and alteration of the Company's restaurants, bakeries and cafes, the
Company may be required to expend funds to meet certain Federal, state and local
regulations, including regulations requiring that remodeled or altered
restaurants, bakeries and cafes be accessible to persons with disabilities.
Difficulties or failures in obtaining the required licenses or approvals could
delay or prevent the opening of new restaurants, bakeries and cafes in
particular areas.
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number of
the Company's food service personnel are paid at rates related to the Federal
minimum wage and increases in the minimum wage, including those recently enacted
by the Federal government, have increased the Company's labor costs.
Certain states and the Federal Trade Commission require franchisors such as
the Company to transmit specified disclosure statements to potential franchisees
before granting a franchise. Additionally, some states require franchisors to
register their franchise with the state before it may offer a franchise. The
Company believes that its Uniform Franchise Offering Circulars (together with
any applicable state versions or supplements) comply with both the Federal Trade
Commission guidelines and all
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<PAGE>
applicable state laws regulating franchising in those states in which it has
offered franchises. The Company is also subject to various Federal, state and
local laws regulating the discharge of pollutants into the environment. The
Company believes that it conducts its operations in substantial compliance with
applicable environmental laws and regulations as well as other applicable laws
and regulations governing its operations.
ENVIRONMENTAL MATTERS
Approximately 200 of the Company's owned and leased properties are known or
suspected to have been used by prior owners or operators as retail gas stations,
and a few of these properties may have been used for other environmentally
sensitive purposes. Many of these properties previously contained underground
storage tanks ("USTs") and some of these properties may currently contain
abandoned USTs. As a result of the use of oils and solvents typically associated
with automobile repair facilities and gas stations, it is possible that
petroleum products and other contaminants may have been released at these
properties into the soil or groundwater. Under applicable Federal and state
environmental laws, the Company, as the current owner or operator of these
sites, may be jointly and severally liable for the costs of investigation and
remediation of any such contamination. As a result, after an analysis of its
property portfolio, including testing of soil and groundwater at a
representative sample of its facilities, the Company believes it has accrued
adequate reserves for environmental remediation liabilities. The Company is
currently not subject to any administrative or court order requiring remediation
at any of its properties.
EMPLOYEES AND PERSONNEL
As of December 27, 1998, the Company employed approximately 2,805 full-time
salaried employees and approximately 15,274 full-time and part-time hourly
employees. Of the Company's full-time salaried employees, 130 are involved in
overseeing restaurant operations, 2,086 are involved in the management of
individual restaurants, bakeries and cafes and all remaining salaried employees
are responsible for corporate administration, franchise administration and
business development. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes that the dedication of its
employees is critical to its success, and that its relationship with its
employees is good.
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ITEM 2. PROPERTIES
The Company either owns or leases the land and buildings for its Company-
operated restaurants. In addition, in certain circumstances, the Company owns or
leases land and buildings which it then leases or subleases to its franchisees
and third parties. While the Company expects to continue to lease many of its
sites in the future, the Company also may purchase the land and/or buildings for
restaurants to the extent acceptable terms are available. The majority of the
Company's restaurants are located in retail community shopping centers and
freestanding, well-trafficked locations.
Restaurants leased to the Company are typically leased under "triple net"
leases that require the Company to pay real estate taxes, maintenance costs and
insurance premiums and, in some cases, to pay percentage rent based on sales in
excess of specified amounts. Generally, the Company's leases have initial terms
of 20 years with options to renew for two additional five-year periods. Typical
leases or subleases by the Company to franchisees are triple net to the
franchisee, provide for a minimum rent, based upon prevailing market rental
rates, and have a term that usually coincides with the term of the franchise
agreement for the location, often being 20 years with renewal options. Such
leases are typically cross-defaulted against the corresponding franchise
agreement for that site.
The following table sets forth the locations by state of the Popeyes
Company-operated restaurants as of December 27, 1998:
<TABLE>
<CAPTION>
Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -------
<S> <C> <C> <C>
Texas......................... 21 40 61
Louisiana..................... 3 36 39
Georgia....................... 2 44 46
North Carolina................ - 17 17
South Carolina................ - 8 8
-------- -------- -------
Total Popeyes............... 26 145 171
======== ======== =======
</TABLE>
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<PAGE>
The following table sets forth the locations by state of the Churchs
Company-operated restaurants as of December 27, 1998:
<TABLE>
<CAPTION>
Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -----
<S> <C> <C> <C>
Texas.......................... 151 96 247
Georgia........................ 34 17 51
Louisiana...................... 20 18 38
Alabama........................ 25 10 35
Arizona........................ 15 9 24
Florida........................ 22 2 24
Oklahoma....................... 17 2 19
Mississippi.................... 11 4 15
Tennessee...................... 13 1 14
New Mexico..................... 5 2 7
Missouri....................... 6 - 6
Arkansas....................... 4 1 5
Nevada......................... 2 2 4
Kansas......................... 2 - 2
-------- -------- -----
Total Churchs................ 327 164 491
======== ======== =====
</TABLE>
The following table sets forth the locations by state of the SCC Company-
operated restaurants as of December 27, 1998:
<TABLE>
<CAPTION>
Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -----
<S> <C> <C> <C>
Washington.................... - 27 27
California.................... - 10 10
Illinois...................... - 9 9
Oregon........................ - 5 5
Massachusetts................. - 3 3
Georgia....................... - 1 1
Texas......................... - 1 1
Virginia...................... - 1 1
-------- -------- -----
Total SCC.................. - 57 57
======== ======== =====
</TABLE>
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<PAGE>
The following table sets forth the locations by state of the Cinnabon
Company-operated restaurants as of December 28, 1997:
<TABLE>
<CAPTION>
Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -------
<S> <C> <C> <C>
California..................... - 46 46
Washington..................... - 24 24
Florida........................ - 15 15
Illinois....................... - 15 15
Ohio........................... - 12 12
Texas.......................... - 10 10
Massachusetts.................. - 9 9
Michigan....................... - 8 8
Pennsylvania................... - 8 8
Indiana........................ - 7 7
Wisconsin...................... - 7 7
New Jersey..................... - 6 6
Hawaii......................... - 4 4
Maryland....................... - 4 4
Nevada......................... - 4 4
Kentucky....................... - 3 3
North Carolina................. - 3 3
Oregon......................... - 3 3
Virginia....................... - 3 3
Georgia........................ - 2 2
Iowa........................... - 2 2
Missouri....................... - 2 2
New York....................... - 2 2
Tennessee...................... - 2 2
Alabama........................ - 1 1
Colorado....................... - 1 1
Connecticut.................... - 1 1
Delaware....................... - 1 1
Kansas......................... - 1 1
Montana........................ - 1 1
Nebraska....................... - 1 1
New Hampshire.................. - 1 1
New Mexico..................... - 1 1
South Carolina................. - 1 1
South Dakota................... - 1 1
------- ------- -------
Total Cinnabon............ - 212 212
======= ======= =======
</TABLE>
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<PAGE>
The following table sets forth the locations by state of the Chesapeake
Company-operated restaurants as of December 27, 1998:
<TABLE>
<CAPTION>
Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -----
<S> <C> <C> <C>
Georgia...................... - 3 3
Maryland..................... - 1 1
-------- -------- -----
Total Chesapeake........ - 4 4
======== ======== =====
</TABLE>
The Company's headquarters are located in approximately 102,000 square feet
of leased and subleased office space in Atlanta, Georgia. The leased space,
covering approximately 87,000 square feet, is subject to extensions through
2013, and the subleased space is subject to extensions through 2003. The
Company's Popeyes division relocated to another facility in Atlanta, Georgia on
July 1, 1998. The Company's Churchs division will be relocating to another
facility in Atlanta, Georgia in April 1999. The Company believes that its
existing headquarters provides sufficient space to support its current needs.
The Company's wholly-owned subsidiaries, SCC and Cinnabon both lease office
space in Seattle, Washington. SCC has four distribution facilities that service
SCC's coffee wholesale operations. Two of the distribution centers are located
in the Seattle, Washington area. The other two facilities are located in
Portland, Oregon and Chicago, Illinois. The Company's accounting and computer
facilities and its Ultrafryer Systems manufacturing facilities are located in
San Antonio, Texas and are housed in three buildings that are located on
approximately 16 acres of land owned by the Company.
Substantially all of the properties and assets of the Company are pledged
as collateral against the Company's bank credit facility (See Note 8 to the
Company's Consolidated Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
In July 1997, CP Partnership ("CP") filed a complaint against the Company
alleging patent infringement regarding the design of the proprietary gas fryer
manufactured by the Company's manufacturing division. This case was segregated
into a patent infringement claim and a contract claim. In August 1998, the Court
dismissed CP's patent infringement claim. CP has appealed this judgment. In
November 1998, the Company settled the contract claim for an immaterial amount.
It is management's belief that the final outcome of the patent infringement
claim will not have an adverse effect on the Company's consolidated financial
position or results of operations.
While the Company is party to a number of other pending legal proceedings
that have arisen in the ordinary course of its business, management does not
believe that the Company is a party to any pending legal proceeding, the
resolution of which would have a material adverse effect on the Company's
financial condition or results of operations.
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the common stock of the
Company. As of March 29, 1999, the number of record holders of the Company's
common stock was 100.
The Company has not declared or paid cash dividends to its shareholders.
The Company anticipates that all of its earnings in the near future will be
retained for the development and expansion of its business and, therefore, does
not anticipate paying dividends on its common stock in the foreseeable future.
Declaration of dividends on the common stock will depend upon, among other
things, levels of indebtedness, future earnings, the operating and financial
condition of the Company, its capital requirements and general business
conditions. The agreements governing the Company's indebtedness contain
provisions, which restrict the ability of the Company to pay dividends on its
common stock. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
On October 15, 1998, the Company sold 2,795,703 shares of its common stock
to "qualified investors" who are existing shareholders and option holders at a
price of $7.75 per share. The Company received approximately $20.3 million in
cash and $1.3 million in notes receivable from certain shareholders and option
holders. All of these unregistered securities were issued by AFC pursuant to the
limited offering exception under Rule 506 of Regulation D. Cash proceeds from
the sale of stock was used to fund a portion of the purchase price to acquire
Cinnabon International, Inc. and to pay $1.0 million in stock issuance costs in
connection with the stock offering. The $1.0 million in stock issuance costs was
paid to Freeman Spogli and Co., Inc. ("FS"), an affiliate of the Company's
majority shareholder. A second affiliate of FS purchased the majority of shares
under this offering.
24
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
information for the Company for the periods and the dates indicated. The
balance sheet data and statement of operations data for the years ended December
25, 1994, December 31, 1995, December 29, 1996, December 28, 1997 and December
27, 1998 set forth below have been derived from the financial statements of the
Company, which have been audited by Arthur Andersen LLP, independent public
accountants. This selected historical consolidated financial information should
be read in conjunction with, and is qualified in its entirety by (i)
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and (ii) the audited Consolidated Financial Statements for the
Company and the notes thereto, each of which is included elsewhere in this
report.
<TABLE>
<CAPTION>
Year Ended (1)
------------------------------------------------------------------------
December 27, December 28, December 29, December 31, December 25,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Restaurant sales....................... $ 488,574 $ 403,285 $ 430,280 $426,707 $401,855
Franchise revenues..................... 66,606 64,055 51,336 47,916 41,581
Wholesale revenues..................... 36,411 - - - -
Manufacturing revenues................. 7,561 7,647 8,222 9,969 12,026
Other revenues......................... 9,939 8,766 8,005 8,320 8,252
----------- ------------ ------------ ------------ ------------
Total revenues........................ 609,091 483,753 497,843 492,912 463,714
COSTS AND EXPENSES:
Restaurant cost of sales............... 155,627 131,374 142,199 139,286 133,893
Restaurant operating expenses.......... 246,448 197,324 211,275 214,703 206,212
Wholesale cost of sales................ 18,466 - - - -
Wholesale operating expenses........... 8,313 - - - -
Manufacturing cost of sales............ 5,802 6,381 7,201 9,180 11,414
General and administrative............. 89,457 79,541 76,071 78,095 72,540
Executive compensation award (2)....... - - - 10,647 -
Depreciation and amortization.......... 46,078 33,803 30,904 28,665 25,438
Impairment of Chesapeake intangible.... 6,800 - - - -
Charges for restaurant closings........ 9,183 479 1,304 688 650
Provision for software write-offs...... 5,000 - - - -
Gain on sale of fixed assets from
AFDC transaction...................... - (5,319) - - -
----------- ------------ ------------ ------------ ------------
Total costs and expenses.............. 591,174 443,583 468,954 481,264 450,147
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS.................... 17,917 40,170 28,889 11,648 13,567
OTHER EXPENSES:...........................
Interest, net.......................... 30,786 20,645 15,875 23,444 19,172
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY LOSS........... (12,869) 19,525 13,014 (11,796) (5,605)
Income tax expense (benefit)........... (4,223) 8,525 5,163 (2,969) (553)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS...................... (8,646) 11,000 7,851 (8,827) (5,052)
Extraordinary loss, net of taxes (3)... - - (4,456) - -
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS)......................... (8,646) 11,000 3,395 (8,827) (5,052)
8% Preferred Stock dividends.............. - - 1,316 4,555 4,467
10% Preferred Stock dividends
payable in kind.......................... - 2,240 3,956 - -
Accelerated accretion of 8% Preferred
Stock discount upon retirement........... - - 8,719 - -
Accretion of 8% Preferred Stock discount.. - - 813 2,571 2,250
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCK.......................... $ (8,646) $ 8,760 $(11,409) $ (15,953) $(11,769)
============ ============ ============ ============ ============
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended (1)
--------------------------------------------------------------------------
December 27, December 28, December 25, December 31, December 29,
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA, as defined (4)..... $ 87,037 $ 74,017 $ 64,866 $ 55,342 $ 43,435
EBITDA margin (5).......... 14.3% 15.3% 13.0% 11.2% 9.4%
CASH FLOWS PROVIDED BY
(USED IN):
Operating activities.... 45,537 52,515 47,801 28,031 22,673
Investing activities.... (188,287) (35,782) (29,388) (20,114) (11,493)
Financing activities.... 126,852 (2,985) (12,806) (10,721) (17,530)
Cash capital expenditures (6)
Maintenance capital expenditures $ 6,059 $ 7,756 $ 6,010 $ 5,483 $ 5,050
Re-images and renovation 4,079 13,356 15,342 15,502 10,267
New restaurant development 13,749 4,588 3,215 2,272 1,999
Other 13,965 16,436 9,384 1,739 3,496
------------- ------------ ------------ ------------ ------------
Total cash capital expenditures $ 37,852 $ 42,136 $ 33,951 $ 24,996 $ 20,812
RATIO OF EARNINGS TO FIXED
CHARGES (7)............... - 1.64% 1.29% - -
BALANCE SHEET DATA:
Total assets............ $ 556,465 $ 380,002 $ 339,668 $ 328,645 $ 327,494
Total debt and capital lease
obligations............. 360,711 243,882 151,793 204,025 193,646
Mandatorily redeemable preferred
stock................... - - 59,956 46,468 43,897
Total shareholders
equity (deficit)....... 87,917 48,459 37,902 (21,665) (6,707)
RESTAURANT DATA (UNAUDITED) (8):
Systemwide restaurant sales (in
(thousands):
Popeyes................. $ 954,305 $ 853,078 $ 762,108 $ 710,840 $ 649,880
Churchs................. 755,074 723,988 675,996 647,746 590,261
Cinnabon................ 41,738 - - - -
Seattle Coffee.......... 24,887 - - - -
Chesapeake Bagel........ 61,474 50,878 - - -
------------- ------------ ------------ ------------ ------------
Total................... $ 1,837,478 $1,627,944 $1,438,104 $ 358,586 $1,240,141
============= ============ ============ ============ ============
Systemwide restaurant units:
Popeyes................. 1,292 1,131 1,021 964 907
Churchs................. 1,399 1,356 1,257 1,219 1,165
Cinnabon................ 369 - - - -
Seattle Coffee............. 71 - - - -
Chesapeake Bagel........ 107 155 - - -
------------- ------------ ------------ ------------ ------------
Total................... 3,238 2,642 2,278 2,183 2,072
============= ============ ============ ============ ============
Systemwide percentage
change
in comparable
restaurant sales (9):
Popeyes domestic........ 5.2% 3.6% 0.5% 1.2% 2.0%
Churchs domestic........ 4.6% 4.0% 4.6% 4.6% 5.1%
Popeyes international... (13.3)% 1.3% 4.3% 11.6% (2.2)%
Churchs international... (1.5)% 2.6% (2.1)% 0.9% 3.4%
Total commitments outstanding,
end of period (10) 1,757 1,715 1,319 1,083 1,047
</TABLE>
(1) The company has a 52/53-week fiscal year ending on the last Sunday in
December, which normally consists of 13 four-week periods. The fiscal year
ended December 31, 1995 included 53 weeks of operations.
(2) During 1995, the Board of Directors granted a special award of $10.0 million
to the CEO of the Company and his designees contingent upon the happening of
certain events related to a recapitalization of the Company. See "Item 11.
Executive Compensation - Note (2)." The award became payable at the time of
the Recapitalization. This award was paid in 1996 in approximately 3.0
million shares of the Company's common stock valued at $3.317 per share, the
market value of the Company's common stock at the date of issuance. As a
result of the Recapitalization, certain
26
<PAGE>
senior executive officers became fully vested in certain stock options
pursuant to the terms of the 1992 Stock Option Plan resulting in
recognition of $647,000 of compensation expense in 1995.
(3) The extraordinary loss recorded in fiscal 1996 represents the loss
associated with the prepayment of certain debt obligations of the Company,
net of related income tax effects.
(4) EBITDA is defined as income from operations plus depreciation and
amortization; adjusted for non-cash items related to gains/losses on asset
dispositions and write-downs, compensation expense related to stock option
activity (deferred compensation), the executive compensation award (see
Note 2 above) and non-cash officer notes receivable items related to the
executive compensation award. EBITDA, as defined, should not be construed
as a substitute for income from operations or as a better indicator of
liquidity than cash flow from operating activities, which is determined in
accordance with generally accepted accounting principles. EBITDA, as
defined, is included herein to provide additional information with respect
to the ability of the Company to meet its future debt service, capital
expenditure and working capital requirements. In addition, management
believes that certain investors find EBITDA, as defined, to be a useful
tool for measuring the ability of the Company to service its debt. EBITDA,
as defined, is not necessarily a measure of the Company's ability to fund
its cash needs. See the Consolidated Statements of Cash Flows of the
Company and the related Notes to the Consolidated Financial Statements
thereto attached.
(5) EBITDA margin represents EBITDA, as defined, divided by total revenues.
(6) Capital expenditures (excluding expenditures funded through capital leases)
have been segregated into the following categories to provide additional
information:
. Maintenance capital expenditures-represents day to day expenditures
related to restaurant equipment replacements and general restaurant
capital improvements.
. Re-images and renovation-represents significant restaurant renovations
and upgrades pursuant to the Company's re-imaging and renovation
activities.
. New restaurant development-represents new Company-operated restaurant
construction and development.
. Other-represents capital expenditures at various corporate offices and
new restaurant equipment such as fryers and security systems.
(7) The Company had a deficiency of earnings to fixed charges for the fiscal
years December 25, 1994, December 31, 1995 and December 27, 1998 of
approximately $5,869,000, $12,284,000 and $13,139,000, respectively.
Earnings consist of income (loss) before taxes, plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest
expense, amortization of debt issuance cost and debt discount, preferred
stock dividend requirements and accretion (including related tax effects),
and one-third of rent expense on operating leases considered representative
of the interest factor attributable to rent expense.
(8) Represents restaurant sales for all franchised and Company-operated
restaurants. Sales information for franchised restaurants is as reported by
franchisees or, in some instances, estimated by the Company based on other
data, and is unaudited.
(9) Prior year sales figures for Cinnabon, Seattle Coffee, and Chesapeake are
not comparable since these acquisitions occurred during 1997 and 1998.
(10) Commitments represent commitments to open franchised restaurants, as set
forth in development agreements. On a historical basis, a number of such
commitments have not resulted in restaurant openings. There can be no
assurance that parties to development agreements will open their respective
number of restaurants.
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements relate to the plans, objectives and expectations of
the Company for future operations. In light of the risks and uncertainties
inherent in any discussion of the Company's expected future performance or
operations, the inclusion of forward-looking statements in this report should
not be regarded as a representation by the Company or any other person that
these will be realized. Such performance could be materially affected by a
number of factors, including without limitation those factors set forth in the
"Item 1. Business" section in this filing.
ACQUISITIONS
CINNABON ACQUISITION
On October 15, 1998, the Company acquired Cinnabon International, Inc.
("CII"), the operator and franchisor of 363 retail cinnamon roll bakeries
operating in 39 states, Canada and Mexico. Two hundred and eleven of the retail
cinnamon roll bakeries are Company-operated and are located within the United
States. In connection with the acquisition, CII became a wholly-owned
subsidiary of AFC through the merger of AFC Franchise Acquisition Corp. into CII
(the "Acquisition").
The Company acquired CII for $64.0 million in cash. The Company obtained
$44.7 million of the cash consideration from its 1997 Credit Facility, which was
amended to add a $50.0 million Tranche B term loan (see below). The remaining
$19.3 million cash consideration was funded with the proceeds from the sale of
approximately 2.8 million shares of AFC common stock to certain "qualified"
investors who are existing AFC shareholders and option holders. The shares were
sold at a price of $7.75 per share and net proceeds from the sale totaled
approximately $19.3 million.
RESULTS OF OPERATIONS
The following table presents selected revenues and expenses as a percentage
of total revenues for the Company's Consolidated Statements of Operations for
the fiscal years ended December 27, 1998, December 28, 1997 and December 29,
1996.
28
<PAGE>
PERCENTAGE RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended (1)
----------------------------------------------
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales....................... 80.3 % 83.4 % 86.4 %
Franchise revenues..................... 10.9 13.2 10.3
Wholesale revenues..................... 6.0 - -
Manufacturing revenues................. 1.2 1.6 1.7
Other revenues......................... 1.6 1.8 1.6
-------- -------- -------
Total revenues........................ 100.0 % 100.0 % 100.0 %
-------- -------- -------
COSTS AND EXPENSES:
Restaurant cost of sales (1)........... 31.9 % 32.6 % 33.0 %
Restaurant operating expenses (1)...... 50.4 48.9 49.1
Wholesale cost of sales (2)............ 50.7 - -
Wholesale operating expenses (2)....... 22.8 - -
Manufacturing cost of sales (3)........ 76.7 83.4 87.6
General and administrative............. 14.7 16.4 15.3
Depreciation and amortization.......... 7.6 7.0 6.2
Impairment of Chesapeake intangible.... 1.1 - -
Charges for restaurant closings........ 1.5 0.1 0.3
Provision for software write-offs...... 0.8 - -
Gain on sale of fixed assets from
AFDC transaction...................... - (1.1) -
Total costs and expenses.............. 97.1 91.7 94.2
Income from operations.................. 2.9 8.3 5.8
Interest expense, net................... 5.1 4.3 3.2
Net income (loss) before extraordinary
loss and taxes......................... (2.1) 4.0 2.6
Income tax expense (benefit)............ (0.7) 1.8 1.0
Net income (loss) before
extraordinary items.................... (1.4)% 2.2 % 1.6 %
</TABLE>
(1) Expressed as a percentage of restaurant sales by Company-operated
restaurants.
(2) Expressed as a percentage of wholesale revenues.
(3) Expressed as a percentage of manufacturing revenues.
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain financial information and other
restaurant data relating to Company-operated and franchised restaurants (as
reported to the Company by franchisees) for the fiscal years ended December 27,
1998, December 28, 1997 and December 29, 1996:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------------
December 27, December 28, % Change December 29, % Change
1998 1997 1997 - 1998 1996 1996 - 1997
-------------- ------------- ------------ ----------- --------------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
EBITDA, as defined (1)................ $ 87.0 $ 74.0 17.6 % $ 64.9 14.1 %
EBITDA margin......................... 14.3 % 15.3 % (6.7) 13.0 % 17.5
Capital Expenditures (2).............. 41.5 62.9 (34.0) 46.3 36.0
Restaurant data (unaudited):
Systemwide restaurant sales (3):
Popeyes................... $ 954.3 $ 853.0 11.9% $ 762.1 11.9 %
Churchs................... 755.1 724.0 4.3 676.0 7.1
Cinnabon.................. 41.7 - N/A - N/A
Seattle Coffee............ 24.9 - N/A - N/A
Chesapeake................ 61.5 50.9 20.8 - N/A
-------- ---------- ---------
Total $1,837.5 $ 1,627.9 12.9% $ 1,438.1 13.2 %
======== ========== =========
Systemwide restaurant openings:
Popeyes................... 198 137 44.5% 110 24.6 %
Churchs................... 87 132 (34.1) 117 12.8
Cinnabon.................. 6 - N/A - N/A
Seattle Coffee............ 17 - N/A - N/A
Chesapeake................ 11 27 (59.3) - N/A
-------- ---------- ---------
Total 319 296 8.1% 227 30.4 %
======== ========== =========
Systemwide restaurants open,
end of period:
Popeyes................... 1,292 1,131 14.2 1,021 10.8 %
Churchs................... 1,399 1,356 3.2 1,257 7.9
Cinnabon.................. 369 - N/A - N/A
Seattle Coffee............ 71 - N/A - N/A
Chesapeake................ 107 155 (31.0) - N/A
-------- ---------- ---------
Total 3,238 2,642 22.6% 2,278 16.0 %
======== ========== =========
Systemwide percentage change in
comparable restaurant sales (3):
Popeyes domestic.......... 5.2 % 3.6% 0.5%
Churchs domestic.......... 4.6 4.0 4.6
Popeyes international..... (13.3) 1.3 4.3
Churchs international..... (1.5) 2.6 (2.1)
</TABLE>
(1) EBITDA is defined as income from operations plus depreciation and
amortization; adjusted for items related to gains/losses on asset
dispositions and write-downs and compensation expense related to stock
option activity (deferred compensation).
(2) Excludes fixed assets added in connection with the Seattle Coffee, Cinnabon
and Pinetree acquisitions and capital expenditures made to convert the
Pinetree restaurants to Popeyes Company-operated restaurants.
(3) Prior year sales figures for Cinnabon, Seattle Coffee and Chesapeake and
are not comparable since these acquisitions occurred during 1997 and 1998.
30
<PAGE>
YEARS ENDED DECEMBER 27, 1998 AND DECEMBER 28, 1997
Certain items relating to prior periods have been reclassified to conform with
current presentation.
REVENUES
Total revenues increased 25.9%, or $125.3 million, during the fiscal year
ended December 27, 1998, as compared to the fiscal year ended December 28, 1997.
RESTAURANT SALES. Restaurant sales were up 21.1% or $85.3 million over the
prior year, primarily due to sales generated by Company-operated restaurants
acquired during 1998.
Chicken
Sales at Company-operated chicken restaurants increased 10.2% or $41.1
million from the prior year. The increase was primarily attributable to sales
generated by Company-operated restaurants acquired during the first quarter of
1998. On February 10, 1998, the Company acquired all of the restaurant
properties operated by Pinetree Foods, Inc. ("Pinetree") and during the first
and second quarters of 1998 converted these properties into 66 Popeyes Company-
operated restaurants. Sales generated by these restaurants during 1998 were
$32.9 million. The remaining sales increase was due to an increase in comparable
sales for Company-operated chicken restaurants of 4.5% for the year.
Bakery Cafes
Sales at Company-operated bakery cafes were up $23.8 million from the prior
year. Sales increased primarily due to the acquisition of the Cinnabon bakery
cafes in October 1998. Sales for the Cinnabon bakeries during 1998 were $22.8
million.
Seattle Coffee
On March 18, 1998, the Company acquired all of Seattle Coffee Company's
(SCC's) common stock, resulting in the acquisition of 59 Company-operated cafes.
Sales generated by the SCC cafes during 1998 were $20.4 million.
FRANCHISE REVENUES. Franchise revenues increased $2.6 million or 4.0% from
the prior year.
Chicken
Domestic franchise royalty revenue for chicken restaurants increased $6.1
million or 14.4% from the prior year. The increase in franchise royalty revenue
was primarily
31
<PAGE>
attributable to a 130 or 9.8% increase in the average number of chicken
franchised restaurants open during 1998 as compared to 1997. The remaining
increase was attributable to an increase in comparable sales for domestic
franchised restaurants of 5.0% for the year.
Domestic franchise fee income decreased $4.2 million or 58.3% for the year
ended December 27, 1998, compared to the year ended December 28, 1997. Franchise
fee income in the amount of $2.5 million was recorded in connection with the
sale of 100 Company-operated Churchs restaurants to the Atlanta Franchise
Development Corporation ("AFDC") during the second quarter of 1997 and $1.2
million was recorded in connection with the sale of 47 Company-operated Churchs
restaurants to the Royal Capital group during the first quarter of 1997. AFDC
and the Royal Capital group both entered into franchise agreements with the
Company to each develop 100 additional franchised restaurants. Franchise fee
income was also lower, as domestic franchise restaurant openings during 1998
were 134, versus 170 in 1997.
Bakery Cafes
Franchise royalty revenue for bakery cafes during 1998 increased $1.4 million
or 82.2% from the prior year, primarily due to the acquisition of the Cinnabon
bakeries in October 1998. Royalty revenues for Cinnabon bakeries were $1.0
million in 1998. Royalty revenues for Chesapeake bakeries were up $0.4 million
over 1997 as a result of the bakeries being owned for the entire fiscal year of
1998.
Seattle Coffee
Franchise royalty revenue for Seattle Coffee franchised cafes totaled $0.2
million during 1998. There were a total of 11 Seattle Coffee domestic
franchised cafes as of December 27, 1998.
International
International franchise revenues were down $0.6 million or 4.6% from the
prior year. International franchise royalty revenue decreased $1.4 million or
13.6%, while franchise fees increased $0.8 million or 34.2%. Royalty revenues
were down, despite an increase in the number of international franchised
restaurants, primarily due to the depressed economies in Southeast Asia.
Overall, international comparable sales were down 7.0% from the prior year.
Unfavorable currency fluctuations caused further decreases in royalty revenues
for 1998 as compared to 1997. International franchise fee income was up over the
prior year, primarily due to amounts recorded in connection with the development
of international Cinnabon bakeries and Seattle Coffee cafes in the Middle East.
WHOLESALE REVENUES. The Company's wholesale revenues consist of sales of
premium brand coffee from its roasting and distribution company to food service
32
<PAGE>
retailers, supermarkets and its own coffee cafes. Wholesale revenues for the
year ended December 27, 1998 were $36.4 million.
MANUFACTURING REVENUES. Manufacturing revenues consist of sales of
proprietary fryers and other custom-fabricated restaurant equipment to
distributors and franchisees. Manufacturing revenues decreased $0.1 million
from fiscal year 1997 to fiscal year 1998.
OPERATING COSTS AND EXPENSES
RESTAURANT COST OF SALES. Restaurant cost of sales for 1998 increased 18.5%
or $24.3 million from the prior year. The increase was primarily attributable to
the increase in restaurant sales. Expressed as a percentage of restaurant
sales, cost of sales were 31.9% for the year ended December 27, 1998 and 32.6%
for the year ended December 28, 1997. The decrease in this percentage is
primarily due to selective menu price increases taken during 1998.
RESTAURANT OPERATING EXPENSES. Restaurant operating expenses for the fiscal
year ended December 27, 1998 increased $49.1 million or 24.9% from the
corresponding period in 1997. The increase in restaurant operating expenses was
primarily due to the increase in the number of Company-operated restaurants.
Restaurant operating expenses as a percentage of restaurant sales were 50.4% for
fiscal year 1998, compared to 48.9% for fiscal year 1997. The increase in this
percentage was primarily attributable to high restaurant operating costs
incurred by the converted Pinetree restaurants. High labor and training costs
at the Pinetree restaurants caused personnel costs to increase by 0.8% as a
percentage of sales. High rent costs at the Pinetree restaurants caused other
restaurant operating costs to increase by 0.7% as a percentage of sales.
Management believes that the closure of the underperforming Pinetree restaurants
will help to lower these costs during 1999 and has implemented plans to reduce
restaurant operating costs at the remaining Pinetree restaurants still in
operation.
WHOLESALE COST OF SALES. Wholesale cost of sales represent the cost of
coffee beans and the direct overhead used to roast and blend specialty coffee
blends. Wholesale cost of sales were $18.5 million, which as a percentage of
wholesale revenues was 50.7%.
WHOLESALE OPERATING EXPENSE. Wholesale operating expenses represent the
overhead incurred in connection with the distribution of specialty coffee
blends. Wholesale operating expenses were $8.3 million, which as a percentage of
wholesale revenues was 22.8%.
MANUFACTURING COST OF SALES. Manufacturing cost of sales represent the cost
of raw materials and direct labor used to manufacture the restaurant equipment
sold to franchisees and third parties and direct and indirect manufacturing
overhead applied during the manufacturing process. Manufacturing cost of sales
as a percentage of manufacturing revenues decreased from 83.4% during fiscal
year 1997 to 76.7% during fiscal year 1998. The decrease in this percentage was
primarily due to a sales mix
33
<PAGE>
consisting of more standard-configurated versus custom-configurated fryers and
certain price increases taken during fiscal year 1998 .
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $9.9 million or 12.5% during 1998 compared to the prior year. The
increase was primarily attributable to general and administrative expenses
incurred by the Seattle Coffee and Cinnabon operations, which totaled $8.8
million combined. As a percentage of total revenues, general and administrative
expenses decreased from 16.4% for fiscal year 1997 to 14.7% for fiscal year
1998. The decrease in this percentage was primarily attributable to a decrease
in corporate bonuses in the amount of $4.6 million from 1997 to 1998. Due to
the Company not meeting bonus plan incentive benchmarks, incentive bonuses for
corporate employees were not earned during the year for payment in 1999. Also
contributing to the decrease in this percentage was the acquisition of SCC's
operations. SCC's general and administrative expenses as a percentage of SCC
revenues was 11.4% for the fiscal year ended December 27, 1998, causing the
overall percentage for the Company to decrease from the prior year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $12.3
million or 36.4% from the prior year. Depreciation and amortization as a
percentage of total revenues increased from 7.0% to 7.6%. Depreciation and
amortization attributable to Seattle Coffee and Cinnabon tangible and intangible
assets totaled $6.2 million for 1998. Depreciation and amortization
attributable to Pinetree restaurants during 1998 totaled $4.9 million. Overall,
net property and equipment of $268.1 million as of December 27, 1998 was up
29.0% over net property and equipment of $207.8 million at December 28, 1997.
Net intangible assets as of December 27, 1998 were $208.1 million, versus net
intangible assets of $100.3 million as of December 28, 1997.
IMPAIRMENT OF CHESAPEAKE INTANGIBLE. During 1998 management wrote down the
Chesapeake franchise value and trademarks by $6.8 million. The write-down was
made subsequent to a FAS 121 review of Chesapeake operations, which indicated a
partial impairment loss related to the intangible asset. The decrease in the
value of the intangible asset resulted primarily from the closing of 58
franchised Chesapeake bagel bakeries during 1998 and the weakness of the bagel
bakery industry in general.
CHARGES FOR RESTAURANT CLOSINGS. Charges for restaurant closings include
write-downs of restaurant assets to net realizable value, provisions related to
future rent obligations for the closed properties and write-offs of any
intangible assets identified with the restaurant properties. Charges for
restaurant closings were $9.2 million during 1998, compared to $0.5 million
during 1997. The increase was primarily attributable to charges taken for the
closing of 14 Pinetree restaurants during fiscal year 1998. Charges taken for
these closings during 1998 totaled $8.5 million.
PROVISION FOR SOFTWARE WRITE-OFFS. Management recorded a provision for
software write-offs in the amount of $5.0 million during fiscal year 1998. The
provision was made after a third party technology expert evaluation of the
Company's "back office" automation
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<PAGE>
systems currently under development. The technology expert evaluating these
systems concluded that certain elements of the software being developed were not
stable in the AFC information technology environment. Management is in the
process of performing its own review of these systems, but believes that it is
probable that certain of the "back office" software development costs will be
deemed to have little or no value. Therefore, management made a provision of
$5.0 million to establish a reserve as of December 27, 1998 for the potential
write offs of these assets. (See Note 1 - "Summary of Significant Accounting
Policies" of the Company's Consolidated Financial Statements.)
GAIN ON SALE OF ASSETS FROM AFDC TRANSACTION. During the second quarter of
1997, the Company recorded a $5.3 million pre-tax gain associated with the sale
of 100 Company-operated restaurants to AFDC.
INCOME FROM OPERATIONS. Income from operations decreased $22.3 million or
55.4% from the prior year, primarily due to unusual charges taken during 1998
and a one-time gain recorded during 1997. During 1998, the Company recorded
write-downs and charges with respect to the closure of 14 Pinetree restaurants
totaling $8.5 million, an impairment charge with respect to the Chesapeake
franchise value and trademarks intangible in the amount of $6.8 million and a
$5.0 million provision for software write-offs. Also, income from operations
for 1997 included a $5.3 million pre-tax gain associated with the sale of 100
Company-operated restaurants to AFDC.
Income from operations for chicken restaurants decreased $20.8 million or
27.3%, primarily due to the Pinetree write-downs in 1998 and the pre-tax gain
recorded for the AFDC sale in 1997. In addition, the Company realigned its
management structure during 1998 to more directly support its various restaurant
concepts, resulting in a shift in overhead costs from corporate to the chicken
brands. The remaining decrease in income from operations for the chicken
restaurants was due to start up costs related to establishing the Popeyes brand
in new markets through its conversion of Pinetree restaurants in 1998. Income
from operations for bakery cafes decreased $6.5 million from the prior year,
primarily due to the impairment charge taken against the Chesapeake franchise
value and trademarks.
NET INTEREST EXPENSE. Interest expense, net of capitalized interest, for the
year ended December 27, 1998 was $30.8 million, compared to $20.6 million for
the year ended December 28, 1997. The $10.2 million increase in interest expense
was due to higher levels of average debt outstanding and higher effective
interest rates during 1998 as compared with the prior year. The increase in
average debt outstanding was primarily attributable to the refinancing
transaction completed during the second quarter of 1997, borrowings made under
the Company's acquisition and revolving loan facilities during 1998 and
borrowings made under the new Tranche B term loan (see "--Liquidity and Capital
Resources"). The refinancing transaction also led to higher effective interest
rates during fiscal 1998 compared to fiscal 1997.
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<PAGE>
INCOME TAXES. The Company's effective tax rate for fiscal year ended
December 27, 1998 was (32.8)%, compared to 43.6% for fiscal year ended December
28, 1997. A reconciliation of the Federal statutory rate to the Company's
effective tax rate began with a federal tax benefit rate of (35.0)% for fiscal
year 1998 and a federal tax expense rate of 35.0% for fiscal year 1997. The tax
benefit rate for 1998 was reduced for non-deductible amortization expense
related to acquired goodwill.
YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
Certain items relating to prior periods have been reclassified to conform with
current presentation.
REVENUES
Total revenues decreased 2.8%, or $14.1 million, during the fiscal year
ended December 28, 1997, as compared to the fiscal year ended December 29, 1996.
RESTAURANT SALES. Restaurant sales decreased $27.0 million or 6.3% from
fiscal year 1996 to fiscal year 1997.
Chicken
Chicken restaurant sales decreased 6.3% or $27.1 million from the prior
year. The decrease in chicken restaurant sales was primarily attributable to
the sale of 100 Churchs restaurants to AFDC in March 1997. Sales generated by
these restaurants during the last three quarters of 1996 totaled $43.4 million.
The overall sales decrease was partially offset by an increase in comparable
sales for the remaining Company-operated chicken restaurants of 5.1% for the
year.
Bakery cafes
Only one Company-operated bakery cafe was in operation as of the end of
1997. Sales generated by this Chesapeake bagel bakery during 1997 were $100
thousand.
FRANCHISE REVENUES. Franchise revenues increased $12.7 million or 24.8%
from the prior year. Franchise royalty revenue increased $9.8 million or 22.2%
and franchise fees increased $2.9 million or 40.4%.
Chicken
Franchise royalty revenues from chicken restaurants increased $6.6 million
or 18.4% from the prior year. The increase in franchise royalty revenue was
primarily attributable to royalty revenues recorded for 100 restaurants
franchised in connection with the AFDC transaction and a comparable sales
increase for domestic franchised chicken restaurants of 3.2%. Franchise fee
income for chicken restaurants increased $3.9 million
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<PAGE>
or 121.1% from 1996 to 1997, primarily due to franchise fees of $2.5 million
recorded in connection with the sale of 100 restaurants to AFDC and $1.2 million
recorded in connection with the sale of 47 restaurants to the Royal Capital
group.
Bakery Cafes
Franchise revenues produced by the Chesapeake brand during 1997 totaled
$2.3 million, including $1.7 million in franchise royalty income and $0.6
million in franchise fee income.
International
Revenues from franchising for international franchised restaurants were
down $0.1 million from 1996 to 1997. Royalty income was up $1.5 million or
18.3% from the prior year, although franchise fee income was down $1.6 million
or 41.6%. Royalty income was up as the average number of international
franchised restaurants open during 1997 was up 20.1% from 362 in 1996 to 435 in
1997. Exchange rate losses on royalties earned in Southeast Asia partially
offset the increase in international royalty income. Franchise fee income was
down $1.6 million from the prior year, primarily due to a decrease in the amount
of default revenues recorded for terminated international development agreements
and a decrease in international commitments sold from 464 in 1996 to 225 in
1997.
MANUFACTURING REVENUES. Revenues from manufacturing decreased 7.0%, or
$0.6 million for the fiscal year ended December 28, 1997, as compared to the
fiscal year ended December 29, 1996. The decrease was primarily attributable to
a decrease in the sale of smallwares. The Company sold its Ultrafryer
distribution business during the first half of 1996.
OPERATING COSTS AND EXPENSES
RESTAURANT COST OF SALES. Cost of sales for the year decreased 7.6% or
$10.8 million from the prior year. The decrease was primarily attributable to a
decrease in restaurant sales. Expressed as a percentage of restaurant sales,
cost of sales were 32.6% for the fiscal year ended December 28, 1997, compared
to 33.0% for the fiscal year ended December 29, 1996. The decrease in the
percentage was attributable to (i) small menu price increases taken in late 1996
and early 1997, (ii) usage reductions in paper items and shortening and (iii)
favorable pricing on certain non-poultry food items.
RESTAURANT OPERATING EXPENSES. Restaurant operating expenses for the
fiscal year ended December 28, 1997 decreased $14.0 million or 6.6% from the
corresponding period in 1996. The decrease in restaurant operating expenses was
primarily attributable to the sale of the 100 AFDC restaurants. Restaurant
operating expenses as a percentage of restaurant sales were 48.9% for 1997,
compared to 49.1% for 1996. A decrease in utility costs resulting from the
installation of more energy efficient gas fryers in
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Company-operated restaurants offset an increase in personnel expenses
resulting from the increase in the minimum wage levels effective October 1,
1996 and September 1, 1997.
MANUFACTURING COST OF SALES. Manufacturing cost of sales decreased 11.4%
or $0.8 million for the fiscal year ended December 28, 1997, compared to the
fiscal year ended December 29, 1996. The decrease was primarily attributable to
the decrease in manufacturing revenues during fiscal year 1997 compared to
fiscal year 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $3.5 million or 4.6% during 1997 compared to the prior year. As a
percentage of total revenues, general and administrative expenses increased from
15.3% for fiscal year 1996 to 16.4% for fiscal year 1997. The increase in
general and administrative expenses was due to a number of factors including,
but not limited to, asset write-downs of software costs, overhead costs
associated with the Chesapeake Bagel brand, an increase in franchise development
marketing costs, costs associated with acquisition activity, costs associated
with information technology initiatives, and deferred compensation expenses
related to employee stock options.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$2.9 million or 9.4% from the prior year. Depreciation and amortization as a
percentage of total revenues increased from 6.2% to 7.0% from the previous to
the current year. The increase was primarily due to fixed asset additions made
during this period totaling $62.9 million. Partially offsetting the increase
was a decrease in depreciation expense associated with the sale of 100
restaurants to AFDC. Overall, net fixed assets of $207.8 million at fiscal year
ended December 28, 1997 were up 9.8% over net fixed assets of $189.2 million at
fiscal year ended December 29, 1996.
GAIN ON SALE OF ASSETS FROM AFDC TRANSACTION. During the second quarter
of 1997, the Company recorded a $5.3 million pre-tax gain associated with the
sale of 100 Company-operated restaurants to AFDC.
INCOME FROM OPERATIONS. Income from operations increased $11.3 million or
39.0% from fiscal year 1997 to fiscal year 1998. The increase was primarily due
to an increase in franchising revenues for chicken restaurants in the amount of
$10.5 million. The gain on the sale of the 100 AFDC restaurants in the amount
of $5.3 million recognized during fiscal year 1997 was nearly offset by the
decrease in income from operations generated by these restaurants during fiscal
year 1996.
NET INTEREST EXPENSE. Interest expense, net of capitalized interest, for
the year ended December 28, 1997 was $20.6 million, compared to $15.9 million
for the year ended December 29, 1996. The $4.7 million increase in interest
expense was due to higher levels of average debt outstanding and higher
effective interest rates during 1997 as compared with the prior year. The
increase in average debt outstanding was primarily attributable to the
refinancing transaction completed during the second quarter of 1997
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<PAGE>
(see " -Liquidity and Capital Resources"). The refinancing transaction also led
to higher effective interest rates during 1997 versus the prior year.
INCOME TAXES. The Company's effective tax rate for the year ended December
29, 1997 was 43.6%, compared to an effective tax rate of 42.3% (including tax
benefits recorded with respect to the extraordinary loss) for the year ended
December 28, 1996. Based on the level of pre-tax income, the tax rate for
fiscal year 1997 assumed a federal statutory rate of 35%, versus 34% assumed for
fiscal year 1996.
EXTRAORDINARY LOSS. During the second quarter of 1996 the Company
completed a refinancing whereby it sold 21.1 million shares of its common stock
for $70.0 million. Proceeds from the sale of stock were used, in part, to
retire $65.0 million of the Company's existing debt. As a result, the Company
recognized an extraordinary loss on the early retirement of debt (net of income
taxes) in the amount of $4.4 million during the fiscal year ended December 29,
1996. Unamortized debt discounts written off in connection with the early
retirement of debt totaled $7.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its business activities primarily with funds
generated from operating activities, proceeds from the sale of shares of common
stock, proceeds from long-term debt and a revolving line of credit and proceeds
from the sale of certain Company-operated restaurants.
Net cash provided by operating activities for the years ended December 27,
1998, December 28, 1997 and December 29, 1996 was $45.5 million, $52.5 million
and $47.8 million, respectively. Available cash and cash equivalents, net of
bank overdrafts, as of December 27, 1998 was $10.8 million, compared to $23.3
million at December 28, 1997 and $8.4 million at December 29, 1996. The
Company's working capital deficit as of December 27, 1998, December 28, 1997 and
December 29, 1996 was approximately $34.1 million, $13.6 million and $29.5
million, respectively. The decrease in available cash and cash equivalents, net
of bank overdrafts from December 28, 1997 to December 27, 1998 was primarily due
to the acquisitions of the Pinetree restaurants and Seattle Coffee Company.
On February 10, 1998 the Company acquired the assets of Pinetree Foods,
Inc. ("Pinetree") based in Asheville, North Carolina. The assets of Pinetree
included 81 restaurant units located primarily in North Carolina, South Carolina
and Georgia. The assets were acquired in cash for a total purchase price of
approximately $24.3 million. The Company borrowed $16.0 million under its
$100.0 million acquisition facility in order to complete the transaction. The
Company converted 66 of these restaurants into Company-operated Popeyes
restaurants. The Company spent approximately $16.0 million to convert these
restaurants. Funds to convert these restaurants were provided primarily by the
Company's acquisition facility and short-term borrowings under its revolving
line of credit. As of December 27, 1998, the Company had borrowed $9.0
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million under its acquisition facility and $7.0 million under its revolving
line of credit to convert these restaurants.
On March 18, 1998, the Company acquired all of Seattle Coffee Company's
("SCC") common stock for an adjusted purchase price of approximately $68.8
million plus the assumption of approximately $4.8 million of debt. In order to
complete the transaction, the Company obtained $37.6 million in cash from its
acquisition facility and issued $25.5 million in AFC common stock, options and
warrants. In addition, the Company established a payable of approximately $3.8
million pursuant to a holdback payment provision in the acquisition agreement.
Included in the adjusted purchase price was a contingent payment of $1.9
million, based upon SCC operations achieving a level of earnings, as defined in
the agreement, over a 52-week period from September 29, 1997 to September 27,
1998.
On October 15, 1998, the Company acquired Cinnabon International, Inc.
("CII"), the operator and franchisor of 363 retail cinnamon roll bakeries
operating in 39 states, Canada and Mexico. Two hundred and eleven of the retail
cinnamon roll bakeries are Company-operated and are located within the United
States. In connection with the acquisition, which was accounted for as a
purchase, CII became a wholly-owned subsidiary of AFC through the merger of AFC
Franchise Acquisition Corp. into CII (the "Acquisition").
The Company acquired CII for $64.0 million in cash. The Company obtained
$44.7 million of the cash consideration from its 1997 Credit Facility, which was
amended to add a $50.0 million Tranche B term loan (see below). The remaining
$19.3 million cash consideration was funded with the proceeds from the sale of
approximately 2.8 million shares of AFC common stock to certain "qualified"
investors who are existing AFC shareholders and option holders. The shares were
sold at a price of $7.75 per share and cash proceeds from the sale totaled
approximately $19.3 million. The Company also received notes receivable from
the investors totaling approximately $1.3 million.
In connection with the acquisition of CII, the Company amended its existing
1997 Credit Facility (See Note 8-"Long-term Debt" of the Company's Consolidated
Financial Statements) to add a $50.0 million Tranche B term loan. The terms of
the amended 1997 Credit Facility remained substantially unchanged with respect
to security interests, covenants and events of default. At the election of the
Company, the Tranche B term loan will bear interest at (i) a defined base rate
plus 1.75% per annum or (ii) LIBOR plus 2.75% per annum, subject to reduction
based on the achievement of certain leverage ratio levels. Principal repayments
under the term loan are due in quarterly instalments of $0.1 million commencing
December 31, 1998 and increasing to $3.8 million beginning September 30, 2002.
The Tranche B term loan matures on June 30, 2004. As of December 27, 1998, total
amounts outstanding under the Company's 1997 Credit Facility included: Tranche A
term loan - $44.3 million; Tranche B term loan - $50.0 million; Acquisition
Facility- $68.0 million; and Revolving Facility - $7.0 million.
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During the fiscal year ended December 27, 1998 the Company invested in
various capital projects totaling $41.5 million. During this period the Company
invested $13.7 million in new restaurant locations, $4.1 million in its re-
imaging and renovation program and $5.1 million in new management information
systems. In addition, during 1998 the Company invested $18.6 million in other
capital assets to update, replace and extend the lives of restaurant equipment
and facilities and complete other projects. Approximately $3.7 million of the
above capital projects were financed through capital lease obligations or note
payable obligations. The remaining capital projects were financed primarily
through cash flows provided from normal operating activities and internal funds.
Based upon the current level of operations and anticipated growth,
management of the Company believes that available cash flow, together with the
available borrowings under the Senior Secured Credit Facility and other sources
of liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments
under the Senior Subordinated Notes and the Senior Secured Credit Facility.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
debt and changes in commodity prices. In addition, a portion of the Company's
receivables are denominated in foreign currency, which exposes it to exchange
rate movements. Historically, the Company has not utilized hedging contracts to
manage its exposure to foreign currency rate fluctuations since the market risk
associated with international receivables was not determined to be significant.
Management anticipates that such hedging contracts may be used to some extent in
1999 and beyond to reduce the Company's exposure to future foreign currency rate
fluctuations.
The Company's net exposure to interest rate risk consists of its Senior
Subordinated Notes and borrowings under its 1997 Credit Facility. The Senior
Subordinated Notes bear interest at a fixed rate of 10.25%. The aggregate
balance outstanding under the Senior Subordinated Notes as of December 27, 1998
was $175.0 million. Should interest rates increase or decrease, the estimated
fair value of these notes would decrease or increase, respectively. As of
December 27, 1998, the fair value of the Senior Subordinated Notes exceeded the
carrying amount by approximately $7.0 million. The Company's 1997 Credit
Facility has borrowings made pursuant to it that bear interest rates that are
benchmarked to US and European short-term interest rates. The balances
outstanding under the 1997 Credit Facility as of December 27, 1998 totaled
$169.3 million. The impact on the Company's annual results of operations of a
hypothetical one-point interest rate change on the outstanding balances under
the 1997 Credit Facility would be approximately $1.7 million. This assumes no
change in the volume or composition of the debt at December 27, 1998.
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The Company and its franchisees purchase certain commodities such as
chicken, potatoes, flour, cooking oil and coffee beans. These commodities are
generally purchased based upon market prices established with vendors. These
purchase arrangements may contain contractual features that limit the price paid
by establishing certain price floors or caps. Historically, the Company has not
used financial instruments to hedge commodity prices. In the future, the
Company intends to enter into commodity hedging initiatives to control the
ultimate cost paid for these products and limit the impact of changes in
commodity prices.
IMPAIRMENTS OF LONG-LIVED ASSETS
Effective December 13, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). Under FAS 121,
the Company reviews its long-lived assets (such as property and equipment) and
certain identifiable intangible assets for impairment whenever events or
circumstances indicate that the carrying value of an asset may not be
recoverable. If the sum of the undiscounted estimated future cash flows of an
asset is less than the carrying value of the asset, an impairment loss equal to
the difference between the carrying value and the fair value of the asset is
recognized. Fair value is estimated to be the present value of expected future
cash flows, as determined by management, after considering such factors as
inflation, interest rates and other economic data.
During 1998 management reviewed the estimated future cash flows expected
from its Chesapeake bakery cafe group and determined an impairment loss equal to
$6.8 million. The bagel bakery industry segment has been weak the last two
years and, as a result, 58 franchised Chesapeake bagel bakeries closed during
1998. Management believes that expected future cash flows from the remaining
bagel bakery restaurants support the carrying values for long-lived tangible and
intangible assets of the Chesapeake brand as of December 27, 1998.
YEAR 2000
The Company relies to a large extent on computer technology to carry out
its day-to-day operations. The Company is currently working to resolve the
potential impact of the Year 2000 on the processing of date-sensitive
information by the Company's information technology ("IT") systems and non-IT
systems that are reliant on computer technology. The Year 2000 problem is the
result of computer programs being written using two digits (rather than four) to
define the applicable year. Any of the Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This problem could result in a system failure or miscalculations
causing disruptions of operations, including, but not limited to, a temporary
inability to process transactions or engage in normal business activities.
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The Company has adopted a Year 2000 plan that includes five phases. These
phases are: 1) inventory 2) assess 3) remediate 4) test and 5) maintain.
Although the pace of the work varies among IT and non-IT systems and the phases
are often conducted in parallel, the inventory and assess phases have been
substantially completed as of December 27, 1998 and the remediation phase is in
progress. Under the Company's current plan, remediation and testing of IT
systems is scheduled to be completed by the end of its third quarter of 1999.
The Company anticipates the timely completion of this compliance assessment,
which should mitigate the Year 2000 issue.
To date, the Company has incurred approximately $0.1 million in Year 2000
costs. These costs are primarily related to fees paid to outside consultants
who helped develop a strategy to assess the Company's Year 2000 issues. The
Company estimates that the total costs of addressing the Year 2000 issue will
approximate $0.9 million, including the amount that has already been expended.
These costs will be funded through operating cash flows.
Based upon its compliance assessment, the Company does not expect the Year
2000 problem, including the cost of making the Company's IT and non-IT systems
Year 2000 compliant, to have a material adverse impact on the Company's
financial position or results of operations in future periods. The cost and
time estimates for the Company's Year 2000 project are based on its best
estimates. There can be no assurance that these estimates will be achieved or
that planned results will be achieved. The inability of the Company to resolve
all potential Year 2000 problems in a timely manner could have a material
adverse impact on the Company.
During August 1994, an outsourcing agreement between the Company and IBM
Global Services ("IGS") was executed to, among other things, enhance and upgrade
the Company's corporate and restaurant hardware and software computer systems.
During the process of upgrading its systems, which is scheduled for completion
by the end of third quarter of 1999, the Company established procedures to
ensure that its new IT systems were Year 2000 compliant. The Company believes
that a significant portion of the potential Year 2000 issues will be resolved
with the completion of its IT system upgrades made in connection with the IGS
contract.
Under the Company's Franchise Awareness Program and Vendor/Supplier Letter
Program, the Company has and will initiate communications with its significant
suppliers and vendors and its franchisee community in an effort to determine the
extent to which the Company's business is vulnerable to the failure by these
third parties to remediate their Year 2000 problems. While the Company has not
been informed of any material risks associated with the Year 2000 problem with
respect to these entities, there can be no assurance that the IT and non-IT
systems of these third parties will be Year 2000 compliant on a timely basis.
The inability of these third parties to remediate their Year 2000 problems could
have a material adverse impact on the Company's financial position and results
of operations.
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The Company has not yet ascertained what the impact would be on the
Company's financial position and results of operations in the event of failure
of the Company's or third parties' IT and non-IT systems due to the Year 2000
issue. The Company began developing a contingency plan in the fourth quarter of
1998 and will continue to develop such plan during the first quarter of 1999
designed to allow continued operations in the event that such failures should
occur.
IMPACT OF INFLATION
The Company believes that, over time, it has generally been able to pass
along inflationary increases in its costs through increased prices of its menu
items. Accordingly, the effects of inflation on the Company's net income
historically have not been, nor are such effects expected to be, materially
adverse. Due to competitive pressures, however, increases in prices of menu
items often lag inflationary increases in costs.
SEASONALITY
The Company has historically experienced the strongest operating results at
Popeyes, Churchs and Chesapeake restaurants during the summer months while
operating results have been somewhat lower during the winter season. Cinnabon
and Seattle Coffee have traditionally experienced the strongest operating
results during the Christmas holiday shopping season between Thanksgiving and
Christmas. Certain holidays and inclement winter weather reduce the volume of
consumer traffic at quick-service restaurants and may impair the ability of
certain restaurants to conduct regular operations for short periods of time.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130") was issued. FAS 130 establishes
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. This standard requires that all items required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement with the same prominence as other financial
statements. FAS 130 is effective for fiscal years beginning after December 15,
1997. Presently, the Company does not have any items which are considered to be
components of comprehensive income and therefore, FAS 130 does not impact the
Company's financial statements at this time.
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employer's Disclosure about Pensions and Other Post-Retirement Benefits" ("FAS
132") was issued. FAS 132 revises employer's disclosures about pension and
other post-retirement benefit plans. It does not change the measurement or
recognition of those plans. This statement is effective for fiscal years
beginning after December 15, 1997 and
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impacts the presentation of financial statement disclosures. The Company
adopted FAS 132 in fiscal year 1998.
In June 1998, Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. The
statement is effective for all quarters of fiscal years beginning after June 15,
1999. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the financial statements at fair
value. Management does not believe the implementation of this recent accounting
pronouncement, if applicable, will have a material effect on its consolidated
financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires that
costs of start-up activities and organization costs be expensed as incurred.
SOP 98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. The Company will adopt SOP 98-5 in fiscal year 1999. It is
management's belief that SOP 98-5 will not have a materially adverse effect on
the Company's financial position or results of operations.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company has included the consolidated financial statements and
supplementary financial information required by this item immediately following
Part IV of this report and hereby incorporates by reference the relevant
portions of those statements and information into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements between the Company and its accountants have occurred
within the 24-month period prior to the date of the Company's most recent
consolidated financial statements.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, executive officers and senior management of AFC are listed
below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Frank J. Belatti 51 Chairman, Chief Executive Officer and
Director
Dick R. Holbrook 46 President, Chief Operating Officer and
Director
Samuel N. Frankel 61 Executive Vice President, Secretary,
General Counsel and Director
Gerald J. Wilkins 41 Chief Financial Officer
Jon Luther 55 President of Popeyes Chicken & Biscuits
Hala Moddelmog 43 President of Churchs Chicken
William M. Van Epps 51 President of International
Gregg A. Kaplan 42 President of Bakery Cafe Group
James W. Clarke 52 President of Seattle Coffee Company
Mark J. Doran 35 Director
Paul Farrar 64 Director
Matt L. Figel 39 Director
Peter Starrett 51 Director
Kelvin J. Pennington 40 Director
John M. Roth 40 Director
Ronald P. Spogli 50 Director
William M. Wardlaw 51 Director
</TABLE>
FRANK J. BELATTI, CHAIRMAN, Chief Executive Officer and Director: Mr.
Belatti has served as the Chairman, Chief Executive Officer and a director of
AFC since it commenced operations in November 1992 following the reorganization
of its predecessor. Prior to joining AFC, from 1990 to 1992, Mr. Belatti was
employed by Hospitality Franchise Systems, Inc., the franchisor for Ramada and
Howard Johnson hotels ("HFS"), as its President and Chief Operating Officer.
From 1989 to 1990, Mr. Belatti was President and Chief Operating Officer of
Arby's, Inc. ("Arby's") and from 1985 to 1989 he served as the Executive Vice
President of Marketing at Arby's.
46
<PAGE>
From 1986 to 1990, Mr. Belatti also served as President of Arby's Franchise
Association Service Corporation ("AFA"), which created and developed the
marketing programs and new product development for the Arby's system. Mr.
Belatti received the 1996 International Foodservice Management Association
Silver Plate award for excellence and achievement in the food-service industry
and is also the 1997 Golden Chain Award winner. He also received the NAACP's
Walter White award and the President's Award for private sector initiatives. In
1999, Mr. Belatti received the Entrepreneur of the Year Award by the
International Franchise Association. Mr. Belatti also serves as Chairman of the
AFC Foundation, Inc., as well as a member of the Boards of Directors for The
Hank Aaron Chasing the Dream Foundation, Inc., The Schenck School, APEX Museum,
The Tandy Corporation and The Urban League. Mr. Belatti is also a member of the
Executive Steering Committee for Habitat for Humanity.
DICK R. HOLBROOK, President, Chief Operating Officer and Director: Mr.
Holbrook joined AFC in November 1992 as Executive Vice President and Chief
Operating Officer and assumed the role of President and Chief Operating Officer
in August 1995. He has been a director of AFC since 1995. From 1991 to 1992, Mr.
Holbrook served as Executive Vice President of Franchise Operations of HFS. From
1972 to 1991, Mr. Holbrook served in various management positions with Arby's,
starting as a crew member and working his way up to Assistant Restaurant
Manager, Restaurant Manager, District Manager, Regional Director of Operations,
Vice President of Operations Development and Training and Senior Vice President
of Franchise Operations. Mr. Holbrook is a member of the Board of Directors of
the AFC Foundation, Inc.
SAMUEL N. FRANKEL, Executive Vice President, Secretary, General Counsel and
Director: Mr. Frankel has served as Executive Vice President since 1996, and as
Secretary and General Counsel of AFC as well as a director of AFC since 1992.
Prior to 1996, Mr. Frankel spent 25 years with Frankel, Hardwick, Tanenbaum &
Fink, P.C., an Atlanta, Georgia law firm specializing in commercial transactions
and business law, including franchising, licensing and distributorship
relationships. Mr. Frankel is a member of the Board of Directors of Colonial
Bank, Hank Aaron Enterprises, Inc., and The Hank Aaron Chasing the Dream
Foundation, Inc.
GERALD J. WILKINS, Chief Financial Officer: Mr. Wilkins has served as the
Chief Financial Officer of AFC since 1995. From 1993 to 1995, Mr. Wilkins was
Vice President of International Business Planning at KFC International in
Louisville, Kentucky. Mr. Wilkins also served in senior management positions
with General Electric Corporation from 1985 to 1993, including Assistant
Treasurer of GE Capital Corporation from 1989 to 1992. He has also worked with
AT&T Corporation and Peat Marwick, Mitchell & Co.
JON LUTHER, President of Popeyes Chicken & Biscuits: Mr. Luther has served
as President of Popeyes Chicken & Biscuits since 1997. Prior to joining AFC, Mr.
Luther was President of CA One Services, Inc., a subsidiary of Delaware North
Enterprises, Inc. in Buffalo, New York from 1992 to 1997. Mr. Luther is a member
of the Board of Directors of the AFC Foundation, Inc.
47
<PAGE>
HALA MODDELMOG, President of Churchs Chicken. Ms. Moddelmog has served as
President of Churchs Chicken since 1996. From 1993 to 1996, Ms. Moddelmog was
Vice President of Marketing and then Senior Vice President/General Manager for
the Churchs brand. From 1990 to 1993, Ms. Moddelmog was Vice President of
Product Marketing and Strategic Planning at AFA in Atlanta. Prior to joining
AFA, Ms. Moddelmog was a marketing manager for BellSouth Services in Atlanta
from 1989 to 1990. Ms. Moddelmog is a member of the Board of Directors of the
AFC Foundation, Inc.
WILLIAM M. VAN EPPS, President of International: Mr. Van Epps is President
of International, a position he assumed in March 1998. He served as President of
Chesapeake from April 1997 to February 1998. He served as President--Worldwide
Business Development from 1996 to March 1997. From 1995 to 1996 Mr. Van Epps
served as President--International and he was Senior Vice President--
International from 1993 to 1995. From 1988 to 1993, Mr. Van Epps was Vice
President of Marketing and International at Western Sizzlin, Inc. From 1984 to
1988, Mr. Van Epps was President of Mid-American Restaurant Systems and the
President of Intercontinental Foodservice from 1982 to 1984. Mr. Van Epps was
with PepsiCo Foodservice International from 1977 to 1982, in a variety of
positions.
GREGG A. KAPLAN, President of Bakery Cafe Group: Mr. Kaplan assumed the
position as President of the Bakery Cafe Group in March 1998. He served as Vice
President of Strategic Development with the Company from June 1996 to March
1998. Mr. Kaplan formerly served as Senior Vice President of Marketing with
Shoney's, Inc. Mr. Kaplan joined Shoney's, Inc. in December 1990. From January
1989 to December 1990, Mr. Kaplan served as Vice President of Marketing with
Rally's Inc. From 1983 to 1988, Mr. Kaplan was the Director of Marketing at
Wendy's International. Mr. Kaplan is a member of the Board of Directors of the
International Franchise Association.
JAMES W. CLARKE, President of Seattle Coffee Company: Mr. Clarke assumed
the position of President of Seattle Coffee Company in October 1998. He served
as Seattle Coffee Company's Chief Operating Officer from April 1997 to September
1998. Between August 1995 and May 1997, Mr. Clarke was the Senior Vice President
of Marketing at Seattle Coffee Company. Mr. Clarke is also a member of the
Boards of Directors of the Salvation Army of King County and the Pacific
Northwest Aquarium.
MARK J. DORAN, Director: Mr. Doran joined FS&Co. in 1988 and became a
general partner in March 1998. Previously, Mr. Doran was employed in the high
yield department of Kidder, Peabody & Co. Incorporated. Mr. Doran became a
director of AFC in April 1996.
PAUL FARRAR, Director: Mr. Farrar served as a Senior Vice President of
Canadian Imperial Bank of Commerce in Toronto, Canada from 1986 to 1993 and has
been retired since then. Mr. Farrar became a director of AFC in 1992. Mr. Farrar
also serves as a member of the Boards of Directors for Consumers Packaging,
Inc., Anchor Glass Container Corporation, Adelaide Capital Corp., and Pendaries
Petroleum, Ltd.
48
<PAGE>
MATT L. FIGEL, Director: Mr. Figel founded Doramar Capital, a private
investment firm, in January 1997. From October 1986 to December 1996, Mr. Figel
was employed by FS&Co. Mr. Figel became a director of AFC in April 1996.
PETER STARRETT, Director: Mr. Starrett founded Peter Starrett Associates, a
retail advisory firm, in August 1998. From 1990 to 1998, Mr. Starrett was the
President of Warner Bros. Studio Stores Worldwide. Previously, he held senior
executive positions at both Federated Department Stores and May Department
Stores. Mr. Starrett also serves on the boards of directors of Brylane, Inc.,
Guitar Center, Inc. and Petco Animal Supplies, Inc.
KELVIN J. PENNINGTON, Director: Mr. Pennington has served as Managing
General Partner of PENMAN Asset Management, L.P., the general partner of PENMAN
Private Equity and Mezzanine Fund, L.P., in Chicago, Illinois since 1992. Mr.
Pennington became a director of AFC in May 1996. Mr. Pennington also serves as a
member of the Boards of Directors for Liberty Service Corporation, MainStreet
Healthcare Corporation and HTD Corporation.
JOHN M. ROTH, Director: Mr. Roth joined FS&Co. in March 1988 and became a
general partner in March 1993. From 1984 to 1988, Mr. Roth was employed by
Kidder, Peabody & Co. Incorporated, his most recent position being a Vice
President in the Merger and Acquisition Group. Mr. Roth became a director of AFC
in April 1996 and is also a member of the Boards of Directors of EnviroSource,
Inc. and Advance Holding Corporation.
RONALD P. SPOGLI, Director: Mr. Spogli is a founding partner of FS&Co. He
became a director of AFC in April 1996. Mr. Spogli is the Chairman of the
Executive Committee and a director of EnviroSource, Inc. and also serves on the
Boards of Directors of Advance Holding Corporation, Century Maintenance Supply
and Hudson Respiratory Care, Inc.
WILLIAM M. WARDLAW, Director: Mr. Wardlaw joined FS&Co. in March 1988 and
became a general partner in January 1991. From 1984 to 1988, Mr. Wardlaw was a
principal of the law firm of Riordan & McKinzie. Mr. Wardlaw became a director
of AFC in April 1996.
49
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Chief Executive Officer and the other four of AFC's most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 (the "Named Executive Officers") during the fiscal years ended December
27, 1998, December 28, 1997 and December 29, 1996.
<TABLE>
<CAPTION>
Annual Compensation All Other
- ---------------------------------- ---------------------------------------------------------
Name and Principal Position Year Salary Bonus/(1)/ Compensation/(2)/
- ---------------------------------- ----------- ----------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
FRANK J. BELATTI 1998 $495,385 - $ 19,560/(3)/
Chief Executive Officer 1997 468,462 660,000 55,860
1996 430,000 515,045 32,943
DICK R. HOLBROOK 1998 $345,385 - $ 17,935/(3)/
President and 1997 323,077 270,000 21,635
Chief Operating Officer 1996 300,000 220,000 13,643
SAMUEL N. FRANKEL 1998 $311,538 - $ 50,995
Executive Vice President, 1997 294,231 250,000 50,995
Secretary and 1996 275,000 200,000 32,745
General Counsel
WILLIAM M. VAN EPPS 1998 $266,154 - $ 5,833/(3)/
President of 1997 236,615 90,000 5,617/(3)/
International 1996 196,720 100,000 5,758/(3)/
HALA MODDELMOG 1998 $266,154 - $ 2,935/(3)/
President of Churchs Chicken 1997 230,001 120,000 2,935/(3)/
1996 178,079 80,000 2,860/(3)/
</TABLE>
______________
(1) The bonus amounts shown for 1997 and 1996 for all Named Executive Officers
other than Mr. Van Epps and Ms. Moddelmog reflect annual payments that were
based solely on Company performance during 1997 and 1996 as determined using
performance objectives established for fiscal years 1997 and 1996. The amounts
shown for Mr. Van Epps and Ms. Moddelmog were largely (but not exclusively)
based on performance objectives established for their individual business
segments for fiscal years 1997 and 1996.
(2) The amounts shown under All Other Compensation reflect life insurance
premiums paid by AFC with respect to split dollar life insurance policies for
the benefit of the Messrs. Belatti, Holbrook and Frankel. AFC also paid $4,633,
$4,417 and $4,633 in life insurance premiums in 1998, 1997 and 1996,
respectively, for the split dollar life insurance policy for the benefit of Mr.
Van Epps. AFC also paid $1,735 in life insurance premiums in 1998, 1997 and 1996
for the split dollar life insurance policy for the benefit of Ms. Moddelmog.
(3) Includes matching contributions by AFC into the AFC Deferred Compensation
Plan on behalf of Messrs. Belatti and Holbrook of $1,200. Includes matching
contributions by AFC into the qualified employee benefit plan under Section
401(k) of the Code on behalf of (i) Mr. Van Epps of $1,200, $1,200 and $1,125
for 1998, 1997 and 1996, respectively, and (ii) Ms. Moddelmog of $1,200, $1,200
and $1,125 for 1998, 1997 and 1996, respectively.
EMPLOYMENT AGREEMENTS
FRANK J. BELATTI. Mr. Belatti and AFC entered into an employment agreement
on November 5, 1992, as amended, on November 5, 1995 (the "Belatti Agreement").
The Belatti Agreement contains customary employment terms and provides for a
current annual base salary of $500,000, subject to annual adjustment by the
Board of Directors,
50
<PAGE>
an annual incentive bonus, stock options, fringe benefits, participation in all
Company-sponsored benefit plans and such other compensation as may be approved
by the Board of Directors. The term of the Belatti Agreement terminates on
November 5, 2001, unless earlier terminated or otherwise renewed, pursuant to
the terms thereof. Pursuant to the terms of the Belatti Agreement, if Mr.
Belatti's employment is terminated without cause or if written notice not to
renew his employment is given by AFC, Mr. Belatti would be entitled to, among
other things, one to two-and-one-half times his base annual salary, depending on
his length of service at such termination date, and the bonus payable to him for
the fiscal year in which such termination occurs. Under the Belatti Agreement,
upon (i) a change of control of AFC, (ii) a significant reduction in Mr.
Belatti's responsibilities, title or duties or (iii) the relocation of AFC's
principal office more than 45 miles from its current location (except to
Atlanta, Georgia), Mr. Belatti may terminate his employment and would be
entitled to receive, among other things, the same severance pay he would have
received had his employment been terminated by AFC without cause.
DICK R. HOLBROOK. Mr. Holbrook and AFC entered into an employment agreement
on November 5, 1992, as amended, on November 5, 1995 (the "Holbrook Agreement").
The Holbrook Agreement contains customary employment terms and provides for a
current annual base salary of $350,000, subject to annual adjustment by the
Board of Directors, an annual incentive bonus, stock options, fringe benefits,
participation in all Company-sponsored benefit plans and such other compensation
as may be approved by the Board of Directors. The term of the Holbrook Agreement
terminates on November 5, 2001, unless earlier terminated or otherwise renewed,
pursuant to the terms thereof. Pursuant to the Holbrook Agreement, if Mr.
Holbrook's employment is terminated without cause or if written notice not to
renew his employment is given by AFC, he would be entitled to, among other
things, one to two-and-one-half times his base annual salary, depending on his
length of service at such termination date, and the bonus payable to him for the
fiscal year in which such termination occurs. Under the Holbrook Agreement, upon
(i) a change of control of AFC, (ii) a significant reduction in Mr. Holbrook's
responsibilities, title or duties not approved by Mr. Belatti or (iii) AFC
relocates its principal office more than 45 miles from its current location
(except to Atlanta, Georgia), Mr. Holbrook may terminate his employment and
would be entitled to receive, among other things, the same severance pay he
would have received had his employment been terminated by AFC without cause.
SAMUEL N. FRANKEL. Mr. Frankel and AFC entered into an employment agreement
on December 5, 1995 (the "Frankel Agreement"). The Frankel Agreement contains
customary employment terms and provides for a base annual salary of $315,000,
subject to annual adjustment by the Board of Directors, and for an annual
incentive bonus. The term of the Frankel Agreement terminates on December 5,
2001, unless earlier terminated or otherwise renewed pursuant to the terms
thereof. Pursuant to the Frankel Agreement, if Mr. Frankel's employment is
terminated without cause or if written notice not to renew is given by AFC, he
would be entitled to, among other things, two-and-one-half times his base annual
salary, and the bonus payable to him for the fiscal year in which such
termination occurs. Under the Frankel Agreement, upon (i) a change of control of
AFC, (ii) a significant reduction in Mr. Frankel's responsibilities, title or
duties not approved by Mr. Belatti or (iii) the relocation of AFC's principal
office more
51
<PAGE>
than 45 miles from its current location (except to Atlanta, Georgia), Mr.
Frankel may terminate his employment and would be entitled to receive, among
other things, the same severance pay he would receive if he was terminated by
AFC without cause.
OPTION PLANS
1992 NONQUALIFIED STOCK OPTION PLAN
The 1992 Nonqualified Stock Option Plan (the "1992 Option Plan"), provides
for the grant of options to purchase shares of Common Stock to selected officers
of AFC. Options under the 1992 Option Plan are not intended to qualify for
treatment as incentive stock options under Section 422A of the Internal Revenue
Code of 1986, as amended ("Section 422A"). Options under the 1992 Option Plan
became exercisable at various dates beginning on January 1, 1994. If not
exercised, options under the 1992 Option Plan will expire 15 years after their
issuance (if not sooner due to termination of employment). If the employment of
an optionee under the 1992 Option Plan is terminated for any reason, AFC may be
required to repurchase the shares of Common Stock acquired by such optionee
pursuant to such plan. Up to 1,808,864 shares of Common Stock have been reserved
for issuance under the 1992 Option Plan. Prior to April 1996, options with
respect to 669,334, 200,000, 170,000, 35,000 and 35,000 shares of Common Stock
were issued to Messrs. Belatti, Holbrook, Frankel and Van Epps and Ms.
Moddelmog, respectively, at an exercise price of $0.10. On April 11, 1996, this
exercise price was adjusted to $0.08 per share and additional options with
respect to 196,849, 58,860, 50,000, 10,300 and 10,300 shares of Common Stock
were issued to Messrs. Belatti, Holbrook, Frankel and Van Epps and Ms.
Moddelmog, respectively, also at an exercise price of $0.08 per share. As of
December 27, 1998, options with respect to 1,635,757 shares of Common Stock were
outstanding under the 1992 Option Plan, of which options with respect to
1,560,563 shares of Common Stock were exercisable.
1996 NONQUALIFIED PERFORMANCE STOCK OPTION PLAN--EXECUTIVE
Certain senior executives of AFC are eligible to participate in AFC's 1996
Nonqualified Performance Stock Option Plan--Executive (the "Executive
Performance Option Plan"). Up to 1,507,489 shares of Common Stock may be issued
under the Executive Performance Option Plan. Under the Executive Performance
Option Plan, participants may be granted options to purchase shares of Common
Stock at an option price determined by the Board of Directors of AFC. Options
under the Executive Performance Option Plan are not intended to qualify for
treatment as incentive stock options under Section 422A. The Executive
Performance Option Plan is administered by the compensation committee of the
Board of Directors (the "Compensation Committee"). All options granted under the
Executive Performance Option Plan may vest over four to five years commencing on
the first anniversary of the date of grant according to performance criteria
relating to AFC's earnings on a fiscal year basis. Pursuant to the Executive
Performance Option Plan, on April 26, 1996 AFC granted options with respect to
800,000, 400,000 and 225,000 shares of Common Stock to Messrs. Belatti, Holbrook
and Frankel, respectively, at an exercise price of $3.317 per share. In 1997,
AFC granted options with respect to 10,019, 4,517 and 4,517 shares of Common
Stock to Messrs.
52
<PAGE>
Belatti, Holbrook and Frankel, respectively, at an exercise price of $4.95 per
share. In 1998, AFC granted options with respect to 23,328, 20,000 and 20,000
shares of Common Stock to Messrs. Belatti, Holbrook and Frankel, respectively,
at an exercise price of $7.50 per share.
All options granted under the Executive Performance Option Plan will expire
ten years from the date of grant unless terminated earlier due to certain
circumstances. The exercisability of options under the Executive Performance
Option Plan may be accelerated, at the discretion of the Compensation Committee.
Additionally, the Executive Performance Option Plan provides that, at any time
prior to five years after the date of grant of an option, AFC may elect to
repurchase all or any portion of the shares of Common Stock acquired by the
participant by the exercise of the options for a period of six months after the
date of termination of the participant's employment. The purchase price for such
repurchased shares shall be their "fair market value" thereof, as determined by
the Board of Directors. The Executive Performance Option Plan contains
provisions relating to certain "tag-along" and "drag-along" rights should the FS
Entities (as defined herein) find a third-party buyer for all of the Common
Stock held thereby.
Effective on December 15, 1998, the Company's Board of Directors approved
the cancellation of 510,842, 263,428 and 158,428 unvested options as of December
27, 1998 held by Messrs. Belatti, Holbrook and Frankel, respectively. These
options had exercise prices that ranged from $3.32 per share to $7.50 per share.
In connection with the cancellation, the Board of Directors also approved the
grant of 510,842, 263,428 and 158,428 options for Messrs. Belatti, Holbrook and
Frankel, respectively at an exercise price of $7.75 per share, which was the
fair value of the Company's Common Stock at the date of grant. Additionally,
Messrs. Belatti, Holbrook and Frankel became fully vested in these options upon
the date of grant. As of December 27, 1998, options with respect to 1,507,489
shares of Common Stock were outstanding and exercisable under the Executive
Performance Option Plan.
1996 NONQUALIFIED PERFORMANCE STOCK OPTION PLAN--GENERAL
Certain officers and key employees not covered by the Executive Performance
Option Plan are eligible to receive options to purchase Common Stock under AFC's
1996 Nonqualified Performance Stock Option Plan--General ("General Performance
Option Plan"). Up to 1,205,806 options to purchase shares of Common Stock are
issuable under the General Performance Option Plan. Options under the General
Performance Option Plan are not intended to qualify for treatment as incentive
stock options under Section 422A. Pursuant to the General Performance Option
Plan, on April 26, 1996, AFC granted options with respect to 100,000 shares of
Common Stock to each of Mr. Van Epps and Mrs. Moddelmog at an exercise price of
$3.317 per share. In 1997, AFC granted options with respect to 8,547 and 2,377
shares of Common Stock to Mr. Van Epps and Mrs. Moddelmog, respectively, at an
exercise price of $4.95 per share. The General Performance Option Plan has a
number of terms that are substantially similar to terms found in the Executive
Performance Option Plan. All options granted under the General Performance
Option Plan may vest over four to five years commencing on the first anniversary
of the date of grant according to a performance criteria relating to
53
<PAGE>
AFC's earnings. Such options expire ten years from the date of grant unless
terminated earlier due to certain circumstances. Additionally, the General
Performance Option Plan restricts employees from transferring any shares of
Common Stock received on the exercise of options under the General Performance
Option Plan prior to the fifth anniversary of the date of the grant. Following
such fifth anniversary, AFC has a right of first refusal with respect to any
proposed transfer of such shares of Common Stock. Finally, the General
Performance Option Plan contains provisions relating to certain "tag-along" and
"drag-along" rights should the FS Entities (as defined herein) find a third-
party buyer for all of the Common Stock held thereby. As of December 27, 1998,
options to purchase 1,187,476 shares of Common Stock were outstanding under the
General Performance Option Plan, of which options to purchase 690,699 shares of
Common Stock were exercisable.
1996 NONQUALIFIED STOCK OPTION PLAN
Certain officers and key employees are eligible to receive options to
purchase Common Stock under AFC's 1996 Nonqualified Stock Option Plan (the "1996
Option Plan"). The 1996 Option Plan authorizes AFC to issue up to 1,808,863
options to purchase shares of Common Stock. Options under the 1996 Option Plan
are not intended to qualify for treatment as incentive stock options under
Section 422A. On April 11, 1996, options to purchase 90,000, 55,000 and 35,000
shares of Common Stock were granted to Messrs. Belatti, Holbrook and Frankel,
respectively, at an exercise price of $3.317 per share. On April 26, 1996,
options to purchase 5,000 shares of Common Stock were granted under the 1996
Option Plan to Mr. Van Epps and Ms. Moddelmog also at an exercise price of
$3.317 per share. In 1997, options to purchase 32,390, 14,963, 14,963, 7,782 and
7,782 shares of Common Stock were granted to Messrs. Belatti, Holbrook, Frankel,
Van Epps and Ms. Moddelmog at an exercise price of $4.95 per share. On January
1, 1998, options to purchase 16,672 and 5,000 shares were granted to Messrs.
Belatti and Holbrook at an exercise price of $7.50 per share. On October 1,
1998, options to purchase 8,000 and 20,000 shares were granted to Mr. Van Epps
and Ms. Moddelmog at an exercise price of $7.50 per share. The 1996 Option Plan
contains many of the same provisions of the Executive Performance Option Plan
and the General Performance Option Plan. All options granted under the 1996
Option Plan vest in 25% increments upon each of the first, second, third and
fourth anniversaries of the date of grant and expire seven years from the date
of grant, unless terminated earlier due to certain circumstances. The 1996
Option Plan includes the same repurchase rights found in the Executive
Performance Option Plan and the General Performance Option Plan. Additionally,
the 1996 Option Plan contains the transfer restrictions, rights of first refusal
and "tag-along" and "drag-along" rights as found in the General Performance
Option Plan. As of December 27, 1998, options with respect to 1,036,143 shares
of Common Stock were outstanding under the 1996 Option Plan, of which options to
purchase 241,968 shares of Common Stock were exercisable.
54
<PAGE>
The following table sets forth information concerning the number and value
of securities underlying unexercised options held by each of the Named Executive
Officers at December 28, 1997.
AFC OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants(1) Potential Realizable
------------------------------------------------------------- Value at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Appreciation for Option
Underlying Granted to Exercise Term(2)
Options Employees in or Expiration --------------------------
Name Granted (#) Fiscal Year Base Price Date 5% 10%
---- -------------- ------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Belatti 510,842 54.77% $ 7.750 12/15/08 $2,489,810 $6,309,667
16,672 4.09 7.500 1/1/05 50,904 118,628
Dick R. Holbrook 263,428 28.24 7.750 12/15/08 1,283,931 3,253,732
5,000 1.23 7.500 1/1/05 15,266 35,577
Samuel N. Frankel 158,428 16.99 7.750 12/15/08 772,168 1,956,824
William M. Van Epps 8,000 1.96 7.500 10/1/05 24,426 56,923
Hala Moddelmog 20,000 4.91 7.500 10/1/05 61,065 142,308
</TABLE>
_____________
(1) Option grants to the Named Executive Officers set forth in the table were
granted under the Executive Performance Option Plan, with respect to Messrs.
Belatti, Holbrook and Frankel and the 1996 Option Plan, with respect to Messrs.
Belatti, Holbrook and Van Epps and Ms. Moddelmog.
(2) These columns indicate the hypothetical gains of "option spreads" of the
outstanding options granted, based on assumed annual compound stock appreciation
rates of 5% and 10% over the options' terms. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Commission and do not represent
AFC's estimate or projection of the future prices or market value of Common
Stock.
55
<PAGE>
The following table sets forth information concerning the number and value
of securities underlying unexercised options held by each of the Named Executive
Officers as of December 27, 1998.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Securities Unexercised Value of Unexercised
Underlying Options at In-the-Money Options at
Dec 27, 1998 (#) Dec. 27, 1998 ($)(1)(2)
--------------------------------- ----------------------------
Not Not
Exercisable Exercisable Exercisable Exercisable
--------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Frank J. Belatti 1,752,637 85,965 8,291,434 271,673
Dick R. Holbrook 719,672 38,722 2,831,569 153,329
Samuel N. Frankel 319,893 41,213 2,128,359 158,263
William M. Van Epps 109,797 68,662 604,883 266,478
Hala Moddelmog 93,860 86,599 502,336 344,025
</TABLE>
_____________
(1) Because there is no established public trading market for Common Stock,
the Board of Directors of AFC must, under certain circumstances, determine the
fair market value of the Common Stock. AFC believes that the fair market value
of the Common Stock was $7.75 per share as of December 27, 1998.
(2) Values for "in-the-money" outstanding options represent the positive
spread between the respective exercise prices of the outstanding options and the
fair market value of the underlying Common Stock of $7.75 per share as described
in Note 1.
1998 SCC PLAN
In connection with the SCC acquisition in March 1998, the Company executed
the Substitute Nonqualified Stock Option Plan ("1998 SCC Plan"). This plan was
established to enable the Company to issue AFC options to former SCC option
holders in order to purchase 100% of SCC's common stock pursuant to the purchase
agreement. The 1998 SCC Plan authorizes the issuance of approximately 0.5
million options at exercise prices that range from $3.91 to $6.75 per share. The
Company issued approximately 0.4 million options at the closing date of the
acquisition. The issuance of the remaining 0.1 million is subject to a
reduction of a holdback provision in the agreement. At December 27, 1998, the
weighted-average price per share was $4.74. The options vest when issued by the
Company and expire at various dates through October 31, 2007. At December 27,
1998, the weighted-average contractual life of these options was 6.6 years. As
of December 27, 1998, 457,398 options were exercisable.
STOCK BONUS PLANS
Officers, key employees and certain consultants of AFC have received shares
of Common Stock under AFC's 1996 Employee Stock Bonus Plan--Executive (the
"Executive Bonus Plan") and the 1996 Stock Bonus Plan--General (the "General
Bonus Plan"). On April 26, 1996, an aggregate of 2,649,969 shares of Common
Stock were issued under the Executive Bonus Plan and an aggregate of 364,803
shares of Common Stock were issued under the General Bonus Plan at a fair market
value of $3.317 per share. On such date, Messrs. Belatti, Holbrook and Frankel
were issued 1,329,969, 660,000 and 660,000 shares of Common Stock, respectively,
under the Executive Bonus Plan and Mr. Van Epps and Ms. Moddelmog were each
issued 34,700 shares of Common Stock under the General Bonus Plan. Under each
such plan, at any time prior to five years after the date of grant of Common
Stock bonuses, AFC has the option, in certain circumstances, to repurchase all
or any portion of the shares of Common Stock acquired by the plan participant
for a period of six months after the date of termination of the participant's
employment. The price for such repurchase will be the fair market value of the
shares as determined by the Board of Directors, except for termination of
employment other than death or disability under the General Bonus Plan. In such
instances, the repurchase price shall be a certain fraction of the fair market
value, depending on the length of employment by such employee. This repurchase
option terminates upon AFC's initial public offering of Common Stock or a change
of control with respect to AFC. In addition, shares issued under the General
Bonus Plan are also subject to the same transfer restrictions, rights of first
refusal and "tag-along" and "drag-along" rights that are found in the General
Option Plan. No further shares are available for issuance under either the
Executive Bonus Plan or the General Bonus Plan.
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<PAGE>
In connection with the issuance of shares of Common Stock under the
Executive Bonus Plan and the General Bonus Plan, AFC offered to loan the
participating employee an amount sufficient to pay for the employee's tax
obligation resulting from the issuance of shares of Common Stock to such
employee. If accepted by the employee, such loan would be evidenced by a
promissory note which will be due on December 31, 2003 and accrues interest at
6.25% per annum. Such notes are secured by the pledge of the shares issued to
the employee. As of December 27, 1998, under the Executive Bonus Plan and the
General Bonus Plan, Messrs. Belatti, Holbrook, Frankel and Van Epps and Ms.
Moddelmog had issued promissory notes to AFC in the outstanding principal
amounts of $2,078,726, $1,030,028, $1,030,028, $51,795 and $51,795,
respectively.
OTHER EMPLOYEE BENEFIT PLANS
On April 19, 1994, AFC adopted a nonqualified retirement, disability and
death benefit plan ("Retirement Plan") for certain officers. Retirement
benefits under the Retirement Plan are unfunded. Annual benefits are equal to
30% of the executive's average base compensation for the five years preceding
retirement. The benefits are payable in 120 equal monthly installments
following the executive officer's retirement date. Death benefits under the
Retirement Plan cover certain executive officers and are up to five times the
officer's base compensation at the time of employment. AFC has the discretion
to increase the employee's death benefits. Death benefits are funded by split
dollar life insurance arrangements. The accumulated benefit obligation relating
to the Retirement Plan was approximately $1.5 million on December 27, 1998. AFC
also provides post-retirement medical benefits (including dental coverage) for
certain retirees and their spouses. This benefit begins on the date of
retirement and ends after 120 months or upon the death of both parties.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
AFC's executive committee of the Board of Directors oversees compensation
matters. Messrs. Belatti and Frankel, two Named Executive Officers, serve on
the executive committee but neither Mr. Belatti nor Mr. Frankel participated in
matters regarding his own compensation.
57
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the total number and percentage of the
outstanding shares of the Company's Common Stock beneficially owned as of March
29, 1999, with respect to each person (including any "group" as used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) the Company knows
to have beneficial ownership of more than 5% of the Common Stock. The Company
computed the percentage ownership amounts in accordance with the provisions of
Rule 13d-3(d), which includes as beneficially owned all shares of Common Stock
which the person or group has the right to acquire within the next 60 days. The
percentages are based upon 39,233,441 shares outstanding as of March 29, 1999.
OWNERSHIP OF AFC COMMON STOCK
<TABLE>
<CAPTION>
Shares of Percentage of
Name(1) Common Stock Common Stock
------- --------------- -------------
<S> <C> <C>
Freeman Spogli & Co. Incorporated(2)(3)...................... 21,212,421 54.1%
Canadian Imperial Bank of Commerce(4)........................ 6,312,724 16.1%
PENMAN Private Equity and Mezzanine Fund, L.P.(5)............ 2,361,954 6.0%
ML IBK Positions, Inc.(6).................................... 2,050,000 5.2%
Frank J. Belatti(7)(8)....................................... 3,234,140 7.9%
Dick R. Holbrook(7)(9)....................................... 1,401,326 3.5%
Samuel N. Frankel(7)(10)..................................... 1,211,275 3.0%
William M. Van Epps(7)(11)................................... 132,807 *
Hala Moddelmog(7)(12)........................................ 128,765 *
Mark J. Doran(3)............................................. -- --
Paul Farrar(13).............................................. -- --
Matt L. Figel(14)............................................ -- --
Peter Starrett(3)............................................ 44,000 *
Kelvin J. Pennington(5)...................................... -- --
John M. Roth(3).............................................. -- --
Ronald P. Spogli(3).......................................... -- --
William M. Wardlaw(3)........................................ -- --
Directors and officers as a group (34 persons) (15).......... 30,578,339 71.0%
---------------
</TABLE>
______________
* Less than 1.0% of outstanding shares of Common Stock.
(1) The persons named in this table have sole voting power and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and the information
contained in this table and these notes.
(2) The shares shown as beneficially owned by FS&Co. are held of record as
follows: 18,259,483 shares owned by FS Equity Partners III, L.P. ("FSEP III") ,
733,583 shares owned by FS Equity Partners International, L.P. ("FSEP
International")and 2,219,355 shares owned by FS Equity Partners IV, L.P. ("FSEP
IV"). FS Capital Partners, L.P. ("FS Capital"), an affiliate of FS&Co., is the
sole general partner of FSEP III. FS Holdings, Inc. ("FSHI") is the sole
general partner of FS Capital. The sole general partner of FSEP International
is FS&Co. International, L.P. ("FS&Co. International"). The sole general
partner of FS&Co. International is FS International Holdings Limited ("FS
International Holdings"), an affiliate of FS&Co. As the general partners of FS
Capital (which is the general partner of FSEP III) and FS&Co. International
(which is the general partner of FSEP International), respectively, FSHI and FS
International Holdings have the sole power to vote and dispose of the shares of
AFC held by each of FSEP III and FSEP International, respectively.
(3) Messrs. Spogli, Roth and Wardlaw, each of whom is a member of the
Board, and Mr. Bradford M. Freeman, Mr. J. Frederick Simmons and Mr. Charles P.
Rullman, Jr. are the sole directors, officers and shareholders of FS&Co., FSHI
and FS International Holdings, and as such may be deemed to be the beneficial
owners of the shares indicated as beneficially owned by FS&Co. Messrs. Doran and
Starrett, each of whom is a member of the Board, are affiliated with FS&Co. The
business address of
58
<PAGE>
each of FS&Co. and its general partners, FSHI and its sole directors, officers
and shareholders, FS Capital and FSEP III and Mr. Starrett is 11100 Santa Monica
Boulevard, Suite 1900, Los Angeles, California 90025. The business address of
each of FS International Holdings, FS&Co. International and FSEP International
is c/o Paget-Brown & Company, Ltd., West Winds Building, Third Floor, P.O. Box
1111, Grand Cayman, George Town, Cayman Islands, B.W.I. The business address of
Mr. Doran is 599 Lexington Avenue, 18th Floor, New York, New York 10022.
(4) The business address for Canadian Imperial Bank of Commerce is BCE
Place, Bay Street, P.O. Box 500, Toronto, Ontario MBJ258.
(5) Mr. Pennington, who is a member of the Board, and Mr. Lawrence C.
Manson, Jr. are general partners of PENMAN Asset. Management, L.P. ("PENMAN
Asset"), the general partner of PENMAN Private Equity and Mezzanine Fund, L.P.
("PENMAN Equity"), and as such may be deemed to be the beneficial owners of the
shares indicated as beneficially owned by PENMAN. The business address of PENMAN
Equity, PENMAN Asset and each of its general partners is 333 West Wacker Drive,
Suite 700, Chicago, Illinois 60606.
(6) The business address of ML IBK Positions, Inc. is c/o Merrill Lynch &
Co., Inc., Corporate Credit Division, World Financial Center, South Tower, 7th
Floor, New York, New York 10080.
(7) The business address of AFC's executive officers is c/o AFC
Enterprises, Inc., Six Concourse Parkway, Suite 1700, Atlanta, Georgia 30328.
(8) Includes 1,775,138 shares of Common Stock issuable with respect to
options exercisable within 60 days as of March 29, 1999.
(9) Includes 728,422 shares of Common Stock issuable with respect to
options exercisable within 60 days as of March 29, 1999.
(10) Includes 499,622 shares of Common Stock issuable with respect to
options exercisable within 60 days as of March 29, 1999.
(11) Includes 98,107 shares of Common Stock issuable with respect to
options exercisable within 60 days as of March 29, 1999.
(12) Includes 94,065 shares of Common Stock issuable with respect to
options exercisable within 60 days as of March 29, 1999.
(13) Mr. Farrar's mailing address is c/o Canadian Imperial Bank of
Commerce, BCE Place, Bay Street, P.O. Box 500, Toronto, Ontario MBJ258.
(14) Mr. Figel's business address is c/o Doramar Capital, 300 South Grand
Avenue, Suite 2900, Los Angeles, California 90071.
(15) Includes 21,212,421 shares of Common Stock held by affiliates of
FS&Co., 2,361,954 shares of Common Stock held by an affiliate of PENMAN Equity
and 3,812,067 shares of Common Stock issuable with respect to options granted to
certain executive officers that are exercisable within 60 days as of March 29,
1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1998, the Company issued 2,795,703 shares of AFC Common Stock to
certain existing "qualified" shareholders and option holders at a purchase price
of $7.75 per share. The buyers of stock included an affiliate, Freeman Spogli
and Co., Inc. ("FS"), which through other affiliates, is AFC's majority
shareholder, and PENMAN Private Equity and Mezzanine Fund, L.P. Freeman Spogli
purchased 2,219,355 shares of Common Stock for a purchase price of $17.2
million. PENMAN Private Equity and Mezzanine Fund, L.P. purchased 251,613 shares
of Common Stock for a purchase price of approximately $2.0 million. Messrs.
Belatti, Holbrook and Frankel purchased 129,033, 12,904 and 51,613 shares of
Common Stock, respectively, for a purchase price of $1.0 million, $0.1 million
and $0.4 million, respectively.
Messrs. Belatti, Holbrook and Frankel borrowed $0.8 million, $0.1 million
and $0.3 million, respectively, from AFC to cover a portion of the purchase
price of the shares of Common Stock referred to above. Each officer delivered a
promissory note to AFC with respect to the amount borrowed. The notes bear
interest at 7.0% per annum
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<PAGE>
with principal and interest payable at the end of the term of the note, which is
December 31, 2005. The notes are secured by the number of shares of common stock
purchased by the employee with the note proceeds. At December 27, 1998, the
outstanding principal balances plus accrued interest due from Messrs. Belatti,
Holbrook and Frankel was approximately $0.8 million, $0.1 million and $0.3
million, respectively.
As part of the stock offering in October 1998, the Company paid FS $1.0
million, which represented stock issuance costs.
In 1996, Messrs. Belatti, Holbrook, Frankel, Van Epps and Ms. Moddelmog
borrowed approximately $2.0 million, $1.0 million, $1.0 million, $0.1 million
and $0.1 million, respectively, from AFC to cover certain income tax liabilities
arising as a result of the issuance of shares of Common Stock in connection with
a 1996 recapitalization. In 1997, AFC additionally loaned each of Messrs.
Belatti, Holbrook and Frankel approximately $0.1 million with respect to the
above. Each officer delivered a promissory note to AFC with respect to the
amount borrowed thereby and each such promissory note is due on December 31,
2003 with a simple interest rate of 6.25% per annum. In connection with these
notes, each officer also entered into a pledge agreement with AFC whereby each
note is secured by the pledge of shares of Common Stock issued to them. At
December 27, 1998, the outstanding principal balances plus accrued interest due
from Messrs. Belatti, Holbrook, Frankel, Van Epps and Ms. Moddelmog was
approximately $2.4 million, $1.2 million, $1.2 million, $0.1 million and $0.1
million, respectively.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company appear
immediately following this Item 14:
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Public Accountants............................. F-1
Consolidated Balance Sheets as of December 27, 1998 and December
28, 1997........................................................... F-2
Consolidated Statements of Operations for the Years ended December
27, 1998, December 28, 1997 and December 29, 1996.................. F-4
Consolidated Statements of Changes in Shareholders' Equity for
the Years ended December 27, 1998, December 28, 1997 and December
29, 1996........................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December
27, 1998, December 28, 1997 and December 29, 1996.................. F-6
Notes to Consolidated Financial Statements........................... F-8
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
The Company has omitted all other schedules because the conditions
requiring their filing do not exist or because the required information appears
in the Company's Consolidated Financial Statements, including the notes to those
statements.
(C) EXHIBITS
The Company has filed the exhibits listed below with this report.
Exhibit
Number Description
------ -----------
3.1 (a) Articles of Incorporation of AFC Enterprises, Inc. ("AFC"), as
amended to date.
3.2 (a) Amended and Restated Bylaws of AFC (formerly known as America's
Favorite Chicken Company), as amended to date.
4.1 (a) Indenture dated as of May 21, 1997 between AFC and United States
Trust Company of New York, as Trustee, with respect to the 10
1/4% Senior Subordinated Notes due 2007.
4.2 (a) Exchange and Registration Rights Agreement, dated as of May 21,
1997, by and among AFC, Goldman, Sachs & Co., CIBC Wood Gundy
Securities Corp. and Donaldson, Lufkin & Jenrette Securities
Corporation.
61
<PAGE>
4.3 (h) Amended and Restated Credit Agreement, dated as of October 15,
1998, among AFC Enterprises, Inc. and Goldman Sachs Credit
Partners L.P., as Syndication Agent and Lead Arranger and the
financial institutions listed therein (collectively "Lenders")
and Canadian Imperial Bank of Commerce, as Administrative
Agent.
4.4 (a) Security Agreement, dated as of May 21, 1997, by and between
AFC and CIBC, as Administrative Agent.
4.5 (a) Pledge Agreement, dated as of May 21, 1997, by and between AFC
and CIBC, as Administrative Agent.
4.6 (a) Trademark Security Agreement, dated as of May 21, 1997, by and
between AFC and CIBC, as Administrative Agent.
4.7 (a) Patent and Copyright Security Agreement, dated as of May 21,
1997, by and between AFC and CIBC, as Administrative Agent.
4.8 (a) Collateral Account Agreement, dated as of May 21, 1997, by and
between AFC and CIBC, as Administrative Agent.
4.9 (a) Form of Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing, dated as of May 21, 1997, between AFC and CIBC,
as Administrative Agent.
10.1 (a) Stock Purchase Agreement dated February 23, 1996 among AFC, FS
Equity Partners, L.P. III ("FSEP III"), and FS Equity Partners
International, L.P. ("FSEP International").
10.2 (a) Stockholders Agreement dated April 11, 1996 among FSEP III and
FSEP International, CIBC, Pilgrim Prime Rate Trust, Van Kampen
American Capital Prime Rate Income Trust, Senior Debt
Portfolio, ML IBK Positions Inc., Frank J. Belatti, Dick R.
Holbrook, Samuel N. Frankel (collectively, the "Stockholders")
and AFC.
10.3 (a) Amendment No. 1 to Stockholders Agreement dated May 1, 1996
among the Stockholders, AFC and PENMAN Private Equity and
Mezzanine Fund, L.P.
10.4 (a) Asset Purchase Agreement dated March 24, 1997 by and between
AFC and Atlanta Franchise Development Company, LLC.
10.5 (a) Asset Purchase Agreement dated May 5, 1997 among AFC, The
American Bagel Company d/b/a Chesapeake Bagel Bakery, Michael
Robinson, and Alan Manstof.
10.6 (a) Form of Popeye's Development Agreement
10.7 (a) Form of Church's Development Agreement
10.8 (a) Form of Popeye's Franchise Agreement
10.9 (a) Form of Church's Franchise Agreement
62
<PAGE>
10.10 (a) Formula Agreement dated July 2, 1979 among Alvin C. Copeland,
Gilbert E. Copeland, Mary L. Copeland, Catherine Copeland,
Russell J. Jones, A. Copeland Enterprises, Inc. and Popeyes
Famous Fried Chicken, Inc. (a predecessor of AFC).
10.11 (a) Amendment to Formula Agreement dated March 21, 1989 by and
among Alvin Copeland, New Orleans Spice Company, Inc. and
Biscuit Investments, Inc. (a predecessor of AFC).
10.12 (a) Second Amendment to Formula Agreement dated March 21, 1989 by
and among Alvin C. Copeland, Biscuit Investments, Inc. and New
Orleans Spice Company, Inc.
10.13 (a) Supply Agreement dated March 21, 1989 between New Orleans Spice
Company, Inc. and Biscuit Investments, Inc.
10.14 (a) Recipe Royalty Agreement dated March 21, 1989 by and among
Alvin C. Copeland, New Orleans Spice Company, Inc. and Biscuit
Investments, Inc.
10.15 (a) Licensing Agreement dated March 11, 1976 between King Features
Syndicate Division of The Hearst Corporation and A. Copeland
Enterprises, Inc.
10.16 (a) Assignment and Amendment dated January 1, 1981 between A.
Copeland Enterprises, Inc., Popeyes Famous Fried Chicken, Inc.
and King Features Syndicate Division of The Hearst Corporation.
10.17 (a) Popeye License Agreement dated January 1, 1981 between King
Features Syndicate Division of The Hearst Corporation and
Popeyes Famous Fried Chicken, Inc.
10.18 (a) Letter Agreement dated September 17, 1981 between King Features
Syndicate Division of The Hearst Corporation, A. Copeland
Enterprises, Inc. and Popeyes Famous Fried Chicken, Inc.
10.19 (a) License Agreement dated December 19, 1985 by and between King
Features Syndicate, Inc., The Hearst Corporation, Popeyes, Inc.
and A. Copeland Enterprises, Inc.
10.20 (a) Letter Agreement dated July 20, 1987 by and between King
Features Syndicate, Division of The Hearst Corporation,
Popeyes, Inc. and A. Copeland Enterprises, Inc.
10.21 (a) Employment Agreement dated November 5, 1992 between AFC and
Frank J. Belatti.
10.22 (a) Amendment No. 1 to Employment Agreement dated November 5, 1995
between AFC and Frank J. Belatti.
10.23 (a) Employment Agreement dated as of November 5, 1992 between AFC
and Dick
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<PAGE>
R. Holbrook.
10.24 (a) Amendment No. 1 to Employment Agreement dated November 5, 1995
between AFC and Dick R. Holbrook.
10.25 (a) Employment Agreement dated December 5, 1995 between AFC and
Samuel N. Frankel.
10.26 (a) 1992 Stock Option Plan of AFC (formerly America's Favorite
Chicken Company) effective as of November 5, 1992.
10.27 (a) First Amendment to 1992 Stock Option Plan dated July 19, 1993.
10.28 (a) Second Amendment to 1992 Stock Option Plan dated December 17,
1993.
10.29 (a) Third Amendment to 1992 Stock Option Plan dated April 11, 1996.
10.30 (a) 1996 Nonqualified Performance Stock Option Plan (Executive) of
AFC effective as of April 11, 1996.
10.31 (a) 1996 Nonqualified Performance Stock Option Plan (General) of
AFC effective as of April 11, 1996.
10.32 (a) 1996 Nonqualified Stock Option Plan of AFC effective as of
April 11, 1996.
10.33 (a) Form of Nonqualified Stock Option Agreement (General) between
AFC and stock option participants.
10.34 (a) Form of Nonqualified Stock Option Agreement (Executive) between
AFC and certain key executives.
10.35 (a) 1996 Employee Stock Bonus Plan (Executive) of AFC effective as
of April 11, 1996.
10.36 (a) 1996 Employee Stock Bonus Plan (General) of AFC effective as of
April 11, 1996.
10.37 (a) Form of Stock Bonus Agreement (Executive) between AFC and
certain executive officers.
10.38 (a) Form of Stock Bonus Agreement (General) between AFC and certain
key officers and employees.
10.39 (a) Form of Secured Promissory Note issued to certain members of
management.
10.40 (a) Form of Stock Pledge Agreement between AFC and certain members
of management.
64
<PAGE>
10.41 (a) AFC 1994 Supplemental Benefit Plan for Executive Officers dated
May 9, 1994.
10.42 (a) AFC 1994 Supplemental Benefit Plan for Senior and Executive
Staff Officers dated April 19, 1994.
10.43 (a) AFC 1994 Supplemental Benefit Plan for Senior Officers/General
Managers dated May 9, 1994.
10.44 (a) AFC 1994 Supplemental Benefit Plan for Designated Officers
dated May 9, 1994.
10.45 (a) Settlement Agreement between Alvin C. Copeland, Diversified
Foods and Seasonings, Inc., Flavorite Laboratories, Inc. and
AFC dated May 29, 1997.
10.46 (a) Sublease dated March 1, 1997 by and between AFC and Foresight
Software, Inc.
10.47 (a) Lease dated December 31, 1992 by and between Concourse VI
Associates and AFC.
10.48 (a) First Amendment to Lease Agreement dated January 1993 by and
between AFC and Concourse VI Associates.
10.49 (a) Second Amendment to Lease Agreement dated June 24, 1993 by and
between AFC and Concourse VI Associates.
10.50 (a) Third Amendment to Lease Agreement dated June 17, 1994 by and
between AFC and Concourse VI Associates.
10.51 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and William M. Wardlaw.
10.52 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and Ronald P. Spogli.
10.53 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and John M. Roth.
10.54 (a) Indemnification Agreement dated May 1, 1996 by and between AFC
and Kelvin J. Pennington.
10.55 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and Dick R. Holbrook.
10.56 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and Todd W. Halloran.
10.57 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and Samuel N. Frankel.
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<PAGE>
10.58 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and Matt L. Figel.
10.59 (a) Indemnification Agreement dated July 2, 1996 by and between AFC
and Paul H. Farrar.
10.60 (a) Indemnification Agreement dated July 2, 1997 by and between AFC
and Mark J. Doran.
10.61 (a) Indemnification Agreement dated April 11, 1996 by and between
AFC and Frank J. Belatti.
10.62 (b) Credit Agreement dated August 12, 1997, between AFC and Banco
Popular ("Banco Popular") De Puerto Rico for Turnkey
Development program financing.
10.63 (b) Exhibit A (the Budget) of Credit Agreement dated August 12,
1997 between AFC and Banco Popular.
10.64 (b) Exhibit B (Form of Notes) of Credit Agreement dated August 12,
1997 between AFC and Banco Popular.
10.65 (b) Exhibit C (Form of Leasehold Mortgage) of Credit Agreement
dated August 12, 1997 between AFC and Banco Popular.
10.66 (b) Exhibit D (Form of Owned Property Mortgage) of Credit Agreement
dated August 12, 1997 between AFC and Banco Popular.
10.67 (b) Exhibit E (Form of Assignment of Contracts) of Credit Agreement
dated August 12, 1997 between AFC and Banco Popular.
10.68 (b) Exhibit F (Form of Environmental Indemnity Agreement) of Credit
Agreement dated August 12, 1997 between AFC and Banco Popular.
10.69 (b) Exhibit G (Form of Borrowing Certificate) of Credit Agreement
dated August 12, 1997 between AFC and Banco Popular.
10.70 (b) Exhibit H (Terms and Conditions of Standard Franchise Loans) of
Credit Agreement dated August 12, 1997 between AFC and Banco
Popular.
10.71 (b) Exhibit I (Terms and Conditions of Popular Plus Loans) of
Credit Agreement dated August 12, 1997 between AFC and Banco
Popular.
10.72 (b) Exhibit J (Description of Borrower's "Plus Program") of Credit
Agreement dated August 12, 1997 between AFC and Banco Popular.
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<PAGE>
10.73 (b) Exhibit K-1 (Franchise Loan Commitment) of Credit Agreement
dated August 12, 1997 between AFC and Banco Popular.
10.74 (b) Exhibit K-2 (Forms of Franchise Loan Documents) of Credit
Agreement dated August 12, 1997 between AFC and Banco Popular.
10.75 (c) Form of Chesapeake Bagel Development Agreement
10.76 (c) Form of Chesapeake Bagel Franchise Agreement
10.77 (d) Agreement and Plan of Merger among AFC Enterprises, Inc. and
Seattle Coffee Company, all of the Principal Shareholders of
Seattle Coffee Company (collectively "SCC") and AFC Acquisition
Corp (the "Merger Agreement").
10.78 (d) Exhibit A of Merger Agreement with SCC - Disclosure Statement
10.79 (d) Exhibit B of Merger Agreement with SCC - Stockholders Agreement
10.80 (d) First Amendment to Merger Agreement with SCC
10.81 (e) Agreement and Plan of Merger by and among Cinnabon
International, Inc., AFC Enterprises, Inc. and AFC Franchise
Acquisition Corp., effective August 13, 1998
10.82 (f) First Amendment to the Agreement and Plan of Merger by and
among Cinnabon International, Inc., AFC Enterprises, Inc. and
AFC Franchise Acquisition Corp. dated August 13, 1998
("Cinnabon Merger Agreement")
10.83 (f) Second Amendment to the Cinnabon Merger Agreement
10.84 (f) Stockholder Agreement by and among AFC Franchise Acquisition
Corp. and other parties signatories dated as of August 13, 1998
10.85 (h) AFC Deferred Compensation Plan dated March 1, 1998.
10.86 (h) First Amendment to the AFC Deferred Compensation Plan dated
March 1, 1998
21.1 (h) Subsidiaries of AFC.
23.2 (g) Consent of Ernst and Young LLP.
27.1 (h) Financial Data Schedule
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<PAGE>
___________________
(a) Filed as an exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-29731) on July 2, 1997 and incorporated by reference
herein.
(b) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
September 7, 1997 on October 21, 1997 and incorporated by reference herein.
(c) Filed as an exhibit to the Company's Form 10-K for the year ended December
28, 1998 on March 15, 1998 and incorporated by reference herein.
(d) Filed as an exhibit to the Company's Form 10-Q for the quarter ended March
22, 1998 on May 6, 1998 and incorporated by reference herein.
(e) Filed as an exhibit to the Company's Current Report on Form 8-K dated August
13, 1998 and incorporated by reference herein.
(f) Filed as an exhibit to the Company's Current Report on Form 8-K dated
October 15, 1998 and incorporated by reference herein.
(g) Filed as an exhibit to the Company's Current Report on Form 8-K/A dated
October 15, 1998 and incorporated by reference herein.
(h) Included in this filing.
(D) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated October 29, 1998 under
Item 2, Acquisition or Disposition of Assets and Item 7, Financial Statements
and Exhibits, to report the Company's execution of a definitive agreement to
acquire all of the common stock of Cinnabon International, Inc.
The Company filed a Current Report on Form 8-K/A dated December 23, 1998
under Item 7, Financial Statements and Exhibits, to include Cinnabon
International, Inc.'s (i) audited financial statements as of March 30, 1997 and
March 29, 1998, (ii) unaudited financial statements for the six months ended
September 27, 1998 and pro forma financial information.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AFC Enterprises, Inc.
By: /s/ Frank J. Belatti
----------------------
Frank J. Belatti
Chairman of the Board and
Chief Executive Officer
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Frank J. Belatti Chairman of the board and March 29, 1999
------------------------
Frank J. Belatti Chief Executive Officer
(Principal Executive Officer)
/s/ Gerald J. Wilkins Chief Financial Officer March 29, 1999
------------------------
Gerald J. Wilkins (Principal Financial and
Accounting Officer)
/s/ Dick R. Holbrook President, Chief Operating March 29, 1999
------------------------
Dick R. Holbrook Officer and Director
/s/ Samuel N. Frankel Executive Vice President, March 29, 1999
------------------------
Samuel N. Frankel Secretary, General Counsel
and Director
/s/ John M. Roth Director March 29, 1999
------------------------
John M. Roth
/s/ Mark J. Doran Director March 29, 1999
------------------------
Mark J. Doran
/s/ Paul Farrar Director March 29, 1999
------------------------
Paul Farrar
</TABLE>
69
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Matt L. Figel Director March 29, 1999
-------------------------
Matt L. Figel
/s/ Peter Starrett Director March 29, 1999
-------------------------
Peter Starrett
/s/ Kelvin J. Pennington Director March 29, 1999
-------------------------
Kelvin J. Pennington
/s/ Ronald P. Spogli Director March 29, 1999
-------------------------
Ronald P. Spogli
/s/ William M. Wardlaw Director March 29, 1999
-------------------------
William M. Wardlaw
</TABLE>
70
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
AFC Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of AFC Enterprises,
Inc. (a Minnesota corporation) and subsidiaries (collectively referred to
hereafter as "the Company") as of December 27, 1998, and December 28, 1997, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years ended December 27, 1998, December 28, 1997,
and December 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 27,
1998, and December 28, 1997, and the results of its operations and its cash
flows for the years ended December 27, 1998, December 28, 1997, and December 29,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 12, 1999
F-1
<PAGE>
AFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 27, 1998 and December 28, 1997
( In thousands, except share amounts)
- --------------------------------------------------------------------------------
1998 1997
-------- --------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 17,066 $ 32,964
Accounts and current notes receivable, net of reserve.. 16,728 8,305
Income taxes refundable................................ 3,327 2,477
Inventories............................................ 13,182 4,447
Deferred income taxes.................................. 4,577 3,366
Prepaid expenses and other............................. 2,344 1,539
-------- --------
Total current assets................................ 57,224 53,098
LONG-TERM ASSETS:
Notes receivable, net.................................. 4,066 4,477
Deferred income taxes.................................. 4,416 -
Property and equipment, net............................ 263,141 207,807
Other assets........................................... 19,498 17,049
Trademarks, net........................................ 82,913 95,504
Goodwill, net.......................................... 122,334 3,347
Other intangible assets, net........................... 2,873 1,422
-------- --------
Total long-term assets.............................. 499,241 329,606
-------- --------
Total assets................................... $556,465 $382,704
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable....................................... $ 40,579 $ 22,123
Bank overdrafts........................................ 6,248 9,707
Current portion of long-term debt...................... 8,356 4,993
Current portion of capital lease obligations........... 6,050 6,001
Short-term borrowings.................................. 7,000 -
Accrued interest....................................... 2,863 2,765
Accrued insurance expenses............................. 4,437 5,123
Accrued employee compensation.......................... 4,700 7,114
Accrued employee benefit expenses...................... 4,332 5,767
Other accrued expenses................................. 6,715 3,154
-------- --------
Total current liabilities........................... 91,280 66,747
LONG-TERM LIABILITIES:
Long-term debt, net of current portion................. 262,744 220,150
Capital lease obligations, net of current portion...... 8,561 12,738
Acquisition facility................................... 68,000 -
Deferred income taxes.................................. - 2,702
Other liabilities...................................... 37,963 31,908
-------- --------
Total long-term liabilities......................... 377,268 267,498
-------- --------
Total liabilities.............................. 468,548 334,245
-------- --------
(Continued)
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
AFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
As of December 27, 1998 and December 28, 1997
( In thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.01 par value; 50,000,000 shares authorized;
39,232,329 and 34,448,604 shares issued and outstanding
at period end, respectively).............................. 392 344
Capital in excess of par value............................... 151,632 101,840
Notes receivable - officers, including accrued interest...... (6,138) (4,402)
Accumulated deficit.......................................... (57,969) (49,323)
-------- --------
Total shareholders' equity................................ 87,917 48,459
-------- --------
Total liabilities and shareholders' equity........... $556,465 $382,704
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 27, 1998, December 28, 1997
and December 29, 1996
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
December 27, December 28, December 29,
1998 1997 1996
------------- ------------- ------------
(52 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C>
REVENUES:
Restaurant sales............................................. $ 488,574 $ 403,285 $ 430,280
Franchise revenues........................................... 66,606 64,055 51,336
Wholesale revenues........................................... 36,411 - -
Manufacturing revenues....................................... 7,561 7,647 8,222
Other revenues............................................... 9,939 8,766 8,005
------------ ------------ ------------
Total revenues.............................................. 609,091 483,753 497,843
COSTS AND EXPENSES:
Restaurant cost of sales..................................... 155,627 131,374 142,199
Restaurant operating expenses................................ 246,448 197,324 211,275
Wholesale cost of sales...................................... 18,466 - -
Wholesale operating expenses................................. 8,313 - -
Manufacturing cost of sales.................................. 5,802 6,381 7,201
General and administrative................................... 89,457 79,541 76,071
Depreciation and amortization................................ 46,078 33,803 30,904
Impairment of Chesapeake intangible.......................... 6,800 - -
Charges for restaurant closings.............................. 9,183 479 1,304
Provision for software write-offs............................ 5,000 - -
Gain on sale of fixed assets from AFDC transaction........... - (5,319) -
------------ ------------ ------------
Total costs and expenses.................................... 591,174 443,583 468,954
------------ ------------ ------------
INCOME FROM OPERATIONS........................................ 17,917 40,170 28,889
OTHER EXPENSES:
Interest, net................................................ 30,786 20,645 15,875
------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS........................................... (12,869) 19,525 13,014
Income tax expense (benefit)................................. (4,223) 8,525 5,163
------------ ------------ ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY LOSS................... (8,646) 11,000 7,851
Extraordinary loss on early retirement of debt, (net
of income taxes of $2,673).................................. - - (4,456)
------------ ------------ ------------
NET INCOME (LOSS)............................................. (8,646) 11,000 3,395
8% Preferred Stock dividends.................................. - - 1,316
10% Preferred Stock dividends payable in kind................. - 2,240 3,956
Accelerated accretion of 8% Preferred Stock
Discount upon retirement..................................... - - 8,719
Accretion of 8% Preferred Stock discount...................... - - 813
------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK................ $ (8,646) $ 8,760 $ (11,409)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 27, 1998, December 28, 1997
and December 29, 1996
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Common stock:
Balance at beginning of period.................. $ 344 $ 344 $ 100
Issuance of common stock........................ 48 - 244
-------- -------- --------
Balance at end of period........................ $ 392 $ 344 $ 344
-------- -------- --------
Capital in excess of par value:
Balance at beginning of period.................. $101,840 $ 99,482 $ 24,909
Issuance of common stock, options and warrants.. 48,720 6 73,709
Adjust stock issuance cost accrual to actual.... - 135 -
Deferred compensation........................... 1,072 2,217 864
-------- -------- --------
Balance at end of period........................ $151,632 $101,840 $ 99,482
-------- -------- --------
Notes receivable - officers:
Balance at beginning of period.................. $ (4,402) $ (3,841) $ -
Notes receivable additions, net of discount..... (1,345) (202) (3,593)
Note receivable payments........................ 12 19 -
Interest receivable............................. (307) (284) (194)
Amortization of discount........................ (96) (94) (54)
-------- -------- --------
Balance at end of period........................ $ (6,138) $ (4,402) $ (3,841)
-------- -------- --------
Accumulated deficit:
Balance at beginning of period.................. $(49,323) $(58,083) $(46,674)
Net income (loss)............................... (8,646) 11,000 3,395
Accretion of 8% Preferred Stock discount........ - - (813)
Accelerated accretion of 8% Preferred Stock
discount upon retirement....................... - - (8,719)
10% and 8% Preferred Stock dividends............ - (2,240) (5,272)
-------- -------- --------
Balance at end of period........................ $(57,969) $(49,323) $(58,083)
-------- -------- --------
Total shareholders' equity....................... $ 87,917 $ 48,459 $ 37,902
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 27, 1998, December 28, 1997
and December 29, 1996
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
December 27, December 28, December 29,
1998 1997 1996
------------- ------------- -------------
(52 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss).......................................... $ (8,646) $ 11,000 $ 3,395
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization............................. 46,078 33,803 30,904
Provision for credit losses............................... 1,063 1,214 816
(Gain) loss on disposition and retirement of
long-lived assets...................................... 987 (2,652) 1,715
Charges for restaurant closings........................... 9,183 479 1,304
Impairment of Chesapeake intangible....................... 6,800 - -
Provision for software write-offs......................... 5,000 - -
Amortization of notes payable discount.................... - - 7,729
Amortization of debt issuance costs....................... 1,477 886 -
Notes receivable - officers discount...................... - - 876
Amortization of notes receivable - officers
discount............................................... (96) (94) (54)
Deferred compensation..................................... 1,072 2,217 864
Deferred tax expense (benefit)............................ (7,628) 3,863 380
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable................ (6,325) (905) (4,137)
(Increase) decrease in inventories........................ (3,565) (487) 2,154
(Increase) decrease in prepaid expenses/other............. (1,546) 4,076 1,694
(Increase) decrease in other assets....................... (6,681) 21 (856)
Increase (decrease) in accounts payable................... 14,747 4,157 1,101
Increase (decrease) in accrued expenses................... (3,298) (3,097) 2,469
Increase (decrease) in other liabilities.................. (3,085) (1,966) (2,553)
--------- -------- --------
Total adjustments...................................... 54,183 41,515 44,406
--------- -------- --------
Net cash provided by operating activities.................. $ 45,537 $ 52,515 $ 47,801
--------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from disposition of property held for sale........ $ 479 $ 19,681 $ 3,158
Investment in property and equipment....................... (38,135) (42,136) (33,951)
Investment in Chesapeake intangible asset.................. - (14,116) -
Investment in Pinetree intangible and fixed
assets.................................................... (41,449) - -
Investment in SCC intangible and fixed
assets.................................................... (43,970) - -
Investment in CII intangible and fixed assets.............. (67,484) - -
Notes receivable additions................................. (359) (2,657) (136)
Payments received on notes................................. 2,631 3,446 1,541
--------- -------- --------
Net cash used in investing activities...................... $(188,287) $(35,782) $(29,388)
--------- -------- --------
</TABLE>
(Continued)
See accompanying footnotes to consolidated financial statements.
F-6
<PAGE>
AFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 27, 1998, December 28, 1997
and December 29, 1996
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
(52 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Principal payments of long-term debt................. $ (5,321) $(128,365) $(69,054)
Proceeds from long-term debt......................... 50,000 50,000 -
Proceeds from subordinated notes..................... - 175,000 -
Net borrowings under Acquisition line of credit...... 68,000 - -
Net borrowings under Revolving line of credit........ 7,000 - -
Increase (decrease) in bank overdrafts, net.......... (3,459) (1,105) 2,729
Principal payments for capital lease obligations..... (7,421) (25,182) (3,904)
Redemption of 10% preferred stock.................... - (59,957) -
Notes receivable additions to officers............... - (202) (4,469)
Notes receivable officers-payments................... 12 19 -
Notes receivable officers-accrued interest........... (307) (284) (194)
Issuance of common stock............................. 20,350 6 70,205
Stock issuance costs................................. (1,016) - (6,115)
Debt issuance costs.................................. (986) (10,675) -
Preferred stock dividends paid....................... - (2,240) (2,004)
-------- --------- --------
Net cash provided by (used in) financing activities.. 126,852 (2,985) (12,806)
-------- --------- --------
Net increase (decrease) in cash and cash equivalents.. (15,898) 13,748 5,607
Cash and cash equivalents at beginning
of the period....................................... 32,964 19,216 13,609
-------- --------- --------
Cash and cash equivalents at end of the period........ $ 17,066 $ 32,964 $ 19,216
======== ========= ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash interest paid (net of capitalized amounts)....... $ 29,388 $ 19,579 $ 13,763
Cash paid for income taxes............................ 4,064 6,747 2,060
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital lease and note payable additions.............. $ 3,899 $ 20,485 $ 12,404
Issuance of Common Stock.............................. 28,090 - -
Notes receivable to officers (See Note 14)............ 1,345 - -
Retirement of 8% Preferred Stock (See Note 1)......... - - (56,000)
Issuance of 10% Preferred Stock (See Note 1).......... - - 56,000
Issuance of common stock to executives in connection
with 1996 Executive Compensation Award............... - - 10,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AFC ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 27, 1998, December 28, 1997
and December 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of AFC
Enterprises, Inc., a Minnesota corporation, and its wholly-owned subsidiaries,
AFC Properties, Inc., a Georgia corporation, Seattle Coffee Company ("SCC"), a
Washington corporation, and Cinnabon International, Inc. ("CII"), a Delaware
corporation. All significant intercompany balances and transactions are
eliminated in consolidation. The consolidated entity is referred to herein as
"AFC" or "the Company".
SCC is the parent company of two wholly-owned subsidiaries, Seattle's Best
Coffee, Inc. and Torrefazione Italia, Inc., both of which are Washington
corporations. CII is the parent company of one subsidiary, Cinnabon Inc., a
Delaware corporation.
Nature of Operations
AFC is primarily a multi-concept quick-service restaurant company. The
Company operates and franchises quick-service restaurants under the primary
trade names of Popeyes Chicken & Biscuits ("Popeyes"), Churchs Chicken
("Churchs") and Chesapeake Bagel Bakery ("Chesapeake"). In 1998, the Company
added SCC, which operates and franchises cafes under the "Seattle's Best" and
"Torrefazione Italia" brands (collectively "Seattle Coffee") and operates a
wholesale coffee business. Also in 1998, the Company acquired CII, an operator
and franchisor of retail cinnamon roll bakeries under the Cinnabon trade name
("Cinnabon"). The Company also operates a manufacturing plant that produces
proprietary gas fryers and other custom-fabricated restaurant equipment for sale
to distributors and franchisees. The following table outlines the number of
restaurants operated by the Company and franchised by brand at the end of the
indicated periods:
<TABLE>
<CAPTION>
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Popeyes:
Domestic-Company-operated....... 171 119 120
Domestic-Franchised............. 899 830 774
International-Franchised........ 222 182 127
----- ----- -----
Total......................... 1,292 1,131 1,021
===== ===== =====
Churchs:
Domestic-Company-operated....... 491 480 622
Domestic-Franchised............. 615 590 367
International-Franchised........ 293 286 268
----- ----- -----
Total......................... 1,399 1,356 1,257
===== ===== =====
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
December 27, December 28, December 29,
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
CII:
Domestic-Company-operated....... 212 - -
Domestic-Franchised............. 140 - -
International-Franchised........ 17 - -
----- ----- -----
Total......................... 369 - -
===== ===== =====
SCC:
Domestic-Company-operated....... 57 - -
Domestic-Franchised............. 11 - -
International-Company-operated 2 - -
International-Franchised........ 1 - -
----- ----- -----
Total......................... 71 - -
===== ===== =====
Chesapeake:
Domestic-Company-operated....... 4 1 -
Domestic-Franchised............. 103 154 -
International-Franchised........ - - -
----- ----- -----
Total......................... 107 155 -
===== ===== =====
</TABLE>
A substantial portion of the domestic Company-operated restaurants are
located in the South and Southwest areas of the United States. With the
exception of two Company-operated SCC cafes in Canada, the Company does not
currently own or operate any restaurants outside of the United States. The
Company's international franchisees operate primarily in Mexico, Canada, Puerto
Rico and numerous countries in Asia.
On March 18, 1998, the Company acquired all of SCC's common stock. As a
result of this transaction, the Company acquired 59 Company-operated cafes and
10 franchised cafes under the Seattle's Best and Torrefazione Italia brands and
a wholesale distribution business, including 13 offices and more than 5,000
accounts (See Note 17).
On October 15, 1998, the Company acquired all of CII's's common stock. At
acquisition, CII operated and franchised 363 retail cinnamon roll bakeries
operating in 39 states, Canada and Mexico. At the date of the acquisition, 211
of the bakeries were Company-operated and located within the United States (See
Note 17).
Basis of Presentation
The preparation of consolidated 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.
These estimates affect the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-9
<PAGE>
The Company has a 52/53-week fiscal year ending on the last Sunday in
December. The 1998, 1997 and 1996 fiscal years all consisted of 52 weeks.
Certain items in the prior period consolidated financial statements, and notes
thereto, have been reclassified to conform with the current presentation.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. SOP
98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. The Company will adopt SOP 98-5 in fiscal year 1999. It is
management's belief that SOP 98-5 will not have a material effect on the
Company's financial position or results of operations.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130") was issued. FAS 130 establishes
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. This standard requires that all items required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement with the same prominence as other financial
statements. FAS 130 is effective for fiscal years beginning after December 15,
1997. Presently, the Company does not have any items which are considered to be
components of comprehensive income, and therefore, FAS 130 does not impact the
Company's financial statements at this time.
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employer's Disclosure about Pensions and Other Post-Retirement Benefits" ("FAS
132") was issued. FAS 132 revises employer's disclosures about pension and other
post-retirement benefit plans. It does not change the measurement or recognition
of those plans. This statement is effective for fiscal years beginning after
December 15, 1997 and impacts the presentation of financial statement
disclosures. The Company adopted FAS 132 in fiscal year 1998.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), was
issued. This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for financial statements
for periods beginning after June 15, 1999. It is management's belief that FAS
133 will not have a material effect on the Company's financial position or
results of operations when adopted.
Cash and Cash Equivalents
The Company considers all money market investment instruments and
certificates of deposit with maturities of three months or less to be cash
equivalents for the purpose of preparing the accompanying consolidated
statements of cash flows. At December 28, 1997 and December 29, 1996, cash
equivalents included $23.2 million and $10.9 million, respectively, of
F-10
<PAGE>
domestic commercial paper. At December 27, 1998, there were no short-term
marketable securities included in cash and cash equivalents.
The Company does not believe it is exposed to any significant credit risk
on money market investments with commercial banks, because its policy is to make
such deposits only with highly rated institutions.
Bank overdrafts represent checks issued on zero balance bank accounts which
do not have a formal right of offset against the Company's other bank accounts.
These amounts have not yet cleared the bank and are presented as a current
liability in the accompanying consolidated financial statements.
Accounts Receivable
Accounts receivable consists primarily of amounts due from franchisees
related to royalties, rents and miscellaneous equipment sales and food service
accounts related to wholesale coffee sales. The accounts receivable balances are
stated net of reserves for doubtful accounts.
A summary of changes in the allowance for doubtful accounts is as follows
(in thousands):
<TABLE>
<CAPTION>
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of period.. $4,040 $1,457 $ 2,078
Provisions.................... 1,185 2,423 816
Recoveries.................... 12 340 1,193
Write-offs.................... (669) (180) (2,630)
------ ------ -------
Balance, end of period........ $4,568 $4,040 $ 1,457
====== ====== =======
</TABLE>
Notes Receivable
Notes receivable consists primarily of notes from franchisees and third
parties to finance acquisitions of certain restaurants from the Company and to
finance certain past due royalties, rents, interest or other amounts due. The
Company has also provided financial support to certain franchisees in converting
their restaurants to the Popeyes concept. The current portion of notes
receivable of $0.9 million and $0.8 million as of December 27, 1998 and December
28, 1997, respectively, are included in current accounts and notes receivable.
The notes receivable balances are stated net of allowances for uncollectibility.
The negative provision of $0.1 million and $1.2 million in 1998 and 1997,
respectively, relate to several fully reserved notes that were subsequently
determined to be collectible.
F-11
<PAGE>
A summary of changes in the allowance for uncollectible notes is as follows
(in thousands):
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
Balance, beginning of period.. $ 584 $ 1,871 $ 3,371
Provisions.................... (122) (1,209) -
Recoveries.................... 22 232 20
Write-offs.................... (54) (310) (1,520)
----- ------- -------
Balance, end of period........ $ 430 $ 584 $ 1,871
===== ======= =======
Inventories
Inventories, consisting primarily of food and beverage items, packaging
materials, and restaurant equipment, are stated at the lower of cost (determined
on a first-in, first-out basis) or market.
Property and Equipment
Property and equipment is stated at cost, including capitalized interest
and overhead incurred throughout the construction period for certain assets. The
Company calculates an interest rate factor based on the Company's long-term debt
and applies this factor to its construction work in progress balance each
accounting period to arrive at capitalized interest expense. Capitalized
overhead costs include personnel expenses related to employees directly involved
in the Company's development projects such as new restaurant projects,
remodeling/re-imaging initiatives and other projects of this nature. Provisions
for depreciation and amortization are made principally on the straight-line
method over the estimated useful lives of the assets or, in the case of leases,
the term of the applicable lease, if shorter. The ranges of estimated useful
lives used in computing depreciation and amortization are as follows:
Asset Classification Number of Years
-------------------- ---------------
Buildings.............................. 7 - 20
Equipment.............................. 3 - 8
Leasehold improvements................. 3 - 15
Capital lease buildings and equipment.. 3 - 20
F-12
<PAGE>
Intangible Assets
Intangible assets consist primarily of franchise value and trademarks and
goodwill. These assets are being amortized on a straight-line basis. The
estimated useful lives used in computing amortization are as follows:
<TABLE>
<CAPTION>
Asset Classification Number of Years
-------------------- ---------------
<S> <C>
Franchise value and trademarks.. 20-35
Goodwill........................ 20-40
Other........................... 10-20
</TABLE>
Long-Lived Assets
Management periodically reviews the performance of restaurant properties.
If it is determined that a restaurant will be closed, a provision is made to
adjust the carrying value of the restaurant's property and equipment to net
realizable values. Property held for sale includes closed restaurant properties
and other corporate property held for sale and is recorded at its estimated net
realizable value.
The Company periodically reviews the realizability of its long-lived assets
as set forth in Statement of Financial Accounting Standards No. 121 ("FAS
121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". It is the Company's policy to evaluate (i) operating
restaurant properties on a market basis, (ii) other assets, such as assets held
for sale and income producing assets, on an individual property basis and, (iii)
intangible assets based on the cash flows from the underlying operations which
generated the intangible asset. The identifiable cash flows of long-lived
assets and their carrying values are compared to estimates of the recoverability
of the asset values.
In 1998, the Company recorded a $6.8 million write-down of its Chesapeake
intangible asset under FAS 121 accounting. The write-down was based on an
analysis of future cash flows expected to be generated from Chesapeake's
operations. The Company did not incur FAS 121 write-downs in 1997 or 1996.
In 1998, the Company closed fourteen Popeyes Company-operated restaurants
that were acquired in 1998 in connection with the acquisition of Pinetree Foods,
Inc. (See Note 17). The total charges resulting from the closures were
approximately $8.5 million and included the write-off of the related restaurant
assets, related goodwill allocated to these restaurants and a provision for the
remaining minimum lease payments due under the respective restaurant operating
leases. The $8.5 million charge is included in "charges for restaurant
closings" in the accompanying consolidated statements of operations.
During the past four years, the Company has been in the process of
replacing its restaurant accounting and control systems. This project includes
the installation of new point-of-sale hardware and software systems, the
installation of work stations in each Company-operated restaurant and the
implementation of a "back office" automation system. The Company anticipates
that upon the implementation of all these systems it will have customized
restaurant
F-13
<PAGE>
systems that will provide better food cost controls, better labor controls and
labor scheduling, better marketing information, more timely restaurant operating
results and more efficient accounting processes. The Company estimated that the
total cost of these systems would be approximately $36.5 million. While a large
portion of the total project has been completed, certain elements of the
restaurant accounting and control systems have not been implemented because of
delays caused by technological problems related to the "back office" automation
system. The Company recently engaged a third party technology expert to evaluate
these technological problems. The technology expert concluded that certain
elements of the software being developed were not stable in the AFC information
technology environment. The technology expert recommended that the Company
investigate alternatives, including purchasing other commercially available
"back-office" software. Management is in the process of performing its own
review of these systems, but believes that it is probable that certain of the
"back office" software development costs will be deemed to have little or no
value. Therefore, management reduced the carrying value of its software
development costs by $5.0 million at December 27, 1998.
Stock-Based Employee Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"). This standard defines a fair value based method of
accounting for an employee stock option or similar equity instrument. FAS 123
gives entities a choice of recognizing related compensation expense by adopting
the new fair value method or to continue to measure compensation using the
intrinsic value approach under APB No. 25. If APB No. 25 is used by an entity,
FAS 123 requires supplemental disclosure to show the effects of using FAS 123
for stock option issuances effective after December 15, 1994. The Company
continues to account for stock options under APB No. 25. Had compensation
expense for all of the Company's stock option plans been determined consistent
with FAS 123, the Company's net income (loss) would have been reduced or
increased to the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss):
As reported....... $ (8,646) $11,000 $3,395
Pro forma......... (10,247) 11,528 3,310
</TABLE>
Because the fair value method of accounting has not been applied to options
issued prior to December 15, 1994, the resulting pro forma compensation expense
may not be representative of that to be expected in future years.
The fair value of each option is estimated on the date of grant using the
"minimum value" method with the following weighted-average assumptions used for
grants in 1998, 1997 and 1996: risk-free interest rate of approximately 5.0%;
expected lives of approximately 12 years, 10
F-14
<PAGE>
years and 7 years for the 1992 Stock Option Plan, the 1996 Performance-based
Stock Option Plan and the 1996 Stock Option Plan, respectively (See Note 12).
Segment Disclosures
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 establishes standards for reporting information about
operating segments and related disclosures about products and services,
geographic areas and major customers (See Note 16).
Revenues from Franchising
The Company generates revenues from franchising through the following
agreements with its franchisees:
FRANCHISE AGREEMENTS. In general, the Company's franchise agreements
provide for the payment of a franchise fee for each opened franchised
restaurant. The franchise agreements also generally require the franchisees
to pay a royalty ranging from 3% to 5% of sales to the Company and an
advertising fund contribution ranging from 1% to 4% of sales. Certain
franchise agreements provide for lower royalties and advertising fund
contributions.
DOMESTIC DEVELOPMENT AGREEMENTS. Domestic development agreements provide
for the development of a specified number of restaurants within a defined
domestic geographic territory in accordance with a schedule of restaurant
opening dates. Development schedules generally cover three to five years
and typically have benchmarks for the number of restaurants to be opened
and in operation at six to twelve month intervals. Development agreement
payments are made when the agreement is executed and are nonrefundable.
INTERNATIONAL DEVELOPMENT AGREEMENTS. International development agreements
are similar to domestic development agreements but pertain to franchised
restaurants in jurisdictions outside of the United States. In that regard,
these agreements include provisions to address the international aspects of
the franchise agreement (foreign currency exchange, taxation, dispute
resolution, etc.). Prior to December 27, 1998, these agreements generally
included a territorial fee related to establishing a franchise in a new
country. International development agreement payments and related
territorial fees are normally received when the agreement is executed and
are nonrefundable.
Franchise fees, domestic development fees and international development
fees are recorded as deferred revenues when received and are recognized as
revenue when the restaurants covered by the fees are opened and/or all material
services or conditions relating to the fees have been substantially performed or
satisfied by the Company. Royalties are recorded as revenues by the Company when
the restaurant sales by the franchisee occurs.
F-15
<PAGE>
Wholesale Revenues
Wholesale revenues are generated from the Company's coffee wholesaling
operations, which it acquired in 1998 through its acquisition of SCC. Revenues
consist of coffee sales to food service retailers, supermarkets and to its own
coffee cafes.
Manufacturing Revenues
The Company's manufacturing revenues consist primarily of sales of
proprietary gas fryers and other custom-fabricated restaurant equipment from its
manufacturing business to distributors and franchisees.
Other Revenues
The Company's other revenues consist of net rental income from properties
owned and leased by the Company which are leased or subleased to franchisees and
third parties and interest income earned on notes receivable from franchisees
and other parties.
Insurance Programs
The Company maintains insurance plans for general and auto liability
insurance, employee medical insurance and workers' compensation insurance,
except for workers' compensation liabilities in the state of Texas, where the
Company is self-insured against such liabilities. All of the Company's insurance
programs, including its self-insured liabilities, have provisions, which limit
the Company's exposure on a per-incident basis. In October 1998, the Company
converted its insurance coverages for general and auto liability insurance and
workers' compensation insurance, excluding workers' compensation in the State of
Texas, to a "guaranteed cost" insurance arrangement. Prior to October 1998, the
Company was liable for claims on a per-incident basis ranging between $0.2
million to $0.5 million, at which time the Company's stop loss insurance
coverage would cover the excess amount of each claim. Under the "guaranteed
cost" insurance coverage, the Company pays an annual premium and is covered up
to the first $1.0 million per claim. The Company has umbrella coverage in cases
where a claim may exceed $1.0 million.
In the State of Washington, the Company participates in the state-sponsored
workers' compensation insurance program, which requires the Company to pay
annual premiums into an insurance pool administered by the state.
The Company has established reserves with respect to the programs described
above based on the estimated total losses the Company will experience. The
portion of the reserves for the amount of claims expected to be settled during
the succeeding year are included in accrued expenses in the accompanying
consolidated balance sheets, and the balance of the reserves are included in
other liabilities. The Company's insurance reserves are partially collateralized
by letters of credit and/or cash deposits.
F-16
<PAGE>
International Operations
As of December 27, 1998, the Company franchised 533 restaurants to
franchisees in 24 foreign countries and plans to expand its foreign franchising
program significantly in the future. The Company currently operates two SCC
cafes and a sales office that are located in Canada. The Company does not own
any other property, operate any other restaurants or have equity ownership in
any other companies that are located in foreign countries. Included in the
Company's revenues are foreign franchise royalties and other fees that are
based, in part, on sales generated by its foreign franchised restaurants,
including a significant number of franchised restaurants in Asia. Therefore, the
Company is exposed, to a limited degree, to changes in international economic
conditions and currency fluctuations. The Company has not historically and did
not at the end of 1998 maintain any hedges against foreign currency
fluctuations. Losses recorded by the Company during the past three years related
to foreign currency fluctuations have not been material to the Company's results
of operations. For fiscal years 1998, 1997 and 1996, royalties and other
revenues from foreign franchisees represented 1.9%, 2.4% and 2.4%, respectively,
of the Company's total revenues.
Equity Investment
On April 11, 1996, a private investor group (the "Investor Group") and the
Company executed a stock purchase agreement in which the Investor Group
purchased approximately 21.1 million shares of AFC common stock for a purchase
price of $70.0. As a result of this purchase, the Investor Group became the
majority common shareholder of AFC with 58.33 percent of the Company's common
stock on a fully diluted basis at the date of the transaction.
With the proceeds from the sale of common stock, the Company retired
approximately $64.0 million of its term debt and paid transaction fees in the
amount of approximately $6.0 million. The remaining term debt was refinanced
into a new term loan and the Company's 8% Preferred Stock was exchanged for new
10% Preferred Stock. The new 10% Preferred Stock was subsequently repaid
pursuant to a debt offering completed in May 1997. In connection with the
refinancing of the Company's term debt, the Company wrote-off approximately $7.0
million in unamortized debt issuance costs related to the retired debt.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments held by the Company:
Current assets and current liabilities: The carrying value approximates
fair value due to the short-term maturity of these items.
Long-term notes receivable: The fair value of long-term notes receivable
approximates the carrying value as management believes the respective interest
rates are commensurate with the credit and interest rate risks involved. In
addition, management maintains reserves for doubtful note receivable accounts
(See Note 1).
F-17
<PAGE>
Long-term debt: The fair value of the Company's Term Loans, Lines of Credit
and Other notes (See Note 8) are based on secondary market indicators. Since
these debt instruments are not quoted, estimates are based on each obligation's
characteristics, including remaining maturities, interest rate, credit rating,
collateral, amortization schedule and liquidity. The carrying value approximates
fair value. The fair value of the Company's 10.25% Senior Subordinated Notes
(See Note 8) is based on quoted market prices.
The carrying amount and fair value of the Company's 10.25% Senior
Subordinated Notes at December 27, 1998 and December 28, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------------------ -------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
10.25% Senior
Subordinated Notes $175,000 $182,000 $175,000 $184,625
</TABLE>
3. INVENTORIES
The major components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
----------- -----------
<S> <C> <C>
Food and beverage items, preparation
and packaging materials........................................... $ 10,269 $ 2,390
Restaurant equipment................................................. 2,913 2,057
----------- -----------
$ 13,182 $ 4,447
=========== ===========
</TABLE>
F-18
<PAGE>
4. PROPERTY AND EQUIPMENT
The major components of property and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Owned properties:
Land............................. $ 43,289 $ 40,491
Buildings........................ 71,827 65,423
Equipment........................ 146,507 113,715
Leasehold improvements........... 80,045 42,260
Construction work in process..... 8,008 5,336
Properties held for sale......... 3,683 2,960
Capital leases:
Buildings........................ 3,811 3,863
Equipment........................ 21,818 21,514
------------ ------------
378,988 295,562
Less: accumulated depreciation and
amortization...................... 115,847 87,755
------------ ------------
$263,141 $207,807
============ ============
</TABLE>
Depreciation and amortization expense related to property and equipment,
including property and equipment held under capital leases, was approximately
$35.2 million, $27.2 million and $25.0 million for the years ended December 27,
1998, December 28, 1997 and December 29, 1996, respectively.
Properties held for sale consists of land, buildings and equipment
currently not in use by the Company. These assets include both restaurant and
corporate assets.
5. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Deposits....................... $ 2,297 $ 1,860
Information technology costs... 4,888 3,007
Debt issuance costs, net....... 9,298 9,789
Real estate development costs.. 1,602 1,447
Other.......................... 1,413 946
------------ ------------
$19,498 $17,049
============ ============
</TABLE>
F-19
<PAGE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Franchise value and trademarks.... $117,278 $124,116
Goodwill.......................... 126,043 4,765
Other............................. 7,088 2,771
------------ ------------
250,409 131,652
Less: accumulated amortization.. 42,289 31,379
------------ ------------
$208,120 $100,273
============ ============
</TABLE>
Amortization expense for the years ended December 27, 1998, December 28,
1997 and December 29, 1996, was approximately $10.9 million, $6.6 million and
$5.9 million, respectively.
7. OTHER LIABILITIES
A summary of other liabilities is as follows (in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Insurance reserves............ $ 8,598 $11,015
Deferred franchise revenues... 6,472 5,863
Litigation and environmental.. 6,314 7,393
Other......................... 16,579 7,637
------------ ------------
$37,963 $31,908
============ ============
</TABLE>
The majority of liabilities comprising "other liabilities" are not subject
to a fixed cash payment schedule but are primarily payable upon the occurrence
of specific events, which are not estimable as of December 27, 1998.
8. LONG-TERM DEBT
In May 1997, the Company completed a debt offering of $175.0 million of
Senior Subordinated Notes (the "Notes") under Rule 144A of the Securities Act of
1933, as amended (the "Rule 144A Offering"). In connection with the Rule 144A
Offering, the Company also entered into a new $175.0 million Senior Secured
Credit Facility (the "1997 Credit Facility") whereby the Company was provided
with a $50.0 million term loan (the "Term Loan A"), a $25.0 million revolving
credit facility ("Revolving Facility") and a $100.0 million facility to be used
for future acquisitions ("Acquisition Facility"). The 1997 Term Loan and the
Notes were funded at closing, providing $225.0 million, which was used to repay
long-term debt balances under the Company's existing credit facility, repay and
retire the 10% Preferred Stock, repay certain capital lease obligations, pay
fees and expenses associated with the above described transactions and provide
working capital.
F-20
<PAGE>
In October 1998, the Company amended and restated the 1997 Credit Facility
to include a $50.0 million term loan (the "Term Loan B") which was primarily
used to fund the acquisition of CII (See Note 17).
A summary of the Company's long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Term Loans:
Term Loan A.................... $ 44,250 $ 49,000
Term Loan B.................... 50,000 -
10.25% Senior Subordinated Notes.. 175,000 175,000
Other notes....................... 1,850 1,143
-------- --------
271,100 225,143
Less: current maturities..... 8,356 4,993
-------- --------
$262,744 $220,150
======== ========
</TABLE>
The following is a schedule of the aggregate maturities of long-term debt
as of December 27, 1998, for each of the succeeding five years and thereafter
(in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1999......................... $ 8,356
2000......................... 13,223
2001......................... 8,476
2002......................... 21,665
2003......................... 15,000
Thereafter................... 204,380
--------
$271,100
========
</TABLE>
The Company's Term Loans A and B and certain letter of credit facilities
described below were provided by various financial institutions, some of which
hold a minority interest in the Company.
1997 CREDIT FACILITY (AS AMENDED AND RESTATED AS OF OCTOBER 15, 1998)
The Term Loan A, the Term Loan B, the Acquisition Facility and the
Revolving Facility (collectively "the 1997 Credit Facility") bear interest, at
the Company's election, at either (i) a defined base rate plus 1.25% per annum
(1.75% for Term Loan B) or (ii) LIBOR plus 2.25% per annum (2.75% for Term Loan
B), subject to reduction based on the achievement of certain leverage ratio
levels. At December 27, 1998, the interest rates ranged from 7.4% to 8.0%. The
Company is obligated to pay commitment fees of 0.5% per annum (subject to
reduction based on the achievement of certain leverage ratio levels) on the
unused portions of the Acquisition Facility and the Revolving Facility from time
to time, as well as a customary annual agent's fee. Fees relating to the
issuance of letters of credit under the Revolving Facility will include a fee
F-21
<PAGE>
equal to the then applicable margin over LIBOR plus a fronting fee of 0.25% per
annum (payable to the issuing institution) based on the face amount of letters
of credit, plus standard issuance and administrative charges.
In addition to the scheduled amortization, the Company is required to make
prepayments under certain conditions, including without limitation, upon certain
asset sales or issuance of debt or equity securities. The Company is also
required to make annual prepayments in an amount equal to a percentage of excess
cash flow (as defined in the 1997 Credit Facility) beginning with fiscal year
1998. During the fiscal year ended December 27, 1998, there were no prepayments
required of the Company under the agreement.
Term Loans
Term Loan A principal is payable in quarterly installments ranging from
$1.0 to $7.5 million beginning September 1997 and maturing in June 2002.
Interest is paid in one, two, three or six month periods as defined in the 1997
Credit Facility.
Term Loan B principal is payable in quarterly installments as follows: $0.1
million from December 31, 1998 to June 30, 2002; $3.8 million from September 30,
2002 to March 31, 2004; and a balloon payment of $21.9 million at maturity on
June 30, 2004. Interest is paid in one, two, three or six month periods as
defined in the 1997 Credit Facility.
Acquisition Facility
The Company may borrow under the Acquisition Facility at anytime during the
period from the closing date of May 21, 1997 through the third anniversary of
the closing date. Amounts outstanding under the Acquisition Facility on the
third anniversary of the closing will be converted to a term loan. The Company
will be required to make scheduled annual amortization payments on the term loan
portion of the Acquisition Facility. At December 27, 1998, there was an
outstanding balance of $68.0 million, which if converted to a term loan would
result in the following principal payment amortization by fiscal year: $6.8
million in 2000; $13.6 million in 2001; and $47.6 million in 2002.
Revolving Facility
Under the terms of the Revolving Facility, the Company may borrow and
obtain letters of credit up to an aggregate of $25.0 million. At December 27,
1998, there was $7.0 million in outstanding borrowings and $6.8 million of
outstanding letters of credit leaving unused revolving credit available for
short-term borrowings and letters of credit of $11.2 million.
Other Terms
The 1997 Credit Facility is secured by a first priority security interest
in substantially all of the Company's assets (subject to certain exceptions).
Any future material subsidiaries of the Company will be required to guarantee
the 1997 Credit Facility and the Company will be required to pledge the stock of
such subsidiaries to secure the facility.
F-22
<PAGE>
The 1997 Credit Facility contains certain financial covenants, including,
but not limited to, covenants related to minimum fixed charge coverage, minimum
cash interest coverage and maximum leverage. In addition, the 1997 Credit
Facility contains other affirmative and negative covenants relating to, among
other things, limitations on capital expenditures, other indebtedness, liens,
investments, guarantees, restricted junior payments (dividends, redemptions and
payments on subordinated debt), mergers and acquisitions, sales of assets,
leases, transactions with affiliates and investments in the Company's deferred
compensation plan. The amendment made to the 1997 Credit Facility in October 15,
1998 included the addition of a Year 2000 covenant that requires that the
Company be Year 2000 compliant. The 1997 Credit Facility contains customary
events of default, including certain changes of control of the Company. At
December 27, 1998, the Company was in compliance with all covenants.
10.25% SENIOR SUBORDINATED NOTES
In August 1997, the Notes issued pursuant to the Rule 144A Offering were
exchanged for $175.0 million of publicly registered 10.25% Senior Subordinated
Notes (the "Senior Notes"). The Senior Notes contain substantially the same
provisions as the Notes. The Senior Notes bear interest at 10.25% per annum and
interest will be due and payable on May 15 and November 15 of each year,
commencing on November 15, 1997. The Senior Notes mature on May 15, 2007 and
will not be redeemable prior to May 15, 2002. On or after such date, the Senior
Notes will be subject to redemption, at the option of the Company, in whole or
in part, at any time before maturity. The Senior Notes are redeemable at prices
set forth in the agreement, plus accrued and unpaid interest to the date of
redemption.
The Senior Notes are unsecured and rank subordinate in right of payment to
all existing and future Senior Indebtedness, as defined, of the Company
including all indebtedness under the 1997 Credit Facility and the Company's
capital lease obligations.
The Senior Notes restrict, among other things, the ability of the Company
and its wholly-owned subsidiaries a) to incur additional indebtedness and
subsidiary preferred stock, b) to sell assets and to use the proceeds from asset
sales, c) to engage in certain transactions with affiliates, d) to pay
dividends, make certain investments and make other restricted payments, as
defined, and e) to maintain a certain interest coverage financial ratio. At
December 27, 1998, the Company was in compliance with all covenants.
DEBT ISSUANCE COSTS
In connection with the 1997 Credit Facility and the Notes, the Company
incurred approximately $10.7 million in debt issuance costs, which were
capitalized. These costs are being amortized into interest expense over a period
of 5 to 10 years. Amortization is calculated using the straight-line method and
the unamortized balance is included in other assets in the accompanying
consolidated balance sheets. During 1998 and 1997, the Company amortized as
interest expense approximately $1.4 million and $0.8 million, respectively.
As a result of amending and restating the 1997 Credit Facility in October
1998, the Company incurred approximately $0.9 million in debt issuance costs,
which were capitalized. These costs are being amortized into interest expense
over a period of six years. Amortization is
F-23
<PAGE>
calculated using the straight-line method, and the unamortized balance is
included in other assets in the accompanying consolidated balance sheets.
9. LEASES
The Company maintains leases covering restaurant land and building
properties, computer software, hardware and other equipment which expire on
various dates through 2016 and generally require additional payments for
property taxes, insurance and maintenance. Certain leases provide for rentals
based upon a percentage of sales by Company-operated restaurants in addition to
the minimum annual rental payments. Future minimum payments under capital and
non-cancelable operating leases, as of December 27, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1999............................................. $ 7,112 $ 30,632
2000............................................. 5,018 28,584
2001............................................. 2,331 27,117
2002............................................. 520 25,291
2003............................................. 304 21,316
Thereafter....................................... 3,319 66,419
------- --------
Future minimum lease payments............... 18,604 $199,359
========
Less: amounts representing interest......... 3,993
-------
Total obligations under capital leases...... 14,611
Less: current portion....................... 6,050
-------
Long-term obligations under capital leases.. $ 8,561
=======
</TABLE>
On August 29, 1997, the Company repaid certain capital lease obligations
totaling $16.7 million. The Company used a portion of the proceeds from the
refinancing transaction that took place during the second quarter of 1997 to
repay these capital lease obligations (See Note 8).
Rent expense for operating leases for the fiscal years ended December 27,
1998, December 28, 1997 and December 29, 1996, amounted to $20.5 million, $11.0
million and $9.9 million, respectively, including percentage rents of $1.3
million, $0.7 million and $0.7 million, respectively.
As of December 27, 1998, the Company leases Company-owned restaurant
properties with an aggregate book value of $15.8 million to certain franchisees
and others. The Company also leases from third parties and sub-leases these
properties to franchisees and others. Rental income from these leases was
approximately $7.9 million, $7.5 million and $6.4 million for the fiscal years
ended in 1998, 1997 and 1996, respectively, and was primarily based upon a
percentage of restaurant sales. The lease terms under these agreements expire on
various dates through 2027. Future minimum rentals receivable under these non-
cancelable lease and sub-lease arrangements as of December 27, 1998 are as
follows (in thousands):
F-24
<PAGE>
Rental
Income
-------
1999......................... $ 7,304
2000......................... 7,077
2001......................... 6,837
2002......................... 6,104
2003......................... 5,375
Thereafter................... 38,553
-------
Future minimum rentals.. $71,250
=======
10. INCOME TAXES
The components of income tax expense (benefit) included in the
statements of operations are as follows (in thousands):
<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
December 27, December 28, December 29,
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Current income tax expense consists of:
Federal................................ $ 1,094 $ 1,557 $ 363
Foreign................................ 1,543 1,804 1,705
State.................................. 768 1,301 42
------- ------ ------
Total............................. 3,405 4,662 2,110
------- ------ ------
Deferred income tax expense (benefit)
consists of:
Federal................................ (6,801) 4,338 152
State.................................. (827) (475) 228
------- ------ ------
Total............................. (7,628) 3,863 380
------- ------ ------
Income tax expense (benefit).... $(4,223) $8,525 $2,490
======= ====== ======
</TABLE>
The Company does not currently own or participate in the ownership of
any material non-U.S. operations and does not file income tax returns with
any foreign jurisdictions. However, applicable foreign withholding taxes
are generally deducted from royalties and certain other revenues collected
from international franchisees. Foreign taxes withheld are eligible for
credit against the Company's U.S. income tax liabilities.
F-25
<PAGE>
A reconciliation of the Federal statutory income tax rate to the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
December 27, December 28, December 29,
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Statutory Federal income tax expense
(benefit) rate................... (35.0%) 35.0% 34.0%
Non-deductible items including
goodwill amortization............ 5.3 2.0 1.6
State taxes, net of federal benefit... (2.1) 4.2 4.6
Other items, net...................... (1.0) 2.4 2.1
------ ---- ----
Effective income tax expense
(benefit) rate................ (32.8%) 43.6% 42.3%
====== ==== ====
</TABLE>
Significant components of the Company's net deferred tax asset and net
deferred tax liability were as follows (in thousands):
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------- -------------
<S> <C> <C>
Current deferred tax asset (liability):
Payroll accruals.......................... $ 919 $ 683
Allowance for doubtful accounts........... 1,903 1,734
Other accruals............................ 1,755 949
-------- --------
Total current deferred tax asset....... 4,577 3,366
-------- --------
Noncurrent deferred tax asset (liability):
Franchise value and trademarks............ $(23,939) $(31,662)
Property, plant and equipment............. 4,476 4,167
Net operating loss carryforwards.......... 7,633 3,352
General business and AMT credit
carryforwards.......................... 4,836 3,424
Foreign tax credit carryforwards.......... 3,732 4,924
Deferred compensation..................... 3,165 2,665
Insurance accruals........................ 5,684 6,944
Litigation/environmental accruals......... 2,739 2,774
Deferred franchise fee revenue............ 2,427 2,679
Other items, net.......................... (177) (1,969)
-------- --------
10,576 (2,702)
Valuation allowance....................... (6,160) -
-------- --------
Total noncurrent deferred tax asset
(liability)........................ 4,416 (2,702)
-------- --------
Net deferred tax asset................. $ 8,993 $ 664
======== ========
</TABLE>
F-26
<PAGE>
Certain prior period balances above have been reclassified to conform
to the current presentation to adjust estimates to actual per the 1997 tax
return.
As of December 27, 1998, the Company had U.S. Net Operating Losses
("NOLs") and tax credit carryforwards in the amounts of $17.5 million and
$8.6 million, respectively. Certain acquired NOLs and tax credit
carryforwards are subject to limitations under Section 382 and 383 of the
Internal Revenue Code of 1986, as amended. Management has determined that
it is more likely than not that the deferred tax assets attributable to
these acquired NOLS and tax credit carryforwards will not be realized and
as such has established a valuation allowance of $6.2 million for the
fiscal year ended December 27, 1998. Based on management's assessment, it
is more likely than not that the remaining net deferred tax assets will be
realized through future reversals of existing temporary differences and
future taxable income.
11. COMMON STOCK
In October 1998, the Company issued 2,795,703 shares of AFC common
stock to existing shareholders and option holders at $7.75 per share. The
Company received approximately $20.3 million in cash and approximately $1.3
million in notes receivable from certain officers of the Company. The cash
proceeds from the stock offering were used to fund a portion of the
purchase price to acquire CII (See Note 17).
12. STOCK OPTION PLANS
The 1992 Stock Option Plan
The 1992 Stock Option Plan is a nonqualified stock option plan
authorizing the issuance of options to purchase approximately 1.8 million
shares of the Company's common stock. The options currently granted and
outstanding allow certain officers of the Company to purchase approximately
1.8 million shares of common stock at $0.08 per share and are exercisable
at various dates beginning January 1, 1994. If not exercised, the options
expire 15 years after the date of issuance. The options issued in 1992
under the 1992 Stock Option Plan were issued with option exercise prices
below market value of the Company's common stock. In prior years,
compensation expense of approximately $2.4 million related to certain
options was being amortized over their respective vesting periods of 25.0%
per year. For the years ended December 27, 1998 and December 28, 1997, the
Company did not recognize any compensation expense related to these
options. In 1996, the Company recognized an immaterial amount of
compensation expense related to certain of these options. As of
December 27, 1998, 1,560,563 options were exercisable.
Pursuant to certain anti-dilution provisions, in April 1996 the 1992
Stock Option Plan was amended whereby the option price was reduced from
$0.10 per share to $0.08 per share. In connection with the price reduction
per share, approximately 0.4 million additional options were issued to the
officers currently holding options under this plan. The Company did not
recognize compensation expense with respect to the reduction of the option
price and the issuance of the 0.4 million options.
F-27
<PAGE>
The 1996 Performance-Based Stock Option Plan
In April 1996, the Company executed the Nonqualified Performance Stock
Option Plan ("1996 Performance-Based Stock Option Plan"). This plan currently
authorizes the issuance of approximately 2.7 million options to purchase one
share each of AFC's common stock at prices ranging from $3.317 to $7.50 per
share. At December 27, 1998, the weighted-average exercise price was $4.94 per
share. The options currently granted and outstanding allow certain employees of
the Company to purchase approximately 2.7 million shares of common stock.
Vesting, as defined in the stock option agreement, is based upon the Company
achieving annual levels of earnings before interest, taxes, depreciation and
amortization, as defined in the stock option agreement, over fiscal year periods
beginning with fiscal year 1996 and ending with fiscal year 2000. If not
exercised, the options expire ten years from the date of issuance. At December
27, 1998, the weighted-average contractual life of these options was 8.5 years.
Under this plan, compensation expense is determined and recorded when employees
vest in their respective options. During the fiscal year ended December 27,
1998, December 28, 1997 and December 29, 1996, the Company recorded
approximately $1.1 million, $2.2 million and $0.8 million, respectively, in
compensation expense related to the options, which vested in 1998, 1997 and 1996
under this plan. As of December 27, 1998, 2,198,188 options were exercisable.
In 1998, the Board of Directors approved the cancellation of 932,698
unvested options under this plan held by the Company's top three executives. The
cancelled options had exercise prices that ranged from $3.32 per share to $7.50
per share. In connection with the cancellation, the Board granted to these three
individuals 932,698 options with an exercise price of $7.75 per share, which was
the fair value of the Company's common stock at the date of grant. In addition,
the executives became fully vested in these options upon the grant date. The
Company did not recognize compensation expense regarding the subsequent grant of
the 932,698 options since they were issued at an exercise price that equaled the
fair value of the Company's common stock at the date of grant.
The 1996 Stock Option Plan
In April 1996, the Company executed the Nonqualified Stock Option Plan
("1996 Stock Option Plan"). This plan authorizes the issuance of approximately
1.8 million options. The Company granted approximately 0.3 million options in
1996 at $3.317 per share whereby the compensation expense associated with this
grant was immaterial. In 1997, the Company granted approximately 0.3 million
options at $4.95 per share, which was the market value of the Company's common
stock at the date of grant. In 1998, the Company granted 0.4 million options at
$7.50 per share which approximated the market value of the Company's common
stock at the date of grant. At December 27, 1998, the weighted-average price
per share was $5.42. The options currently granted and outstanding allow
certain employees of the Company to purchase approximately 1.0 million shares of
common stock, which vest at 25% per year beginning April 1997. If not
exercised, the options expire seven years from the date of issuance. At December
27, 1998, the weighted-average contractual life of these options was 5.6 years
and 241,968 options were exercisable.
F-28
<PAGE>
The 1998 SCC Plan
In connection with the SCC acquisition in March 1998, the Company executed
the Substitute Nonqualified Stock Option Plan ("1998 SCC Plan"). This plan was
established to enable the Company to issue AFC options to former SCC option
holders in order to purchase 100% of SCC's common stock pursuant to the purchase
agreement. The 1998 SCC Plan authorizes the issuance of approximately 0.5
million options at exercise prices that range from $3.91 to $6.75 per share. The
Company issued approximately 0.4 million options at the closing date of the
acquisition. The issuance of the remaining 0.1 million is subject to a reduction
of options based on a holdback provision in the acquisition agreement. Regarding
the remaining options to be issued, a determination on the number of options
will be made on or about March 31, 1999, a year from the closing date of the
transaction. At December 27, 1998, the weighted-average exercise price per share
was $4.74. The options vest when issued by the Company and expire at various
dates through October 31, 2007. At December 27, 1998, the weighted-average
contractual life of these options was 6.6 years. As of December 27, 1998,
457,398 options were exercisable. These options were issued in connection with
the acquisition of SCC and the related value placed upon these options was added
to the goodwill resulting from this acquisition (See Note 17).
Warrants
Also in connection with the SCC acquisition, the Company authorized the
issuance of 177,958 warrants to the former SCC shareholders to purchase AFC
Common Stock at prices that range from $3.91 to $6.00 per share. At closing,
154,468 warrants were issued to the former SCC shareholders. On or about March
31, 1999, the remaining 23,490 warrants will be issued subject to possible
reductions in the number of warrants based on a holdback provision in the
acquisition agreement. Most of the warrants expire on May 4, 1999, with 23,353
warrants expiring on September 30, 2001. At December 27, 1998, 160,340 warrants
were exercisable. These warrants were issued in connection with the acquisition
of SCC and the related value placed upon these warrants was added to the
goodwill resulting from this acquisition (See Note 17).
F-29
<PAGE>
A Summary of Plan Activity
A summary of the status of the Company's four stock option plans and
warrants at December 27, 1998 and December 28, 1997 and changes during the years
is presented in the table and narrative below:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
Shares Wtd.Avg. Shares Wtd.Avg.
(000's) Ex.Price (000's) Ex.Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............ 5,013 $2.36 4,643 $2.06
Granted options and warrants................ 2,021 6.73 496 4.95
Exercised options and warrants.............. (10) 2.62 (75) .08
Cancelled options and warrants.............. (1,039) 3.37 (51) 2.61
------ ------
Outstanding at end of year.................. 5,985 3.66 5,013 2.36
------ ------
Exercisable at end of year.................. 4,618 3.34 2,663 1.48
Weighted average fair value of options and
warrants granted (See Note 1)........... $2.36 $1.69
</TABLE>
Approximately 0.4 million, 0.5 million and 3.0 million options granted in
1998, 1997 and 1996, respectively, were at prices that equaled the market price
of the common stock at the grant date.
13. OTHER EMPLOYEE BENEFIT PLANS
Pre-Tax Savings and Investment Plan
The Company maintains a qualified employee benefit plan under Section
401(k) of the Internal Revenue Code for the benefit of employees meeting certain
eligibility requirements. Under the plan, employees may contribute up to 16.0%
of their eligible compensation to the plan on a pre-tax basis up to statutory
limitations and the Company may make both voluntary and matching contributions
to the plan. The Company expensed approximately $0.2 during 1998, 1997 and 1996
for its contributions to the plan.
SCC maintains an employee benefit plan under Section 401(k) of the Internal
Revenue Code for the benefit of employees meeting certain eligibility
requirements. The Company is in the process of integrating the SCC plan into
the Company's plan, which is anticipated to be completed in the fall of 1999.
Deferred Compensation Plan
Effective March 1, 1998, the Company established the AFC Deferred
Compensation Plan. The plan is an unfunded, nonqualified deferred compensation
plan that benefits certain designated employees who are within a select group of
key management or highly compensated employees. Under this plan, an employee
may defer up to 20% of base salary and 100% of any
F-30
<PAGE>
bonus award in increments of 5% on a pre-tax basis. The Company may make both
voluntary and matching contributions to the plan. The minimum annual deferral is
5%. The funds are invested in variable life insurance policies that have an
aggregate cash surrender value of approximately $0.4 million at December 27,
1998. All plan assets are held in a trust that is subject to the Company's
creditors. The Company's 1997 Credit Facility (See Note 8) limits the Company's
investment in the plan to $5.0 million. The Company expensed approximately
$26,000 in 1998 for its contributions to the plan.
Executive Retirement and Benefit Plans
During 1994, the Company adopted a nonqualified, unfunded retirement,
disability and death benefit plan for certain executive officers. Annual
benefits are equal to 30% of the executive officer's average base compensation
for the five years preceding retirement. The benefits are payable in 120 equal
monthly installments following the executive officer's retirement date. Death
benefits under this plan cover certain executive officers and are up to five
times the officer's base compensation during the time of employment. The Company
has the discretion to increase the employee's death benefits. Death benefits
are funded by split dollar life insurance arrangements. The accumulated benefit
obligation related to this plan was approximately $1.5 million, $1.2 million and
$1.0 million as of December 27, 1998, December 28, 1997 and December 29, 1996,
respectively.
Expense for the retirement plan for the years ended December 27, 1998,
December 28, 1997, and December 29, 1996, was approximately $0.4 million, $0.2
million and $0.3 million, respectively.
The Company's assumptions used in determining the plan cost and liabilities
include a discount rate of 7.5% per annum in 1998, 1997 and 1996 and a 5% rate
of salary progression in 1998, 1997 and 1996.
The Company also provides post-retirement medical benefits (including
dental coverage) for certain retirees and their spouses. This benefit begins on
the date of retirement and ends after 120 months or upon the death of both
parties. The accumulated post-retirement benefit obligation for the plan as of
December 27, 1998 and December 28, 1997, was approximately $0.4 million and $0.2
million, respectively, and the net periodic expense for the medical coverage
continuation plan for 1998, 1997 and 1996 was approximately $42,000, $204,500,
and $71,000, respectively.
14. RELATED PARTY TRANSACTIONS
In 1996, the Company received legal services from a law firm associated
with a member of the Company's Board of Directors. During the fiscal year ended
December 29, 1996, the total amount paid to this law firm was $0.5 million.
In April 1996, the Company loaned certain officers of the Company an
aggregate of $4.5 million to pay personal withholding tax liabilities incurred
as a result of a $10.0 million executive compensation award earned in 1995. All
the individual notes have similar terms. The
F-31
<PAGE>
notes bear interest at 6.25% per annum with principal and interest payable at
the end of the term of the note, which is approximately seven and one half years
from the date of issuance. Each note is secured by the common stock awarded to
the officers. At the date of issuance, a discount was recorded to present the
notes at fair market value. Accordingly, compensation expense was recognized in
an amount of $0.9 million for the fiscal year ended December 29, 1996. The note
receivable balance, net of the unamortized discount, and interest receivable
balance as of December 27, 1998 and December 28, 1997 are included as a
reduction to shareholders' equity in the accompanying consolidated balance
sheets and consolidated statements of shareholders' equity since the common
stock awarded to the officers secures payment of the individual notes.
In October 1998, the Company loaned certain officers of the Company an
aggregate of $1.3 million to pay for shares of common stock offered by AFC in
connection with the acquisition of CII. All the individual notes have similar
terms. The notes bear interest at 7.0% per annum with principal and interest
payable at the end of the term of the note, which is December 31, 2005. The
notes are secured by the number of shares of common stock purchased by the
employee with the note proceeds. The note receivable balance and interest
receivable balance as of December 27, 1998 is included as a reduction to
shareholders' equity in the accompanying consolidated balance sheets and
consolidated statements of shareholders' equity.
In connection with the Company's common stock offering described in Note
11, the Company paid stock issuance costs of approximately $1.0 million to
Freeman Spogli and Co., Inc., which through other affiliates is the Company's
majority common shareholder.
15. COMMITMENTS AND CONTINGENCIES
Employment Agreements
The three most senior executives and the Company have entered into
employment agreements containing customary employment terms which provide for an
annual base salary of $500,000, $350,000 and $315,000, respectively, subject to
annual adjustment by the Board of Directors, an annual incentive bonus, stock
options, fringe benefits, participation in Company-sponsored benefit plans and
such other compensation as may be approved by the Board of Directors. The terms
of the agreements terminate in 2001, unless earlier terminated or otherwise
renewed, pursuant to the terms thereof. Pursuant to the terms of the
agreements, if employment is terminated without cause or if written notice not
to renew employment is given by the Company, the terminated executive would be
entitled to, among other things, one to two-and-one-half times his base annual
salary and the bonus payable to the individual for the fiscal year in which such
termination occurs. Under the agreements, upon (i) a change of control of the
Company, (ii) a significant reduction in the executive's responsibilities, title
or duties or (iii) the relocation of the Company's principal office more than 45
miles from its current location, the executive may terminate his employment and
would be entitled to receive, among other things, the same severance pay he
would have received had his employment been terminated by the Company without
cause.
F-32
<PAGE>
Supply Contracts
With respect to Popeyes and Churchs, the Company's and its franchisees'
principal raw material is fresh chicken. The Company maintained purchase
agreements with its fresh chicken suppliers that provided for a "ceiling", or
highest price, and a "floor", or lowest price, that the Company paid for chicken
over the contract term and the ceilings were generally set at prices above the
current market price. Such supply contracts were generally for one to two
years. The Company recognized chicken cost of sales at the amounts paid under
the contracts. For the periods presented, the Company has not experienced any
material losses as a result of these contracts. In order (i) to ensure favorable
pricing for the Company's chicken purchases in the future, (ii) to reduce
volatility in chicken prices and (iii) to maintain an adequate supply of fresh
chicken, the Company has entered and will enter into two types of chicken
purchasing arrangements with its suppliers. The first of these contracts is a
grain-based "cost-plus" pricing arrangement that provides chicken prices based
upon the cost of feed grains, such as corn and soybean meal, plus certain agreed
upon non-feed and processing costs. The other contract is similar to the grain
based "cost-plus" arrangement but contains price provisions which limit how far
up or down prices may move in any year. Both contracts have terms ranging from
three to five years with provisions for certain annual price adjustments as
defined in the contracts.
SCC's principal raw material is green coffee beans. The Company typically
enters into supply contracts to purchase a pre-determined quantity of green
coffee beans at a fixed price per pound. These contracts usually cover periods
up to a year as negotiated with the individual supplier. At December 27, 1998,
the Company had commitments to purchase approximately 5.3 million pounds of
green coffee beans at a total cost of approximately $7.7 million. The contract
terms cover a period from January 1999 to September 1999.
Litigation
The Company has been named as a defendant in various actions arising from
its normal business activities in which damages in various amounts are claimed.
The Company has established reserves in the accompanying consolidated balance
sheets to provide for the defense and settlement of current litigation and
management believes that the ultimate resolution of these matters will not have
a material adverse effect on the financial condition or results of operations of
the Company.
In July 1997, CP Partnership ("CP") filed a complaint against the Company
alleging patent infringement regarding the design of the proprietary gas fryer
manufactured by the Company's manufacturing division. This case was segregated
into a patent infringement claim and a contract claim. In August 1998, the
Court dismissed CP's patent infringement claim. CP has appealed this judgment.
In November 1998, the Company settled the contract claim for an immaterial
amount. It is management's belief that the final outcome of the patent
infringement claim will not have an adverse effect on the Company's consolidated
financial position or results of operations.
F-33
<PAGE>
Environmental Matters
Approximately 200 of the Company's owned and leased properties are known or
suspected to have been used by prior owners or operators as retail gas stations,
and a few of these properties may have been used for other environmentally
sensitive purposes. Many of these properties previously contained underground
storage tanks ("USTs") and some of these properties may currently contain
abandoned USTs. As a result of the use of oils and solvents typically
associated with automobile repair facilities and gas stations, it is possible
that petroleum products and other contaminants may have been released at these
properties into the soil or groundwater. Under applicable Federal and state
environmental laws, the Company, as the current owner or operator of these
sites, may be jointly and severally liable for the costs of investigation and
remediation of any such contamination. As a result, after an analysis of its
property portfolio, including testing of soil and groundwater at a
representative sample of its facilities, the Company believes that it has
accrued adequate reserves for environmental remediation liabilities. The
Company is currently not subject to any administrative or court order requiring
remediation at any of its properties.
Information Technology Outsourcing
The Company entered into an agreement with IBM Global Services, a division
of IBM ("IGS") commencing on August 1, 1994, for a ten-year term, to outsource
the Company's information technology, programming and computer operations. This
agreement allows the Company to update its corporate and restaurant systems with
state-of-the-art computer software and hardware. IGS will guarantee levels of
performance, maintain the operating systems and hardware, perform applications
development and maintenance, and provide other administrative, management and
support functions. Initially, IGS purchased the hardware and software under the
outsourcing contract and leased the hardware and software to the Company, which
the Company recorded as capital leases. In August 1997, the Company repaid
certain of these capital lease obligations totaling $16.7 million.
Future minimum payments under this agreement, exclusive of payments
included in Note 9 as capital lease payments for systems installed as of
December 27, 1998, are as follows at that date (in thousands):
YEAR AMOUNT
---- ------
1999........ $ 6,925
2000........ 5,089
2001........ 4,170
2002........ 5,055
2003........ 5,968
Thereafter.. 3,617
-------
$30,824
=======
F-34
<PAGE>
It is estimated that the remaining payments due under the contract of
approximately $30.8 million will be reflected as restaurant operating or general
and administrative costs and expenses.
Operating expenses of approximately $10.5 million, $8.1 million and $7.5
million related to the outsourcing contract have been included in the statements
of operations for the years ended December 27, 1998, December 28, 1997 and
December 29, 1996, respectively.
Year 2000 Compliance (Unaudited)
The Company relies to a large extent on computer technology to carry out
its day-to-day operations. The Company is currently working to resolve the
potential impact of the Year 2000 on the processing of date-sensitive
information by the Company's information technology ("IT") systems and non-IT
systems that are reliant on computer technology. The Year 2000 problem is the
result of computer programs being written using two digits (rather than four) to
define the applicable year. Any of the Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This problem could result in a system failure or miscalculations
causing disruptions of operations, including, but not limited to, a temporary
inability to process transactions or engage in normal business activities.
The Company is in the process of completing a Year 2000 compliance
assessment of both its IT systems and non-IT systems, including those recently
acquired. All IT-related systems are in the process of being assessed using a
standard Year 2000 approach that includes five phases. These phases are: 1)
inventory 2) assess 3) remediate 4) test and 5) maintain. Although the pace of
the work varies among IT and non-IT systems and the phases are often conducted
in parallel, the inventory and assess phases have been substantially completed
as of December 27, 1998 and the remediation phase is in progress. Under its
current plan, remediation and testing of IT systems is scheduled to be completed
by the end of the Company's third quarter of 1999. The Company anticipates the
timely completion of this compliance assessment, which should mitigate the Year
2000 issue.
Based upon this compliance assessment, the Company does not expect the Year
2000 problem, including the cost of making the Company's IT and non-IT systems
Year 2000 compliant, to have a material adverse impact on the Company's
financial position or results of operations in future periods. However, the
inability of the Company to resolve all potential Year 2000 problems in a timely
manner could have a material adverse impact on the Company.
Under the Company's Franchise Awareness Program and Vendor/Supplier Letter
Program, the Company has and will be initiating communications with its
significant suppliers and vendors and its franchisee community in an effort to
determine the extent to which the Company's business is vulnerable to the
failure by these third parties to remediate their Year 2000 problems. While the
Company has not been informed of any material risks associated with the Year
2000 problem on these entities, there can be no assurance that the IT and non-IT
systems of these third parties will be Year 2000 compliant on a timely basis.
The inability of these third parties to remediate their Year 2000 problems could
have a material adverse impact on the Company's financial position and results
of operations.
F-35
<PAGE>
To date, the Company has incurred approximately $0.1 million in Year 2000
costs. These costs are primarily related to fees paid to outside consultants who
helped develop a strategy to assess the Company's Year 2000 issues. The Company
estimates that the total costs of addressing the Year 2000 issue will
approximate $0.9 million, including the amount that has already been expended.
These costs will be funded through operating cash flows.
The Company has not yet ascertained what the impact would be on the
Company's financial position and results of operations in the event of failure
of the Company's or third parties' IT and non-IT systems due to the Year 2000
issue. The Company began developing a contingency plan in the fourth quarter of
1998 and will continue to develop such plan during the first quarter of 1999
designed to allow continued operations in the event that such failures should
occur.
Formula Agreement
The Company has a formula licensing agreement, as amended (the "Formula
Agreement"), with Alvin C. Copeland, the former owner of the Popeyes and Churchs
restaurant systems, and Diversified Foods and Seasonings, Inc. ("Diversified"),
which calls for the worldwide exclusive licensing to the Popeyes system of the
spicy fried chicken formula and certain other ingredients used in Popeyes
products. The Formula Agreement provides for monthly royalty payments of
$237,500 until April 1999 and, thereafter, monthly royalty payments of $254,166
until March 2029. Total royalty payments were $2.9 million in the fiscal years
ended December 27, 1998, December 28, 1997 and December 29, 1996.
Supply Agreements
The Company has a supply agreement with Diversified under which the Company
is required to purchase certain proprietary products made exclusively by
Diversified. This contract expires in 2029 subject to further renewal.
Supplies are generally provided to franchised and Company-operated
restaurants in the Popeyes and Churchs systems pursuant to supply agreements
negotiated by Popeyes Operators Purchasing Cooperative Association, Inc.
("POPCA") and Churchs Operators Purchasing Association, Inc. ("COPA"),
respectively, each a not-for-profit corporation that was created for the purpose
of consolidating the collective purchasing power of the franchised and Company-
operated restaurants and negotiating favorable terms therefor. The purchasing
cooperatives are not obligated to purchase, and do not bind their members to
commitments to purchase, any supplies. Membership in each cooperative is open to
all franchisees. Since 1995, the Company's franchise agreements related to
Popeyes and Chuchs have required that each franchisee joins its respective
purchasing cooperative. All Company-operated Popeyes and Churchs restaurants are
members of POPCA or COPA, respectively. Substantially all of the Company's
domestic Popeyes and Churchs franchisees participate in POPCA or COPA. COPA also
purchases certain ingredients and supplies for Chesapeake and Cinnabon
franchised and Company-operated restaurants in order to further leverage the
collective buying power of AFC.
F-36
<PAGE>
Advertising Funds
In accordance with the Popeyes and Churchs franchise agreements,
advertising funds have been established (the "Advertising Funds") whereby the
Company contributes a percentage of sales (generally 5%) to the Advertising
Funds in order to pay for the costs of funding advertising and promotional
activities. In accordance with the franchise agreement, the net assets and
transactions of the Advertising Funds are not commingled with the working
capital of the Company. The net assets and transactions of the Advertising Funds
are, therefore, not included in the accompanying consolidated financial
statements. The Company's contributions to the Advertising Funds are recorded in
restaurant operating expenses in the accompanying consolidated financial
statements.
License Agreement
The Company currently has a number of domestic and international agreements
with The Hearst Corporation, King Features Syndicate Division ("King Features")
under which the Company has the exclusive license to use the image and likeness
of the cartoon character "Popeye" (and certain companion characters such as
"Olive Oyl") in connection with the operations of franchised and Company-
operated Popeyes restaurants worldwide. Under the current agreements, the
Company is obligated to pay King Features a royalty of 0.1% of the first $1.0
billion of Popeyes systemwide sales and 0.05% for the next $2.0 billion of such
sales. The King Features agreements automatically renew annually.
Other Commitments
The Company has guaranteed certain loans and lease obligations
approximating $1.6 million and $1.9 million at December 27, 1998 and December
28, 1997, respectively.
16. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates exclusively in the food service industry.
Substantially all revenues result from the sale of menu products at restaurants
operated by the Company, franchise royalty and fee income earned from franchised
restaurant operations and wholesale revenues from the sale of coffee products.
The Company's reportable segments are based on specific products and services
within the food service industry. The Company combined Popeyes' and Churchs'
domestic operations to form its chicken segment. The Company also aggregated the
operations of Chesapeake and Cinnabon to form its bakery cafe segment. The
Company's coffee segment consists of SCC's domestic operations, which includes
wholesale operations. The international segment is comprised of the Company's
international franchised operations, which mainly consists of Popeyes and
Churchs international franchised restaurants.
The "other" segment includes the Company's manufacturing division,
Ultrafryer. The "corporate" component of operating income includes revenues from
1) interest income from notes receivable and rental revenue from leasing and
sub-leasing agreements with franchisees and third parties, less 2) corporate
general and administrative expenses, depreciation, amortization and interest
expense.
F-37
<PAGE>
Operating income (loss) represents each segment's earnings before income
taxes, depreciation, amortization, non-cash items related to gains/losses on
asset dispositions and write-downs and compensation expense related to stock
option activity.
<TABLE>
<CAPTION>
REVENUES:
1998 1997 1996
---------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Chicken........................ $495,770 $452,799 $469,553
Coffee......................... 58,113 - -
Bakery cafe.................... 27,290 2,442 -
International.................. 11,712 12,273 12,388
Other.......................... 9,866 8,557 12,065
Inter-segment revenues......... (2,261) (857) (3,815)
Corporate...................... 8,601 8,539 7,652
-------- -------- --------
Total Revenues............... $609,091 $483,753 $497,843
======== ======== ========
</TABLE>
Inter-segment revenues represent Ultrafryer sales to Company-operated
restaurants. These revenues are eliminated in consolidation.
<TABLE>
<CAPTION>
OPERATING INCOME (LOSS):
1998 1997 1996
---------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Chicken........................ $ 90,441 $ 90,457 $ 84,308
Coffee......................... 7,774 - -
Bakery cafe.................... 3,133 258 -
International.................. 6,912 7,684 8,011
Other.......................... 1,220 901 546
Corporate...................... (22,443) (25,283) (27,999)
-------- -------- --------
Total Operating Income
(Loss)................... $ 87,037 $ 74,017 $ 64,866
======== ======== ========
<CAPTION>
DEPRECIATION AND AMORTIZATION:
1998 1997 1996
---------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Chicken........................ $ 24,935 $ 17,308 $ 18,446
Coffee......................... 4,502 - -
Bakery cafe.................... 2,237 271 -
International.................. 87 39 51
Other.......................... 316 288 388
Corporate...................... 14,001 15,897 12,019
-------- -------- --------
Total Depreciation and
Amortization............. $ 46,078 $ 33,803 $ 30,904
======== ======== ========
</TABLE>
F-38
<PAGE>
<TABLE>
<CAPTION>
SIGNIFICANT NON-CASH ITEMS:
1998 1997 1996
---------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Chicken......................... $ 9,956 $2,094 $2,858
Coffee.......................... - - -
Bakery cafe..................... 7,125 - -
International................... - - -
Other........................... - 31 11
Corporate....................... 5,000 1,021 309
------- ------ ------
Total Significant
Non-cash Items............ $22,081 $3,146 $3,178
======= ====== ======
</TABLE>
Significant non-cash items include (i) charges for restaurant closings
which are primarily write-offs of tangible and intangible assets and (ii) losses
on the disposition of long-lived assets which includes both operating and non-
operating assets.
<TABLE>
<CAPTION>
ASSETS:
1998 1997 1996
---------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Chicken.......................... $281,005 $246,138 $244,602
Coffee........................... 82,164 - -
Bakery cafe...................... 83,350 14,530 -
International.................... 15,236 15,625 14,122
Other............................ 5,730 5,425 4,721
Corporate........................ 88,980 100,986 76,223
-------- -------- --------
Total Assets................... $556,465 $382,704 $339,668
======== ======== ========
<CAPTION>
CAPITAL EXPENDITURES:
1998 1997 1996
---------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Chicken.......................... $ 26,453 $ 29,472 $ 29,639
Coffee........................... 4,602 - -
Bakery cafe...................... 2,360 309 -
International.................... 148 - -
Other............................ 140 - 57
Corporate........................ 7,822 33,138 16,576
-------- -------- --------
Total Capital Expenditures..... $ 41,525 $ 62,919 $ 46,272
======== ======== ========
</TABLE>
Not included in the 1998 capital expenditures is approximately $21.1
million in funds spent in 1998 to convert the acquired Pinetree restaurants to
Company-operated Popeyes restaurants (See Note 17).
F-39
<PAGE>
17. ACQUISITIONS
Pinetree Foods, Inc. Acquisition
On February 10, 1998, the Company acquired all of the assets of 81
restaurant properties operated by Pinetree Foods, Inc. ("Pinetree") for a
purchase price of approximately $24.3 million. In addition, the Company recorded
liabilities of approximately $4.0 million in connection with the acquisition. Of
the 81 restaurants, 66 were converted to Popeyes Company-operated restaurants,
with the remaining restaurants closed concurrently with the purchase. The
restaurants are primarily located in North and South Carolina and Georgia. The
Company funded the purchase price with internal funds and its Acquisition
Facility.
The Pinetree acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion Number 16, "Accounting for Business
Combinations" ("APB 16"). The unamortized goodwill recorded in connection with
this acquisition was $23.1 million at December 27, 1998. The Company will
amortize this goodwill amount on a straight-line basis over a forty- year
period.
Seattle Coffee Company Acquisition
On March 18, 1998, the Company acquired all of Seattle Coffee Company's
("SCC") common stock for an adjusted purchase price of approximately $68.8
million plus the assumption of approximately $4.8 million of debt. The Company
paid approximately $37.6 million in cash funded by its Acquisition Facility and
approximately $25.5 million in AFC common stock, resulting in the issuance of
1,837,834 common shares, 440,645 options to purchase common shares and 154,468
warrants to purchase common shares. In addition, the Company established a
payable of approximately $3.8 million and placed 139,914 shares of AFC's common
stock into an escrow account pursuant to a holdback payment provision in the
acquisition agreement. As a result of the transaction, SCC became a wholly-owned
subsidiary of the Company. The transaction included the acquisition of a
roasting and packaging facility, 59 Company-operated cafes and 10 franchised
cafes under the Seattle's Best and Torrefazione Italia brands, a wholesale
business including 13 sales offices with more than 5,000 wholesale accounts and
two major distribution centers. The acquisition agreement provides for a
contingent earn out payable to former SCC shareholders. Actual payment to former
SCC shareholders is contingent upon SCC operations achieving a level of
earnings, as defined in the acquisition agreement, over a 52-week period from
September 29, 1997 to September 27, 1998 (the "Contingency Period"). Based on
SCC's operating results during the Contingency Period that ended on September
27, 1998, the Company expects to pay $1.9 million in cash, stock and stock
options to former SCC shareholders as a contingent payment pursuant to the
provision in the agreement mentioned above. The contingent payable of $1.9
million is included in the adjusted purchase price of $68.8 million.
The Company accounted for this acquisition as a purchase in accordance with
APB 16. The allocation of the purchase price resulted in the Company recording
goodwill. At December 27, 1998, the unamortized goodwill balance was
approximately $53.0 million, which is amortized on a straight-line basis over a
forty-year period. The Company is in the process of analyzing the fair value and
allocation of its intangible asset acquired from SCC, which may
F-40
<PAGE>
result in a purchase price adjustment to the current amounts initially recorded
on the acquisition date. The Company anticipates completing this process by mid
1999.
The following unaudited pro forma results of operations for the fifty-two
weeks ended December 27, 1998, December 28, 1997 and December 29, 1996, assumes
the acquisition of SCC occurred as of the beginning of the respective periods
(in thousands).
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
12/27/98 12/28/97 12/29/96
--------- --------- ---------
<S> <C> <C> <C>
Total revenues............ $ 617,638 $ 534,549 $ 536,179
========= ========= =========
Net income (loss) before
Extraordinary loss....... $ (9,178) $ 10,213 $ 4,987
========= ========= =========
Net income (loss)......... $ (9,178) $ 10,213 $ 531
========= ========= =========
</TABLE>
The 52 weeks ended December 27, 1998 include SCC's operations for the two-
month period ended February 28, 1998 since the Company acquired SCC in March
1998. The 52 weeks ended December 28, 1997 include SCC's operations for the
twelve-month period ended September 28, 1997. The 52 weeks ended December 28,
1996 include SCC's operations for the twelve-month period ended September 30,
1996.
These pro forma results have been prepared for comparative purposes only
and include certain adjustments that result in (i) an increase in amortization
expense related to the recording of SCC goodwill, (ii) an increase in interest
expense related to the Acquisition Facility (See Note 8) used to partially fund
the acquisition, (iii) a decrease in interest expense related to SCC debt that
was paid off at the time of the acquisition and (iv) a decrease in amortization
expense related to the write-off of SCC's intangible assets at the time of the
acquisition. These results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition been in effect
at the beginning of the respective periods or of future results of operations of
the consolidated entities.
Cinnabon International, Inc.
On October 15, 1998, the Company acquired Cinnabon International, Inc.
("CII"), the operator and franchisor of 363 retail cinnamon roll bakeries
operating in 39 states, Canada and Mexico. Two hundred and eleven of the retail
cinnamon roll bakeries are Company-operated and are located within the United
States. In connection with the acquisition, which was accounted for as a
purchase, CII became a wholly-owned subsidiary of AFC through the merger of AFC
Franchise Acquisition Corp. into CII (the "Acquisition").
The Company acquired CII for $64.0 million in cash. The Company obtained
$44.7 million of the cash consideration from its 1997 Credit Facility as amended
and restated (See Note 8). The remaining $19.3 million cash consideration was
funded with the proceeds from the sale
F-41
<PAGE>
of approximately 2.8 million shares of AFC common stock to certain "qualified"
investors who are existing AFC shareholders and option holders (See Note 11).
The Company accounted for this acquisition as a purchase in accordance with
APB 16. The allocation of the purchase price resulted in the Company recording
goodwill in the amount of approximately $43.7 million, which will be amortized
on a straight-line basis over a forty-year period. The Company is in the
process of analyzing the fair values of the tangible and intangible assets
acquired from CII, which may result in a purchase price adjustment to the
current amounts initially recorded on the acquisition date. The Company
anticipates completing this process by mid 1999.
The Company is also in the process of developing an exit plan involving
CII's corporate headquarters in Seattle, Washington. The exit plan will include
severance, relocation and integration costs. At December 27, 1998, the Company
has not recorded a liability to recognize this anticipated liability since the
plan has not been finalized. The Company expects to finalize the plan within a
year from the acquisition date and record the related liability at that time.
The liability will be accounted for as a purchase price adjustment, which will
increase goodwill recorded as a result of the CII acquisition.
The following unaudited pro forma results of operations for the fifty-two
weeks ended December 27, 1998, December 28, 1997 and December 29, 1996, assumes
the acquisition of CII occurred as of the beginning of the respective periods
(in thousands).
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
12/27/98 12/28/97 12/29/96
--------- --------- ---------
<S> <C> <C> <C>
Total revenues............ $ 663,030 $ 562,612 $ 574,483
========= ========= =========
Net income (loss) before
Extraordinary items...... $ (18,962) $ 1,041 $ 2,439
========= ========= =========
Net income (loss)......... $ (18,962) $ 1,041 $ (346)
========= ========= =========
</TABLE>
The 52 weeks ended December 27, 1998 include CII's operations for the nine-
month period ended September 27, 1998 since the Company acquired SCC in October
1998. The 52 weeks ended December 28, 1997 include SCC's operations for the
twelve-month period ended March 29, 1998. The 52 weeks ended December 28, 1996
include SCC's operations for the twelve-month period ended March 30, 1997.
These pro forma results have been prepared for comparative purposes only
and include certain adjustments that result in (i) an increase in amortization
expense related to the recording of CII goodwill, (ii) an increase in interest
expense related to the Term Loan B debt (See Note 8) used to partially fund the
acquisition, (iii) a decrease in interest expense related to CII debt that was
paid off at the time of the acquisition and (iv) a decrease in amortization
expense related to the write-off of CII's intangible assets at the time of the
acquisition. These results do not purport
F-42
<PAGE>
to be indicative of the results of operations which actually would have resulted
had the acquisition been in effect at the beginning of the respective periods or
of future results of operations of the consolidated entities.
F-43
<PAGE>
EXHIBIT 4.3
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF OCTOBER __, 1998
AMONG
AFC ENTERPRISES, INC.
AND
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS SYNDICATION AGENT
AND LEAD ARRANGER
AND
THE LENDERS LISTED HEREIN,
AS LENDERS,
AND
CANADIAN IMPERIAL BANK OF COMMERCE,
(acting through its New York Agency)
AS ADMINISTRATIVE AGENT
================================================================================
<PAGE>
AFC ENTERPRISES, INC.
AMENDED AND RESTATED
CREDIT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS
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.............................................. 33
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Making of Loans; the Register; Notes.......................... 33
2.2 Interest on the Loans...................................................... 41
2.3 Fees....................................................................... 44
2.4 Repayments, Prepayments and Reductions in Commitments;
General Provisions Regarding Payments; Application of Proceeds
of Collateral and Payments Under Subsidiary Guaranty....................... 45
2.5 Use of Proceeds............................................................ 55
2.6 Special Provisions Governing Eurodollar Rate Loans......................... 55
2.7 Increased Costs; Taxes; Capital Adequacy................................... 57
2.8 Obligation of Lenders and Issuing Lender to Mitigate....................... 61
SECTION 3. LETTERS OF CREDIT
3.1 Issuance of Letters of Credit and Lenders' Purchase of
Participations Therein..................................................... 62
3.2 Letter of Credit Fees...................................................... 64
3.3 Drawings and Reimbursement of Amounts Drawn Under Letters
of Credit.................................................................. 65
3.4 Obligations Absolute....................................................... 67
3.5 Indemnification; Nature of Issuing Lender's Duties......................... 68
3.6 Increased Costs and Taxes Relating to Letters of Credit.................... 69
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
4.1 Conditions to Existing Loans and Letters of Credit......................... 70
4.2 Conditions to Tranche B Term Loans......................................... 71
4.3 Conditions to All Loans.................................................... 76
4.4 Conditions to Issuance of Letters of Credit................................ 77
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
5.1 Organization, Powers, Qualification, Good Standing, Business
and Subsidiaries........................................................... 78
5.2 Authorization of Borrowing, etc............................................ 79
5.3 Financial Condition........................................................ 80
5.4 No Material Adverse Change; No Restricted Junior Payments.................. 81
5.5 Title to Properties; Liens................................................. 81
5.6 Litigation; Adverse Facts.................................................. 82
5.7 Payment of Taxes........................................................... 82
5.8 Performance of Agreements; Materially Adverse Agreements................... 82
5.9 Governmental Regulation.................................................... 83
5.10 Securities Activities...................................................... 83
5.11 Employee Benefit Plans..................................................... 83
5.12 Certain Fees............................................................... 84
5.13 Environmental Protection................................................... 84
5.14 Employee Matters........................................................... 84
5.15 Solvency................................................................... 85
5.16 Intellectual Property...................................................... 85
5.17 Applicable Law............................................................. 85
5.18 Real Property.............................................................. 86
5.19 Insurance.................................................................. 86
5.20 Related Agreements......................................................... 86
5.21 Disclosure................................................................. 87
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS
6.1 Financial Statements and Other Reports..................................... 87
6.2 Corporate Existence, etc................................................... 92
6.3 Payment of Taxes and Claims; Tax Consolidation............................. 92
6.4 Maintenance of Properties; Insurance....................................... 93
6.5 Inspection; Lender Meeting................................................. 93
6.6 Compliance with Laws, etc.................................................. 94
6.7 Environmental Disclosure and Inspection.................................... 94
6.8 Company's Remedial Action Regarding Hazardous Materials.................... 96
6.9 Environmental Indemnity.................................................... 96
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
6.10 Execution of Loan Documents by Future Subsidiaries........................ 96
6.11 Covenants Regarding Acquisition Properties................................ 97
6.12 Further Assurances........................................................ 99
6.13 Year 2000................................................................. 99
SECTION 7. COMPANY'S NEGATIVE COVENANTS
7.1 Indebtedness.............................................................. 100
7.2 Liens and Related Matters................................................. 101
7.3 Investments; Joint Ventures............................................... 102
7.4 Contingent Obligations.................................................... 103
7.5 Restricted Junior Payments................................................ 104
7.6 Financial Covenants....................................................... 105
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions.......... 109
7.8 Capital Expenditures...................................................... 110
7.9 Fiscal Year............................................................... 111
7.10 Sales and LeaseBacks...................................................... 111
7.11 Sale or Discount of Receivables........................................... 111
7.12 Transactions with Shareholders and Affiliates............................. 111
7.13 Disposal of Subsidiary Stock.............................................. 112
7.14 Conduct of Business....................................................... 112
7.15 Amendments of Documents Relating to Subordinated Indebtedness............. 112
SECTION 8. EVENTS OF DEFAULT
8.1 Failure to Make Payments When Due......................................... 113
8.2 Default in Other Agreements............................................... 113
8.3 Breach of Certain Covenants............................................... 113
8.4 Breach of Warranty........................................................ 113
8.5 Other Defaults Under Loan Documents....................................... 114
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc...................... 114
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc........................ 114
8.8 Judgments and Attachments................................................. 114
8.9 Dissolution............................................................... 115
8.10 Employee Benefit Plans.................................................... 115
8.11 Change in Control......................................................... 115
8.12 Failure of Security....................................................... 116
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
8.13 Invalidity of Subsidiary Guaranty......................................... 116
8.14 Subordination Provisions.................................................. 116
SECTION 9. AGENTS
9.1 Appointment............................................................... 117
9.2 Powers and Duties; General Immunity....................................... 118
9.3 Representations and Warranties; No Responsibility For Appraisal
of Creditworthiness....................................................... 119
9.4 Right to Indemnity........................................................ 119
9.5 Collateral Documents...................................................... 120
9.6 Successor Administrative Agent and Swing Line Lender...................... 120
9.7 Agent Authorized to Release Security Interests............................ 121
SECTION 10. MISCELLANEOUS
10.1 Assignments and Participations in Loans and Letters of Credit............. 122
10.2 Expenses.................................................................. 125
10.3 Indemnity................................................................. 125
10.4 Set-Off; Security Interest in Deposit Accounts............................ 126
10.5 Ratable Sharing........................................................... 127
10.6 Amendments and Waivers.................................................... 127
10.7 Independence of Covenants................................................. 128
10.8 Notices................................................................... 128
10.9 Survival of Representations, Warranties and Agreements.................... 129
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative..................... 129
10.11 Marshalling; Payments Set Aside........................................... 129
10.12 Severability.............................................................. 130
10.13 Obligations Several; Independent Nature of Lenders' Rights................ 130
10.14 Headings.................................................................. 130
10.15 Applicable Law............................................................ 130
10.16 Successors and Assigns.................................................... 130
10.17 Consent to Jurisdiction and Service of Process............................ 131
10.18 Waiver of Jury Trial...................................................... 131
10.19 Confidentiality........................................................... 132
10.20 Maximum Amount............................................................ 132
10.21 Counterparts; Effectiveness............................................... 133
</TABLE>
(iv)
<PAGE>
PAGE
----
Signature pages S-1
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-A FORM OF ACQUISITION LOAN NOTE
IV-B FORM OF TERM LOAN NOTE
IV-C FORM OF REVOLVING NOTE
IV-D FORM OF SWING LINE NOTE
IV-E FORM OF TRANCHE B TERM NOTE
V FORM OF COMPLIANCE CERTIFICATE
VI-A FORM OF OPINION OF COHEN POLLOCK MERLIN AXELROD &
TANENBAUM, LLP
VI-B FORM OF OPINION OF RICHARDS & O'NEILL
VI-C FORM OF OPINION OF DORSEY & WHITNEY
VI-D FORM OF OPINION OF SKADDEN ARPS SLATE MEAGHER & FLOM LLP
VII FORM OF ASSIGNMENT AGREEMENT
VIII FORM OF AGREEMENT OF SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT
IX FORM OF CERTIFICATE RE NON-BANK STATUS
X FORM OF COLLATERAL ACCOUNT AGREEMENT
XI FORM OF COMPANY PLEDGE AGREEMENT
XII FORM OF COMPANY SECURITY AGREEMENT
XIII FORM OF COMPANY TRADEMARK SECURITY AGREEMENT
XIV FORM OF COMPANY PATENT AND COPYRIGHT SECURITY
AGREEMENT
XV FORM OF CLOSING DATE MORTGAGE
XVI FORM OF MODIFICATION AND ASSIGNMENT OF EXISTING
MORTGAGE
XVII FORM OF SUBSIDIARY TRADEMARK SECURITY AGREEMENT
XVIII FORM OF SUBSIDIARY GUARANTEE
XIX FORM OF SUBSIDIARY PLEDGE AGREEMENT
XX FORM OF SUBSIDIARY SECURITY AGREEMENT
XXI FORM OF ACKNOWLEDGMENT AND CONSENT
SCHEDULES
1.1A CERTAIN SPECIFIED INDEBTEDNESS
1.1B FISCAL QUARTERS
1.1C CERTAIN PERMITTED EARNOUT AGREEMENTS
2.1 LENDERS' COMMITMENTS, EXISTING LOANS AND PRO RATA SHARES
3.1 EXISTING LETTERS OF CREDIT
4.2M CORPORATE AND CAPITAL STRUCTURE; MANAGEMENT
5.1 SUBSIDIARIES OF COMPANY
5.2B CERTAIN CONSENTS
5.2F CERTAIN COLLATERAL DOCUMENTS
5.11 CERTAIN EMPLOYEE BENEFIT PLANS
5.14 EMPLOYEE MATTERS
5.16 INTELLECTUAL PROPERTY MATTERS
5.18A REAL PROPERTY ASSETS
5.18B CERTAIN LANDLORDS
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
7.5 CERTAIN PERMITTED RESTRICTED JUNIOR PAYMENTS
<PAGE>
AFC ENTERPRISES, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is dated as of October __, 1998,
and entered into by and among AFC ENTERPRISES, INC., a Minnesota corporation
("COMPANY"), GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as Lead Arranger (in
such capacity, "LEAD ARRANGER") and as syndication agent (in such capacity,
"SYNDICATION AGENT"), CANADIAN IMPERIAL BANK OF COMMERCE, acting through its New
York Agency ("CIBC") as administrative agent for Lenders (in such capacity,
"ADMINISTRATIVE AGENT") and THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE
PAGES HEREOF (each individually referred to herein as a "LENDER" and
collectively as "LENDERS").
R E C I T A L S
- - - - - - - -
WHEREAS, Company and certain financial institutions (the "EXISTING
LENDERS") are parties to that certain Credit Agreement dated as of May 21, 1997
(as heretofore amended, supplemented or otherwise modified, the "EXISTING CREDIT
AGREEMENT"), pursuant to which the Existing Lenders (capitalized terms used in
these Recitals without definition shall have the respective meanings assigned in
subsection 1.1 hereof) have extended and agreed to extend certain credit
facilities to Company, the proceeds of which were or will be used (i) together
with the proceeds of the Unsecured Subordinated Notes and certain other funds,
to consummate the Refinancings and to fund Permitted Acquisitions and to pay
certain related transaction fees and expenses, and (ii) to provide financing for
working capital and for other general corporate purposes;
WHEREAS, the domestic Subsidiaries of Company have guarantied all of the
obligations of Company with respect to the credit facilities provided by Lenders
under the Existing Credit Agreement;
WHEREAS, Company has secured all of the Obligations under the Existing
Credit Agreement, and each such Subsidiary of Company has secured its respective
obligations under the Subsidiary Guaranty, by granting to Collateral Agent, for
the benefit of Agents and Lenders, (i) a first priority Lien on certain of their
respective real and personal property and (ii) a first priority pledge of all of
the capital stock of their respective domestic Subsidiaries;
WHEREAS, each of Company and AFC Franchise Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Company ("ACQUISITION CORP.") has
entered into the Cinnabon Acquisition Agreement with Cinnabon International,
Inc., a Delaware corporation ("VENDOR"), pursuant to which, among other things,
Vendor will merge with and into Acquisition Corp. in accordance with the
Delaware General Corporation Law whereby Vendor will be the surviving entity;
WHEREAS, Company desires that Existing Lenders and New Lenders agree to
amend and restate the Existing Credit Agreement in its entirety (i) to extend
additional credit facilities to Company in an aggregate principal amount of
$50,000,000 through the addition of a Tranche B Term Loan facility, the proceeds
of which will be used (a) to finance the purchase of the capital stock of Vendor
pursuant to the Cinnabon Acquisition Agreement and (b) to pay Transaction Costs,
and (ii) to make certain other changes as more fully set forth herein, which
amendment and restatement shall become effective upon satisfaction of the
conditions precedent set forth herein;
WHEREAS, it is the intent of the parties hereto that this Agreement not
constitute a novation of the obligations and liabilities of the parties under
the Existing Credit Agreement or be deemed to evidence or constitute repayment
of all or any portion of such obligations and liabilities and that this
Agreement amend and restate in its entirety the Existing Credit Agreement and
re-evidence the Obligations of Company outstanding thereunder; and
WHEREAS, it is the intent of Loan Parties to confirm that all Obligations
of Loan Parties under the other Loan Documents shall continue in full force and
effect and that, from and after the Effective Date, all references to the
"CREDIT AGREEMENT" contained therein shall be deemed to refer to this Agreement.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders, Administrative
Agent, Lead Arranger and Syndication Agent agree that on the Effective Date the
Existing Credit Agreement shall be amended and restated in its entirety as
follows:
SECTION 10
DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
---------------------
The following terms used in this Agreement shall have the following
meanings:
"ACKNOWLEDGMENT AND CONSENT" means that certain Acknowledgment and
Consent executed by the Subsidiary Guarantors dated as of the Effective
Date and substantially in the form of Exhibit XXI annexed hereto, as such
-----------
Acknowledgment and Consent may be amended, restated, supplemented or
otherwise modified from time to time.
"ACQUISITION CORP." shall have the meaning attached to it in the
Recitals to this Agreement.
"ACQUISITION FACILITY COMMITMENT" means (i) with respect to the period
prior to the Effective Date, the commitment of a Lender to make Acquisition
Loans to the Company pursuant to subsection 2.1A(i) of the Existing Credit
Agreement, and (ii) thereafter, the commitments of Lenders to make
Acquisition Loans as set forth in subsection 2.1A(ii) of this Agreement and
"ACQUISITION FACILITY COMMITMENTS" means such commitments of all Lenders in
the aggregate.
"ACQUISITION LOAN EXPOSURE" means, with respect to any Lender as of
any date of determination (i) prior to the termination of the Acquisition
Facility Commitments, that Lender's Acquisition Facility Commitment and
(ii) after the termination of the Acquisition Facility Commitments, the sum
of the aggregate outstanding principal amount of the Acquisition Loans of
that Lender.
"ACQUISITION LOAN NOTES" means (i) the promissory notes of the Company
issued pursuant to subsection 2.1E of the Existing Credit Agreement and
(ii) any promissory notes issued by the Company pursuant to subsection
9.1B(i) in connection with assignments of the Acquisition Facility
Commitments or Acquisition Loans, in each case substantially in the form of
Exhibit IV-A annexed hereto, as they may be amended, restated, supplemented
------------
or otherwise modified from time to time.
"ACQUISITION LOANS" means (i) the Existing Acquisition Loans and (ii)
the Loans made by the Lenders to the Company pursuant to subsection
2.1A(ii).
"ACQUISITION PROPERTIES" has the meaning assigned that term in
subsection 6.11.
"ADDITIONAL MORTGAGES" has the meaning assigned that term in
subsection 6.11.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination
Date with respect to an Interest Period for a Eurodollar Rate Loan, the
rate per annum obtained by dividing (i) the arithmetic mean of the offered
--------
rates for deposits in Dollars with a term comparable to such Interest
Period that appears on the Telerate British Bankers Assoc. Interest
Settlement Rates Page (as defined below) at approximately 11:00 A.M.,
London time, on the second full Business Day preceding the first day of
such Interest Period ("TELERATE BRITISH BANKERS ASSOC. INTEREST SETTLEMENT
RATES PAGE" shall mean the display designated as Page 3750 on the Telerate
System Incorporated Service (or such other page as may replace such page on
such service for the purpose of displaying the rates at which Dollar
deposits are offered by leading banks in the London interbank deposit
market)) by (ii) a percentage equal to 100% minus the stated maximum rate
-- -----
of all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable on such
Interest Rate Determination Date to 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).
2
<PAGE>
"ADMINISTRATIVE AGENT" means Canadian Imperial Bank of Commerce
(acting through its New York Agency) in its capacity as administrative
agent for Lenders and also means and includes any successor Administrative
Agent appointed pursuant to subsection 9.5A.
"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 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.
"AGENT" means, individually, each of the Administrative Agent, Lead
Arranger, and Syndication Agent, and "AGENTS" means Administrative Agent,
Lead Arranger and Syndication Agent, collectively.
"AGREEMENT" means this Amended and Restated Credit Agreement, dated as
of October __, 1998, as it may be amended, supplemented or otherwise
modified from time to time.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means a percentage per annum
determined by reference to the Leverage Ratio as set forth below:
==================================================
APPLICABLE
COMMITMENT
LEVERAGE RATIO FEE PERCENTAGE
==================================================
greater than 3.00:1.00 1/2%
--------------------------========================
less than or equal to
3.00:1.00 but greater 3/8%
than 2.50:1.00
--------------------------------------------------
less than or equal to 1/4%
2.50:1.00
==================================================
The Commitment Fee Percentage shall be determined by reference to the
Leverage Ratio in effect from time to time; provided, however, that (x) no
-------- -------
change in the Applicable Commitment Fee Percentage shall be effective until
three Business Days after the date on which the Administrative Agent
receives the financial statements and a Compliance Certificate pursuant to
subsection 6.1(iv) calculating the Leverage Ratio, and (y) the Applicable
Commitment Fee Percentage shall be .50% per annum for so long as Company
has not submitted to the Administrative Agent the information described in
clause (x) of this proviso as and when required under subsection 6.1(ii).
"APPLICABLE MARGIN" means a percentage per annum determined by
reference to the Leverage Ratio as set forth below:
APPLICABLE MARGIN APPLICABLE MARGIN
FOR BASE FOR EURODOLLAR
LEVERAGE RATIO RATE LOANS RATE LOANS
==================================================================
greater than 3.50:1.0 1-1/4% 2-1/4%
------------------------------------------------------------------
less than or equal to
3.50:1.00 but greater than 7/8% 1-7/8%
3
<PAGE>
------------------------------------------------------------------
3.00:1.00
------------------------------------------------------------------
less than or equal to
3.00:1.00 but greater 5/8% 1-5/8%
than 2.50:1.00
------------------------------------------------------------------
less than or equal to
2.50:1.00 but greater 3/8% 1-3/8%
than 2.00:1.00
------------------------------------------------------------------
less than or equal to 1/8% 1-1/8%
2.00:1.00
==================================================================
; provided that the Applicable Margin for Tranche B Term Loans shall be a
--------
percentage per annum determined by reference to the Leverage Ratio set
forth below:
==================================================================
APPLICABLE MARGIN APPLICABLE MARGIN
FOR BASE FOR EURODOLLAR
LEVERAGE RATIO RATE LOANS RATE LOANS
------------------------------------------------------------------
greater than 3.00:1.00 1.75% 2.75%
------------------------------------------------------------------
less than or equal to
3.00:1.00 1.50% 2.50%
==================================================================
The Applicable Margin for each Base Rate Loan shall be determined by
reference to the Leverage Ratio in effect from time to time and the
Applicable Margin for each Eurodollar Rate Loan shall be determined by
reference to the ratio in effect on the first day of the Interest Period
for such Loan; provided, however, that (x) no change in the Applicable
-------- -------
Margin shall be effective until three Business Days after the date on which
the Administrative Agent receives the financial statements and a Compliance
Certificate pursuant to subsection 6.1(iv) calculating the Leverage Ratio,
and (y) the Applicable Margin shall be 1.25% in the case of Loans other
than Tranche B Term Loans or 1.75% in the case of Tranche B Term Loans,
that are Base Rate Loans, and 2.25% in the case of Loans other than Tranche
B Term Loans or 2.75% in the case of Tranche B Term Loans, that are
Eurodollar Rate Loans, for so long as Company has not submitted to the
Administrative Agent the information described in clause (x) of this
proviso as and when required under subsection 6.1(ii).
"ASSET SALE" means the sale by Company or any of its Subsidiaries to
any Person of (i) any of the stock of any of Company's Subsidiaries, (ii)
substantially all of the assets of any division or line of business of
Company or any of its Subsidiaries, or (iii) any other assets (whether
tangible or intangible) of Company or any of its Subsidiaries outside of
the ordinary course of business excluding tangible personal property that
---------
in the reasonable judgment of Company, has become uneconomic, obsolete or
worn out and which is disposed of in the ordinary course of business, and
any other such assets to the extent that the aggregate amount of sales of
such assets during any fiscal year is equal to or less than $1,000,000.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially
the form of Exhibit VIII annexed hereto.
------------
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, at any time, the higher of (i) the Prime Rate or
(ii) the rate which is 2 of 1% in excess of the Federal Funds Effective
Rate.
4
<PAGE>
"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 Georgia or New York or is a
day on which banking institutions located in either such state are
authorized or required by law or other governmental action to close, and
(ii) with respect to all notices, determinations, fundings, issuances 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) a day for trading by and between banks in Dollar
deposits in the London interbank market and (b) a day on which banking
institutions are open for business in London.
"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 one year 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 one year 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 maturing no more than one year 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) certificates of deposit or bankers' acceptances maturing within one
year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia or any foreign country 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 $100,000,000 (a "CASH
EQUIVALENT BANK"); (v) Eurodollar time deposits having a maturity of less
than one year purchased directly from any Lender or Cash Equivalent Bank;
and (vi) 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) through (v) 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.
"CASH INTEREST COVERAGE RATIO" has the meaning assigned to that term
in subsection 7.6A.
"CASH PROCEEDS" means, with respect to any Asset Sale, Cash payments
(including any Cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in
the form of Exhibit IX annexed hereto delivered by a Lender to
----------
Administrative Agent pursuant to subsection 2.7B(iii).
"CHESAPEAKE TRANSACTION" means the acquisition by the Company from the
American Bagel Company of all the intangible assets of the franchise
business of Chesapeake Bagel Bakery.
"CIBC" has the meaning assigned to that term in the introduction to
this Agreement.
"CINNABON ACQUISITION" means the transactions contemplated by the
Cinnabon Acquisition Agreement.
5
<PAGE>
"CINNABON ACQUISITION AGREEMENT" means that certain Agreement and Plan
of Merger by and between Company, Acquisition Corp. and Vendor, dated as of
August 13, 1998, in the form delivered to Lead Arranger on or prior to the
Funding Date for the Tranche B Term Loans and as such agreement may be
amended, restated, supplemented or otherwise modified from time to time to
the extent permitted under subsection 7.15.
"CINNABON ACQUISITION DOCUMENTS" means the Cinnabon Acquisition
Agreement and the certificate of merger to be filed on the Effective Date.
"CLOSING DATE" means May 21, 1997.
"COLLATERAL" means, collectively, all real, personal and mixed
property collateral securing the Obligations pursuant to the Collateral
Documents.
"COLLATERAL ACCOUNT" has the meaning assigned to that term in the
Collateral Account Agreement.
"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement
executed by Company and Administrative Agent on the Closing Date,
substantially in the form of Exhibit X annexed hereto, pursuant to which
---------
Company may pledge cash to Administrative Agent to secure the obligations
of Company to reimburse Issuing Lender for payments made under one or more
Letters of Credit as provided in Section 8, as such Collateral Account
Agreement may heretofore have been or hereafter may be amended,
supplemented or otherwise modified from time to time.
"COLLATERAL DOCUMENTS" means the Company Pledge Agreement, the Company
Security Agreement, the Company Trademark Security Agreement, the Company
Patent and Copyright Security Agreement, the Collateral Account Agreement,
the Subsidiary Pledge Agreements, the Subsidiary Security Agreements, the
Subsidiary Trademark Security Agreements, the Mortgages 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 (i) with respect to the period prior to the
Effective Date, the commitments of Lenders to make Loans as set forth in
subsection 2.1A of the Existing Credit Agreement, and (ii) thereafter, the
commitments of Lenders to make Loans as set forth in subsection 2.1A of
this Agreement.
"COMPANY" has the meaning assigned to that term in the introduction to
this Agreement.
"COMPANY COMMON STOCK" means the common stock of Company, par value
$0.01 per share.
"COMPANY PATENT AND COPYRIGHT SECURITY AGREEMENT" means the Patent
Collateral and Security Agreement executed by Company and Administrative
Agent, substantially in the form of Exhibit XIV annexed hereto, as such
-----------
Patent Collateral and Security Agreement may heretofore have been or
hereafter may be amended, supplemented or otherwise modified from time to
time.
"COMPANY PLEDGE AGREEMENT" means, collectively, the Pledge Agreement
executed by Company and Administrative Agent, substantially in the form of
Exhibit XI annexed hereto, relating to the pledge of the shares of capital
----------
stock of its Subsidiary(ies) as such Pledge Agreement may heretofore have
been or hereafter may be amended, supplemented or otherwise modified from
time to time.
"COMPANY SECURITY AGREEMENT" means the Security Agreement executed by
Company and Administrative Agent, substantially in the form of Exhibit XII
-----------
annexed hereto, as such Security Agreement may heretofore have been or
hereafter may be amended, supplemented or otherwise modified from time to
time.
6
<PAGE>
"COMPANY TRADEMARK SECURITY AGREEMENT" means the Trademark Collateral
Security Agreement executed by Company and Administrative Agent,
substantially in the form of Exhibit XIII annexed hereto, as such Trademark
------------
Collateral Security Agreement may heretofore have been or hereafter may be
amended, supplemented or otherwise modified from time to time.
"COMPLIANCE CERTIFICATE" means an Officer's Certificate substantially
in the form of Exhibit V annexed hereto delivered to Administrative Agent
---------
and Lenders by Company pursuant to subsection 6.1(iv).
"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
Company and its Subsidiaries) by Company 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 Company and its Subsidiaries plus
----
(ii) to the extent not covered by clause (i) of this definition, the
aggregate of all expenditures by Company and its Subsidiaries during that
period to acquire (by purchase or otherwise) (a) the business, property or
fixed assets of any Person, or (b) stock or other evidence of beneficial
ownership of any Person to the extent the purchase price of such stock or
other evidence of beneficial ownership of such Person is appropriately
allocated to property, plant, or equipment in accordance with GAAP;
provided, however, Consolidated Capital Expenditures shall not include
-------- -------
expenditures made from the proceeds of any insurance or condemnation
payments (or payments made in lieu of condemnation) received by Company and
its Subsidiaries and used to repair or replace the damaged property with
respect to which such proceeds were received.
"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 Company 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 Company and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities
in conformity with GAAP excluding, however, the current portion of long-
term Indebtedness.
"CONSOLIDATED 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, (vi) other non-cash
items reducing Consolidated Net Income (excluding any such non-cash charge
to the extent that it represents an accrual of or reserve for cash
expenditures in any future period) and (vii) to the extent deducted in
determining Consolidated Net Income fees, expenses and similar transaction
costs paid in connection with Permitted Acquisitions less (viii) other non-
----
cash items increasing Consolidated Net Income, all of the foregoing as
determined on a consolidated basis for Company and its Subsidiaries in
conformity with GAAP.
7
<PAGE>
"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 EBITDA and (b) the Consolidated Working
Capital Adjustment minus (ii) the sum, without duplication, of the amounts
-----
for such period of (a) voluntary, mandatory 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 and mandatory repayments of the Loans
pursuant to subsection 2.4B.(iii)), (b) Consolidated Capital Expenditures
(net of any proceeds of any related financings with respect to such
expenditures or equity contributions applied to finance such expenditures),
(c) Consolidated Cash Interest Expense, (d) provisions for current taxes
based on income of Company and its Subsidiaries and payable in cash with
respect to such period, (e) to the extent not included in Consolidated
Capital Expenditures, payments made in connection with Permitted
Acquisitions (net of any proceeds of any related financing with respect to
such expenditures or equity contributions applied to finance such
expenditures) and (f) to the extent not otherwise deducted in calculating
Consolidated Net Income or included in Consolidated Capital Expenditures,
payments made under Permitted Earnout Agreements.
"CONSOLIDATED FIXED CHARGES" means, for any period, an amount equal to
the sum of the amounts for such period of (i) scheduled repayments of
principal of all Indebtedness (as reduced as a result of prepayments
pursuant to subsection 2.4B in the case of Indebtedness hereunder), (ii)
Consolidated Cash Interest Expense, (iii) Maintenance Capital Expenditures
(net of related financings) and (iv) the portion of taxes based on income
actually paid in cash (excluding taxes on extraordinary gains) all as
determined for Company and its Subsidiaries on a consolidated basis in
conformity with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, (i) total
interest expense (including that portion attributable to Capital Leases in
accordance with GAAP) and capitalized interest 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 that portion
attributable to (a) amortization expense associated with the Transaction
Costs, (b) the write-off of unamortized deferred financing costs taken by
Company in connection with the refinancings of Company and its Subsidiaries
on a consolidated basis with respect to all outstanding Indebtedness of
Company and its Subsidiaries, and (c) any amounts referred to in subsection
2.3 of this Agreement or subsection 2.3 of the Existing Credit Agreement
payable to Lead Arranger, Syndication Agent, Administrative Agent or
Lenders on or before the Effective Date, respectively, minus (ii) total
-----
interest income of Company and its Subsidiaries on a consolidated basis.
"CONSOLIDATED MAINTENANCE CAPITAL EXPENDITURES" means, for any period,
the aggregate amount of all Consolidated Capital Expenditures actually paid
by Company and its Subsidiaries during that period for repair or
maintenance of property, plant or equipment.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or
loss) of Company and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with
GAAP; provided that there shall be excluded (i) the income (or loss) of any
--------
Person (other than a Subsidiary of Company) in which any other Person
(other than Company or any of its Subsidiaries) has an equity or similar
interest, except to the extent of the amount of dividends or other
distributions actually paid to Company 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 Company or is merged into or
consolidated with Company or any of its Subsidiaries or that Person's
assets are acquired by Company or any of its Subsidiaries, (iii) the income
of any Subsidiary of Company 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, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary (other than such
restriction contained in documents governing Indebtedness of such
Subsidiary permitted under this Agreement), (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.
8
<PAGE>
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Company and
its Subsidiaries, less an amount equal to the Cash balances of Company and
----
its Subsidiaries (net of any overdraft balances), determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED WORKING CAPITAL" means, as at any date of determination,
the amount (which may be a negative number) obtained by subtracting
Consolidated Current Liabilities from Consolidated Current Assets.
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any fiscal year,
the amount (which may be a negative number) obtained by subtracting (i)
Consolidated Working Capital as of the end of such fiscal year from (ii)
Consolidated Working Capital as of the beginning of such fiscal year.
"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, intent or result 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 Interest
Rate Agreements and Currency 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 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.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement designed to protect Company or any of its
Subsidiaries against fluctuations in currency values.
"CUT-OFF DATE" has the meaning assigned such term in subsection 6.9.
"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.
"EFFECTIVE DATE" means the date on or before October 15, 1998 on which
the conditions precedent set forth in subsections 4.2 and 4.3 shall be
satisfied or waived in accordance with the terms hereof.
9
<PAGE>
"ELIGIBLE ASSIGNEE" means (i) (a) a commercial bank organized under
the laws of the United States or any state thereof; (b) a savings and loan
association or savings bank organized under the laws of the United States
or any state thereof; (c) a commercial bank organized under the laws of any
other country or a political subdivision thereof, provided that (1) such
--------
bank is acting through a branch or agency located in the United States or
(2) 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 (d) any other entity which is an
"accredited investor" (as defined in Regulation D under the Securities Act)
or which extends credit or buys loans as one of its businesses including,
but not limited to, insurance companies, mutual funds and lease financing
companies, in each case (under clauses (a) through (d) above) that is
reasonably acceptable to Administrative Agent; and (ii) any 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 (i) currently maintained or contributed to by
Company or any of its ERISA Affiliates, (ii) which was at any time since
November 5, 1992 maintained or contributed to by Company or any of its
ERISA Affiliates or (iii) with respect to which there is any potential or
outstanding liability of Company.
"EMPLOYEE TAX LOAN NOTES" mean the promissory notes evidencing the
loans made to employees of the Company to cover their tax liabilities in
connection with grants made to such employees under the Company's 1996
Stock Bonus Plans.
"ENVIRONMENTAL CLAIM" means any written accusation, allegation, notice
of violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any governmental authority or any Person for
any damage, including, without limitation, personal injury (including
sickness, disease or death), tangible or intangible property damage,
contribution, indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, contamination or other adverse effects on
the environment, or for fines, penalties or restrictions, in each case
relating to, resulting from or in connection with Hazardous Materials and
relating to Company, any of its Subsidiaries, any of their respective
Affiliates or any Facility.
"ENVIRONMENTAL LAWS" means all statutes, ordinances, orders, rules,
regulations, or any published plans, policies or decrees and the like
relating to (i) environmental matters, including, without limitation, those
relating to fines, injunctions, penalties, damages, contribution, cost
recovery compensation, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials, (ii) the generation, use,
storage, transportation or disposal of Hazardous Materials, or (iii)
occupational safety and health, industrial hygiene, land use or the
protection of human, plant or animal health or welfare, in any manner
applicable to Company or any of its Subsidiaries or any of their respective
properties, including, without limitation, 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) et seq.), the Occupational Safety and Health Act (29
-- ---
U.S.C.(S) 651 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, and
-- ---
any future or present local, state and federal statutes and regulations
promulgated pursuant thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA AFFILIATE", as applied to any Person, means (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) 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
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member. Any former ERISA Affiliate of Company shall continue to be
considered an ERISA Affiliate within the meaning of this definition with
respect to the period such entity was an ERISA Affiliate of Company and
with respect to liabilities arising after such period for which Company
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 Company or
any of its 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 4062(e) or 4063 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 Company
or any of its ERISA Affiliates pursuant to Section 4064 or 4069 of ERISA or
by reason of the application of Section 4212(c) of ERISA; (vii) the
withdrawal by Company or any of its 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 Company or any of its 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 Company or
any of its ERISA Affiliates of fines, penalties, taxes or related charges
under Chapter 43 of the Internal Revenue Code or under Section 409 or
502(c), (i) or (l) or 4071 of ERISA in respect of any Employee Benefit
Plan; (ix) the assertion of a material claim (other than routine claims for
benefits or for a qualified domestic relations order) against any Employee
Benefit Plan other than a Multiemployer Plan or the assets thereof, or
against Company or any of its ERISA Affiliates in connection with any such
Employee Benefit Plan; (x) receipt from the Internal Revenue Service of
notice of a final determination 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 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.
"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 ACQUISITION LOAN" means, with respect to any Existing
Lender, the Acquisition Loan under, as defined in, the Existing Credit
Agreement held by such Existing Lender, in the principal amount of such
Loan outstanding immediately prior to the Effective Date, and "EXISTING
ACQUISITION LOANS" means such Loans of all Existing Lenders, collectively.
"EXISTING CREDIT AGREEMENT" has the meaning assigned to that term in
the Recitals to this Agreement.
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"EXISTING FACILITY" means the loan agreement dated November 5, 1992
(as amended and restated) made between Company, the Lenders party to the
agreement and CIBC, as Agent.
"EXISTING LENDERS" has the meaning assigned to that term in the
Recitals to this Agreement.
"EXISTING LETTERS OF CREDIT" has the meaning assigned to that term in
subsection 3.1.
"EXISTING LOAN" or "EXISTING LOANS" means, as the context requires,
one or more of the Existing Acquisition Loans, Existing Term Loans or
Existing Revolving Loans or any combination thereof.
"EXISTING MORTGAGES" means any mortgage, deed of trust or deed to
secure debt securing the Specified Indebtedness including any amendments,
modifications, restatements or assignments thereof.
"EXISTING REVOLVING LOANS" means, with respect to any Existing Lender,
the Revolving Loans under, and as defined in, the Existing Credit Agreement
held by such Existing Lender, in the principal amount of such Loans
outstanding immediately prior to the Effective Date.
"EXISTING TERM LOAN" means, with respect to any Existing Lender, the
Term Loan under, and as defined in, the Existing Credit Agreement held by
such Existing Lender, in the principal amount of such Loan outstanding
immediately prior to the Effective Date.
"EXISTING TERM LOANS" means such Term Loans made by the Existing
Lenders, collectively, pursuant to subsection 2.1A(ii) of the Existing
Credit Agreement.
"FACILITIES" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon)
now, hereafter or heretofore owned, leased or operated by Company or any of
its Subsidiaries or any of their respective predecessors or Affiliates.
"FAR WEST DIVISION" means the cooking and restaurant kitchen equipment
manufacturing division of the Company.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by Administrative
Agent from three Federal funds brokers of recognized standing selected by
Administrative Agent.
"FIRST AMENDMENT DATE" means June 30, 1997.
"FISCAL QUARTER" means the periods described in Schedule 1.1B.
-------------
"FISCAL YEAR" means the fiscal year of Company and its Subsidiaries
ending on the last Sunday of December of each calendar year.
"FUNDING AND PAYMENT OFFICE" means the office of the New York Agency
of CIBC located at (i) 425 Lexington Avenue, New York, New York 10017 as
long as CIBC is Administrative Agent and Swing Line Lender or (ii) the
address specified in a written notice to Company and Lenders by any
successor Administrative Agent and Swing Line 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
12
<PAGE>
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.
"GSCP" has the meaning assigned to that term in the introduction to
this Agreement.
"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", "restricted hazardous waste", "infectious waste", "toxic
substances" or any other formulations intended to define, list or classify
substances by reason of deleterious 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 pursuant thereto; (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) asbestos in any form; (vii) urea formaldehyde foam
insulation; (viii) 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 the Facilities.
"INDEBTEDNESS", as applied to any Person, means, without duplication,
(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, and (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 and obligations under Permitted
Earnout Agreements), which purchase price is (a) due more than twelve
months from the date of incurrence of the obligation in respect thereof or
(b) evidenced by a note or similar written instrument. Obligations under
Interest Rate Agreements and Currency Agreements constitute Contingent
Obligations and not Indebtedness.
"INDEMNIFIED ENVIRONMENTAL CLAIM" has the meaning assigned to that
term in subsection 6.9.
"INDEMNITEE" has the meaning assigned to that term in subsection 10.3.
"INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Company and its Subsidiaries as currently
conducted that are material to the condition (financial or otherwise),
business or operations of Company and its Subsidiaries, taken as a whole.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan,
each March 31, June 30, September 30 and December 31 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 designed to protect Company or any of its
Subsidiaries against fluctuations in interest rates.
"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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"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person, (ii) any direct or
indirect redemption, retirement, purchase or other acquisition for value,
by any Subsidiary of Company from any Person other than Company or any of
its Subsidiaries, of any equity Securities of such Subsidiary, or (iii) 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
Company or any of its Subsidiaries to any other Person, including all
indebtedness and accounts receivable from that other Person that are not
current assets or did not arise either from sales to that other Person in
the ordinary course of business or from obligations arising in connection
with development projects funded by customers of Company. 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.
"ISSUING LENDER" means, with respect to any Letter of Credit, the
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.
"LEAD ARRANGER" means GSCP in its capacity as Lead Arranger.
"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 10.1 and the term
"Lenders" shall include the 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. To the
extent the context so requires, the terms "Lender" and "Lenders" shall
include "Lenders" under, and as defined in, the Existing Credit Agreement.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means letters of credit
issued or to be issued by Issuing Lender for the account of Company
pursuant to subsection 3.1.
"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 Lender and not theretofore reimbursed by Company
(including any such reimbursement out of the proceeds of Revolving Loans
pursuant to subsection 3.3B).
"LEVERAGE RATIO" has the meaning assigned to that term in subsection
7.6B.
"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, any
Uniform Commercial Code financing statement 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.
"LOAN" or "LOANS" means one or more of the Acquisition Loans, Term
Loans, Tranche B 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 Issuing Lender
relating to, the Letters of Credit), the Collateral Documents, Currency
Agreements, or Interest Rate Agreements entered into between Company and a
Lender and/or its Affiliates, the
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<PAGE>
Acknowledgment and Consent and any document executed and delivered by
Company or a Subsidiary pursuant to subsection 6.10, 6.11 or 6.12.
"LOAN PARTY" means each of Company and any of Company's Subsidiaries
from time to time executing a Loan Document, and "LOAN PARTIES" means all
such Persons, collectively.
"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.
"MATERIAL CONTRACT'' means any contract or other arrangement to which
Company or any of its Subsidiaries is a party (other than the Loan
Documents) for which breach, nonperformance, cancellation or failure to
renew could reasonably be expected to have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the
business, operations, properties, assets, condition (financial or
otherwise) or prospects of Company and its Subsidiaries, taken as a whole
or (ii) the impairment of the ability of Company to perform, or of
Administrative Agent or Lenders to enforce, the Obligations.
"MATERIAL SUBSIDIARY" shall mean a Subsidiary that, as of the end of
the most recent fiscal quarter accounted for 5% or more of the Company's
consolidated (i) total assets, (ii) shareholders' equity or (iii) operating
income (calculated for the four most recent fiscal quarters), determined in
each case in accordance with GAAP.
"MORTGAGE" means an instrument (whether designated as a deed of trust,
a trust deed or a mortgage or by any similar title) executed and delivered
by Company and Administrative Agent in substantially the form of Exhibit XV
----------
annexed hereto encumbering a fee or leasehold interest in Real Property
Assets, as such instrument may be amended, supplemented or otherwise
modified from time to time, and "Mortgages" means all such instruments,
including any Additional Mortgages, collectively.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined in
Section 3(37) of ERISA, (i) to which Company or any of its ERISA Affiliates
is contributing or has an obligation to contribute, (ii) to which Company
or any of its then ERISA Affiliates or its current ERISA Affiliates has
contributed or had an obligation to contribute and with respect to which
Company or any of its current ERISA Affiliates has any potential or
outstanding liability, or (iii) to which neither Company nor any of its
ERISA Affiliates has directly contributed or had an obligation to
contribute, but with respect to which Company or any of its ERISA
Affiliates has any potential or outstanding liability solely as a result of
the application of Section 4001(b)(1) of ERISA and the regulations
thereunder.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, Cash
Proceeds of such Asset Sale net of bona fide direct costs of sale including
(i) taxes reasonably estimated to be actually payable as a result of such
Asset Sale within two years of the date of such Asset Sale, (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, (iii) reasonable
reserves taken by Company in accordance with GAAP against any liabilities
(actual or contingent) associated with the assets subject to the Asset Sale
retained by Company as determined (in the case of any such reserves in
excess of $1,000,000) by the Board of Directors of Company in its
reasonable good faith judgment and evidenced by a resolution of the Board
of Directors, and (iv) reasonable employee termination costs payable in
connection with such Asset Sale; provided, that any reduction in such
--------
reserve will be treated for all purposes of this Agreement as a new Asset
Sale at the time of such reduction with Net Cash Proceeds equal to the
amount of such reduction.
"NET INSURANCE/CONDEMNATION PROCEEDS" means any Cash payments or
proceeds received by Company or any of its 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 Company
or any of its 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
15
<PAGE>
case net of any actual and reasonable documented costs incurred by Company
or any of its Subsidiaries in connection with the adjustment or settlement
of any claims of Company or such Subsidiary in respect thereof.
"NEW LENDER" means any Lender which is a party to this Agreement as of
the Effective Date and which is not an Existing Lender.
"NOTES" means one or more of the Acquisition Loan Notes, Term Loan
Notes, Revolving Notes or Swing Line Note or any combination thereof.
"NOTICE OF BORROWING" means with respect to Loans to be made under
subsection 2.1A(ii), 2.1A(iii) , 2.1A(iv) or 2.1A(v), 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 Company or any
Subsidiary from time to time owed to Administrative Agent, Syndication
Agent, Lead Arranger or 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; provided that every Officers'
--------
Certificate with respect to the compliance with 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 ACQUISITIONS" means (i) the Cinnabon Acquisition and (ii)
an acquisition (whether by means of equity or asset purchase acquisition)
by Company or its Subsidiaries, of a business or a series of related
businesses, provided that (i) the businesses acquired are suitable for
--------
franchising; (ii) with respect to any such acquisition financed with the
proceeds of Acquisition Loans after giving effect to such acquisition,
Company and its Subsidiaries shall be in compliance, on a Pro Forma Basis,
with the financial covenants as required under subsection 7.6F of this
Agreement; and (iii) concurrently with such acquisition the Administrative
Agent, on behalf of Lenders, shall be granted a first priority security
interest in the businesses and assets acquired (to the extent available
under applicable law) including Acquisition
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<PAGE>
Properties pursuant to subsection 6.11 of this Agreement (subject to
----------
Permitted Encumbrances and other exceptions expressly set forth in this
Agreement).
"PERMITTED EARNOUT AGREEMENTS" shall mean (x) the agreements set forth
in Schedule 1.1C and (y) any other agreement by Company or one of its
-------------
Subsidiaries to pay the seller or sellers of any Person or assets acquired
in accordance with the provisions of subsection 7.7(vi) at any time
following the consummation of such acquisition by reference to the
financial performance of the assets acquired; provided that the aggregate
--------
amount of all such payments which may be owed under such agreements
contemplated by this clause (y) at any time shall not exceed $10,000,000.
"PERMITTED ENCUMBRANCES" means the following types of Liens or defects
in title (other than any such Lien imposed pursuant to Section 401(a)(29)
or 412(n) of the Internal Revenue Code or by ERISA):
(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 and Liens of carriers,
warehousemen, mechanics and materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made therefor;
(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, indemnity and
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);
(iv any attachment or judgment Lien not constituting an Event
of Default under subsection 8.8;
(v leases or subleases granted to others not interfering in
any material respect with the ordinary conduct of the business of
Company or any of its Subsidiaries;
(vi easements, rights-of-way, licenses, covenants, conditions,
restrictions, zoning requirements, minor defects, encroachments or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of Company or any of its Subsidiaries at the Real Property
Assets subject to such Lien ;
(vii any (a) interest or title of a lessor or sublessor under
any lease, (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);
(viii Liens arising from filing UCC financing statements
relating solely to leases permitted by this Agreement;
(ix Liens on goods held by suppliers arising in the ordinary
course of business for sums not yet delinquent or being contested in
good faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefore and as long
as such Lien remains unperfected;
(x 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;
17
<PAGE>
(xi rights of franchisees under franchise agreements in
keeping with the Company's historical practices;
(xii with respect to any Real Property Asset in which the
Company owns a leasehold estate, any defect or encumbrance caused by
or arising out of the failure to record the lease or a memorandum
thereof in the applicable real property records in the county where
such Real Property Asset is located other than any defect or
encumbrance created or suffered by the Company; and
(xiii the effect of any eminent domain or condemnation
proceedings.
"PERMITTED FOREIGN JOINT VENTURE INVESTMENT" means the Investment by
Company in the proposed Joint Venture in Asia; provided that, (i) the joint
--------
venture interest shall be at least 10%, (ii) the aggregate investment by
Company shall not exceed $30,000,000 and the Investment made by Company in
any Fiscal Year shall not exceed $10,000,000, and (iii) the businesses of
the Joint Venture shall consist of the development and operation of "quick
service restaurants" in Asia using Company's brands.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general 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 and agencies and political subdivisions thereof.
"PREFERRED STOCK" means all issued and outstanding shares of
cumulative exchangeable, redeemable 10% Preferred Stock of Company.
"PREPAYMENT CUT-OFF DATE" has the meaning assigned to that term in
subsection 2.4B(iv).
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"PRIME RATE" means the rate that CIBC announces from time to time as
its prime lending rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. CIBC or any other Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"PRO FORMA BASIS" has the meaning assigned that term in subsection
7.6E.
"PRO RATA SHARE" means (i) with respect to all payments, computations
and other matters relating to the Acquisition Facility Commitment or the
Acquisition Loans of any Lender, the percentage obtained by dividing (a)
--------
the Acquisition Loan Exposure of that Lender by (b) the aggregate
--
Acquisition Loan Exposure of all Lenders, (ii) with respect to all
payments, computations and other matters relating to the Term Loan
Commitment or the Term Loan of any Lender, the percentage obtained by
dividing (a) the Term Loan Exposure of that Lender by (b) the aggregate
-------- --
Term Loan Exposure of all Lenders, (iii) with respect to all payments,
computations and other matters relating to the Tranche B Term Loan
Commitment or the Tranche B Term Loans of any Lender, the percentage
obtained by dividing (x) the Tranche B Term Loan Exposure of that Lender by
-------- --
(y) the aggregate Tranche B Term Loan Exposure of all Lenders, (iv) with
respect to all payments, computations and other matters relating to the
Revolving Loan Commitment or the Revolving Loans of any Lender or any
Letters of Credit issued or participations therein purchased by any Lender,
or any participations in any Swing Line Loan purchased by any Lender, the
percentage obtained by dividing (a) the Revolving Loan Exposure of that
--------
Lender by (b) the aggregate Revolving Loan Exposure of all Lenders, and (v)
--
for all other purposes with respect to each Lender, the percentage obtained
by dividing (a) the sum of the Acquisition Loan Exposure of that Lender
--------
plus the Term Loan Exposure of that Lender plus the Tranche B Term Loan
---- ----
Exposure of that Lender plus the Revolving Loan Exposure of that Lender by
---- --
(b) the sum of the aggregate Acquisition Loan Exposure of all Lenders plus
----
the aggregate Term Loan Exposure of all Lenders plus the aggregate Tranche
----
B Term Loan Exposure of all Lenders plus the aggregate Revolving Loan
----
Exposure of all Lenders, in any such case as the
18
<PAGE>
applicable percentage may be adjusted by assignments permitted pursuant to
subsection 10.1. The initial Pro Rata Share of each Lender for purposes of
each of clauses (i), (ii), (iii), (iv) and (v) of the preceding sentence is
set forth opposite the name of that Lender in Schedule 2.1 annexed hereto.
------------
"PROJECTIONS" has the meaning assigned to that term in subsection
5.3B.
"REAL PROPERTY ASSETS" means interests in land, buildings,
improvements, and fixtures attached thereto or used in the operation
thereof, in each case owned or leased (as lessee) by Company or any of its
Subsidiaries.
"REFINANCINGS" means, collectively, (i) the purchase by Company of all
of the outstanding Preferred Stock for an aggregate purchase price not to
exceed $63,000,000 and (ii) the refinancing by Company of all Specified
Indebtedness.
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
subsection 2.1A(iv).
"REGISTER" has the meaning assigned to that term in subsection 2.1D.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REGULATORY SHARES" means, with respect to any Person, shares of such
Person required to be issued as qualifying shares to directors or persons
similarly situated or shares issued to Persons other than Company or a
Wholly Owned Subsidiary of Company in response to regulatory requirements
of foreign jurisdictions pursuant to a resolution of the Board of Directors
of such Person, so long as such shares do not exceed one percent of the
total outstanding shares of equity such Person and any owners of such
shares irrevocably covenant with Company to remit to Company or waive any
dividends or distributions paid or payable in respect of such shares.
"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.
"RELATED AGREEMENTS" means the Unsecured Subordinated Notes, the
Unsecured Subordinated Note Indenture and the Cinnabon Acquisition
Documents.
"RELATED PLANT" means any plant or facility that is or is intended to
be used by Company or any of its Subsidiaries in connection with the
businesses permitted under subsection 7.14.
"RELEASE" means any release or any threatened release, spill,
emission, leaking, pumping, pouring, injection, escaping, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of 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), or into or out of
any Facility, including the movement of any Hazardous Material through the
air, soil, surface water, groundwater or property.
"REQUIRED PREPAYMENT DATE" has the meaning assigned to that term in
subsection 2.4B(iv).
"REQUISITE LENDERS" means, at any time, Lenders having or holding not
less than 51% of the sum of (w) the aggregate Acquisition Loan Exposure
plus (x) the aggregate Term Loan Exposure plus (y) the aggregate Tranche B
---- ----
Term Loan Exposure plus (z) the aggregate Revolving Loan Exposure; provided
---- --------
that in respect of any amendment which would disproportionately affect the
holders of the Term Loans, the Acquisition Loans, the Tranche B Term Loans
or Revolving Loans, "REQUISITE LENDERS" shall mean, at any time, Lenders
having or holding not less than 51% of such class of Loans.
"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 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
19
<PAGE>
any class of stock of Company 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 now or hereafter outstanding, and (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, the Unsecured Subordinated
Notes.
"REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make
Revolving Loans to Company pursuant to subsection 2.1A(iv), and "REVOLVING
LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means June 30, 2002.
"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 (i) the Loans made by Lenders to Company
pursuant to subsection 2.1A(iii) of the Existing Credit Agreement and
outstanding after the Effective Date and (ii) any Loans made by Lenders to
Company pursuant to subsection 2.1A(iv) of this Agreement.
"REVOLVING NOTES" means (i) the promissory notes of Company issued
pursuant to the Existing Credit Agreement and (ii) any promissory notes
issued by Company pursuant to the last sentence of subsection 10.1B(i) in
connection with assignments of the Revolving Loan Commitments and Revolving
Loans of any Lenders, in each case substantially in the form of Exhibit IV-
----------
C 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 temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to, purchase or
acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (i) (a) the then fair saleable value of the property of
such Person is (1) greater than the total amount of liabilities (including
contingent liabilities) of such Person and (2) 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; (b) such Person's capital is not unreasonably small in
relation to its business or any contemplated or undertaken transaction; and
(c) 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 (ii) 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.
20
<PAGE>
"SENIOR LEVERAGE RATIO" means the ratio of (I) as of the last day of
any four-fiscal quarter period, the sum of Consolidated Total Debt less
----
indebtedness outstanding under the Unsecured Subordinated Notes, determined
on a consolidated basis in accordance with GAAP to (II) Consolidated
EBITDA for the four-fiscal quarter period then ended, in each case as set
forth in the most recent Compliance Certificate delivered by Company to
Administrative Agent pursuant to subsection 6.1(iv).
"SPECIFIED ASSET SALES" means Asset Sales with respect to (i) sale-
leaseback transactions completed within one year following the acquisition
of the subject asset; (ii) sales, leases or transfers of restaurant
properties to franchisees pursuant to the Company's "turnkey" development
programs, (iii) sales, leases or transfers of franchises and related assets
and properties repossessed or reacquired by the Company from franchisees
and subsequently resold to new franchisees all in the ordinary course of
business, (iv) sales or dispositions of restaurant-related properties and
assets that are no longer in operation and are surplus to the Company's
needs in the ordinary course of business in an amount not in excess of
$5,000,000 in any twelve month period, (v) exchanges of properties or
assets for other properties or assets (other than cash or cash equivalents)
that (1) are useful in the business of the Company and its Subsidiaries as
then being conducted and (2) have a fair market value at least equal to the
fair market value of the assets or properties being exchanged (as evidenced
by a resolution of the directors of the Company in the case of transactions
having a fair market value in excess of $1,000,000) in the ordinary course
of business and (vi) the Far West Division and (vii) sales of restaurant
related properties in connection with a market relocation program.
"SPECIFIED INDEBTEDNESS" means (i) the Existing Facility and (ii)
other Indebtedness of Company and its Subsidiaries outstanding on the
Closing Date described in Schedule 1.1A.
-------------
"SPONSOR" means Freeman Spogli & Co. Incorporated or its Affiliates or
PENMAN Private Equity Fund L.P.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, 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.
"SUBSIDIARY GUARANTOR" means any Subsidiary of Company that is a party
to the Subsidiary Guarantee on the Effective Date or that executes and
delivers a counterpart of the Subsidiary Guaranty from time to time
thereafter pursuant to subsection 6.10.
"SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed and
delivered by existing Subsidiaries of Company on the Closing Date and
delivered by the existing Subsidiary Guarantors on the Effective Date and
to be executed and delivered by additional Subsidiaries of Company from
time to time thereafter in accordance with subsection 6.10, substantially
in the form of Exhibit XVIII annexed hereto, as such Subsidiary Guaranty
-------------
may heretofore have been or hereafter may be amended, supplemented or
otherwise modified from time to time.
"SUBSIDIARY PLEDGE AGREEMENT" means each Subsidiary Pledge Agreement
executed and delivered by an existing Subsidiary Guarantor on the Closing
Date or executed and delivered by any additional Subsidiary Guarantor from
time to time thereafter in accordance with subsection 6.10, in each case
substantially in the form of Exhibit XIX annexed hereto, as such Subsidiary
-----------
Pledge Agreement may heretofore have been or may hereafter be amended,
supplemented or otherwise modified from time to time, and "SUBSIDIARY
PLEDGE AGREEMENTS" means all such Subsidiary Pledge Agreements,
collectively.
"SUBSIDIARY SECURITY AGREEMENT" means each Subsidiary Security
Agreement executed and delivered by an existing Subsidiary Guarantor on the
Closing Date or executed and delivered by any
21
<PAGE>
additional Subsidiary Guarantor from time to time thereafter in accordance
with subsection 6.10, in each case substantially in the form of Exhibit XX
----------
annexed hereto, as such Subsidiary Security Agreement may heretofore have
been or may hereafter be amended, supplemented or otherwise modified from
time to time, and "SUBSIDIARY SECURITY AGREEMENTS" means all such
Subsidiary Security Agreements, collectively.
"SUBSIDIARY TRADEMARK SECURITY AGREEMENT" means each Subsidiary
Trademark Security Agreement executed and delivered by an existing
Subsidiary Guarantor on the Closing Date or executed and delivered by any
additional Subsidiary Guarantor from time to time thereafter in accordance
with subsection 6.10, in each case substantially in the form of Exhibit
-------
XVII annexed hereto, as such Subsidiary Trademark Security Agreement may
----
heretofore have been or may hereafter be amended, supplemented or otherwise
modified from time to time, and "SUBSIDIARY TRADEMARK SECURITY AGREEMENTS"
means all such Subsidiary Trademark Security Agreements, collectively.
"SWING LINE LENDER" means CIBC or any Person 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(v).
"SWING LINE LOANS" means (i) the Loans made by Swing Line Lender
pursuant to subsection 2.1A(iv) of the Existing Credit Agreement and
outstanding after the Effective Date and (ii) the Loans made by Swing Line
Lender to Company pursuant to subsection 2.1A(v) of this Agreement.
"SWING LINE NOTE" means (i) any promissory note of Company issued
pursuant to the Existing Credit Agreement to a Swing Line Lender and (ii)
any promissory note issued by Company to any successor Agent and Swing Line
Lender pursuant to the last sentence of subsection 9.6B, in each case,
substantially in the form of Exhibit IV-D annexed hereto, as it may be
------------
amended, supplemented or otherwise modified from time to time.
"SYNDICATION AGENT" means GSCP in its capacity as syndication agent.
"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's principal office (and/or, in the case of a Lender, its
lending office) is located or in which that Person is deemed to be doing
business on all or part of the net income, profits or gains of that Person
(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).
"TERM LOAN COMMITMENT" means the commitment of a Lender to make Term
Loans to the Company pursuant to subsection 2.1A(ii) of the Existing Credit
Agreement and "TERM LOAN COMMITMENTS" means such commitments of all Lenders
in the aggregate.
"TERM LOAN EXPOSURE" means, with respect to any Lender as of any date
of determination the sum of the aggregate outstanding principal amount of
the Term Loans of that Lender.
"TERM LOAN NOTES" means (i) the promissory notes of the Company issued
pursuant to subsection 2.1E(b) of the Existing Credit Agreement on the
Closing Date and (ii) any promissory notes issued by the Company pursuant
to subsection 9.1B(i) in connection with assignments of the Term Loan
Commitments or Term Loans, in each case substantially in the form of
Exhibit IV-B annexed hereto, as they may be amended, restated, supplemented
------------
or otherwise modified from time to time.
"TERM LOANS" means the Existing Term Loans.
22
<PAGE>
"TITLE COMPANY" means any of Chicago Title Insurance Company, Stewart
Title and Guaranty Company, Old Republic National Title Insurance Company
and First American Title Insurance Company or such other reputable title
insurance company reasonably satisfactory to the 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.
----
"TRANCHE B TERM LOAN COMMITMENT" means the commitment of a Lender to
make a Tranche B Term Loan to Company pursuant to subsection 2.1A(iii), and
"TRANCHE B TERM LOAN COMMITMENTS" means such commitments of all Lenders in
the aggregate.
"TRANCHE B TERM LOAN EXPOSURE" means, with respect to any Lender as of
any date of determination (i) prior to the funding of the Tranche B Term
Loans, that Lender's Tranche B Term Loan Commitment, (ii) after the
Effective Date, the outstanding principal amount of the Tranche B Term
Loans of that Lender.
"TRANCHE B TERM LOANS" means the Loans made by Lenders to Company
pursuant to subsection 2.1A(iii).
"TRANCHE B TERM NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1E on the Effective Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of
subsection 9.1B(i) in connection with assignments of the Tranche B Term
Loan Commitments or Tranche B Term Loans of any Lenders, in each case
substantially in the form of Exhibit IV-E annexed hereto, as they may be
------------
amended, restated, supplemented or otherwise modified from time to time.
"TRANSACTION COSTS" means the fees, costs and expenses payable by
Company in connection with the transactions contemplated hereby to occur on
the Effective Date.
"UNSECURED SUBORDINATED NOTE INDENTURE" means the indenture pursuant
to which the Unsecured Subordinated Notes will be issued, in the form
delivered as of the Closing Date pursuant to subsection 4.1E of the
---------------
Existing Credit Agreement, as such indenture may heretofore have been or
may hereafter be amended from time to time to the extent permitted under
subsection 7.15.
"UNSECURED SUBORDINATED NOTES" means the $175,000,000 aggregate
principal amount of Company's 10-1/4% senior subordinated notes due 2007 to
be issued pursuant to the Unsecured Subordinated Note Indenture.
"VENDOR" has the meaning assigned to that term in the Recitals to this
Agreement.
"WAIVABLE MANDATORY PREPAYMENT" has the meaning assigned to that term
in subsection 2.4B(iv).
"WHOLLY OWNED SUBSIDIARY" means, with respect to any Person, a
Subsidiary of such Person all of the outstanding capital stock or other
ownership interests of which (other than Regulatory Shares) shall at the
time be owned by such Person or by one or more Wholly Owned Subsidiaries of
such Person or by such Person and one or more Wholly Owned Subsidiaries of
such Person.
"YEAR 2000 COMPLIANT" means that all computer applications owned and
controlled by Company or any of its Subsidiaries that are material to
Company and its Subsidiaries' business and operations are or will be able
to perform properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
23
<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 in conformity with those used to prepare the financial
statements referred to in subsection 5.3.
1.3 OTHER DEFINITIONAL PROVISIONS.
-----------------------------
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference.
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 Company herein set forth,
each Lender hereby severally agrees to make (or maintain, as the case may be)
the Loans described in subsections 2.1A(ii), 2.1A(iii) and 2.1A(iv) and Swing
Line Lender hereby agrees to make the Loans described in subsection 2.1A(v).
(i) Existing Loans. Company acknowledges and confirms that each
--------------
Existing Lender holds Existing Loans in the respective principal amounts
outstanding as of the Effective Date set forth opposite its name on
Schedule 2.1 annexed hereto. Company hereby represents, warrants, agrees,
------------
covenants and (1) reaffirms that it has no (and it permanently and
irrevocably waives and releases Agents and Lenders from any, to the extent
arising on or prior to the Effective Date) defense, set off, claim or
counterclaim against any Agent or Lender in regard to its Obligations in
respect of such Existing Loans and (2) reaffirms its obligation to pay such
Loans in accordance with the terms and conditions of this Agreement and the
other Loan Documents. Based on the foregoing, (A) Company and each Lender
agree that (x) the Existing Acquisition Loans, (y) the Existing Term Loans
and (z) the Existing Revolving Loans, and any amounts owed (whether or not
presently due and payable, and including all interest accrued to the
Effective Date (which shall be payable on the next Interest Payment Date
with respect to the Loans to which such interest relates)) by Company to
Lenders thereunder or in respect thereof, shall, as of the Effective Date,
be converted to, maintained as, and owed by Company under or in respect of
Acquisition Loans, Term Loans and Revolving Loans, respectively, hereunder.
Amounts repaid or prepaid in respect of Term Loans may not be reborrowed.
Amounts repaid or prepaid in respect of the foregoing Acquisition Loans
prior to the third anniversary of the Closing Date may be repaid and
reborrowed through the third anniversary of the Closing Date and Revolving
Loans may be repaid and reborrowed to but excluding the Revolving Loan
Commitment Termination Date, respectively.
(ii) Acquisition Loans. Each Lender having an Acquisition Facility
-----------------
Commitment severally agrees to lend to Company from time to time during the
period from the Effective Date to the third anniversary of the Closing Date
an aggregate amount which when aggregated with Existing Loans of the Lender
that are Acquisition Loans, shall not exceed its Pro Rata Share of the
aggregate amount of the Acquisition Facility Commitments to be used for the
purposes identified in subsection 2.5A. The amount of each Lender's
Acquisition Facility Commitment is set forth opposite its name on Schedule
--------
2.1 annexed hereto and the aggregate amount of the Acquisition Facility
---
Commitments is $100,000,000; provided that the Acquisition Facility
--------
Commitments of Lenders shall be adjusted to give effect to any assignments
of the Acquisition Facility Commitments pursuant to subsection 10.1B;
provided further that the amount of the Acquisition Facility Commitment
-------- -------
shall be reduced from time to time by the amount of any reductions thereto
made
24
<PAGE>
pursuant to subsections 2.4B. Amounts borrowed under this subsection 2.1A
(ii) may be repaid and reborrowed through the third anniversary of the
Closing Date.
(iii) Tranche B Term Loans. Each Lender severally agrees to lend to
--------------------
Company on the Effective Date an aggregate amount not exceeding its Pro
Rata Share of the aggregate amount of the Tranche B Term Loan Commitments
to be used for the purposes identified in subsection 2.5C. The amount of
each Lender's Tranche B Term Loan Commitment is set forth opposite its name
on Schedule 2.1 annexed hereto and the aggregate amount of the Tranche B
------------
Term Loan Commitments is $50,000,000; provided that the Tranche B Term Loan
--------
Commitments of Lenders shall be adjusted to give effect to any assignments
of the Tranche B Term Loan Commitments pursuant to subsection 10.1B. Each
Lender's Tranche B Term Loan Commitment shall expire immediately and
without further action on October 15, 1998 if the Tranche B Term Loans are
not made on or before that date. Company may make only one borrowing under
the Tranche B Term Loan Commitments. Amounts borrowed under this
subsection 2.1A(iii) and subsequently repaid or prepaid may not be
reborrowed.
(iv) Revolving Loans. Each Lender having a Revolving Loan
---------------
Commitment 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 Effective Date to but excluding June 30, 2002 an
aggregate amount which when aggregated with any outstanding Existing Loans
of the Lender that are Revolving Loans, shall not exceed its Pro Rata Share
of the aggregate amount of the Revolving Loan Commitments to be used for
the purposes identified in subsection 2.5D. The original amount of each
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 $25,000,000; provided that the Revolving Loan
--------
Commitments of Lenders shall be adjusted to give effect to any assignments
of the Revolving Loan Commitments pursuant to subsection 10.1B; 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 subsection 2.4B. Each Lender's Revolving Loan Commitment shall
expire on June 30, 2002 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. Amounts borrowed
under this subsection 2.1A(iv) may be repaid and reborrowed to but
excluding June 30, 2002.
Anything contained in this Agreement to the contrary notwithstanding
in no event shall the Total Utilization of Revolving Loan Commitments at
any time exceed the Revolving Loan Commitments then in effect;
(v) 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 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 Effective Date to but excluding June 30, 2002 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 2.5D, 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 $5,000,000;
provided that any reduction of the Revolving Loan Commitments made pursuant
--------
to subsection 2.4A(iii), 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, Agent or Swing Line Lender. The Swing Line Loan
Commitment shall expire on June 30, 2002 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. Amounts borrowed under this
subsection 2.1A(v) may be repaid and reborrowed to but excluding June 30,
2002.
Anything contained in this Agreement to the contrary notwithstanding,
the Swing Line Loans and the Swing Line Loan Commitment shall be subject to
the limitation that in no event shall the Total
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Utilization of Revolving Loan Commitments at any time exceed the Revolving
Loan Commitments then in effect.
With respect to any Swing Line Loans which have not been voluntarily
prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender may,
at any time in its sole and absolute discretion, deliver to Administrative
Agent (with a copy to Company), no later than 10:00 A.M. (New York time) on
the first Business Day in advance of the proposed Funding Date, a notice
(which shall be deemed to be a Notice of Borrowing given by Company)
requesting Lenders to make Revolving Loans that are Base Rate Loans on such
Funding Date in an amount equal to the amount of such Swing Line Loans (the
"REFUNDED SWING LINE LOANS") outstanding on the date such notice is given
which Swing Line Lender requests Lenders to prepay. Anything contained in
this Agreement to the contrary notwithstanding, (i) the proceeds of such
Revolving Loans made by 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, if any, 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, if any, 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 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 Lenders in the manner
contemplated by subsection 10.5.
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
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
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 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 Lender fails to make available to Swing Line
Lender the amount of such Lender's participation as provided in this
paragraph, Swing Line Lender shall be entitled to recover such amount on
demand from such Lender together with interest thereon at the rate
customarily used by Swing Line Lender for the correction of errors among
banks 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
Lenders have purchased participations as provided in this paragraph, Swing
Line Lender shall promptly distribute to each such other Lender its Pro
Rata Share of such payment.
Anything contained herein to the contrary notwithstanding, each
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 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 (a) any set-off, counterclaim, recoupment, defense or other right
which such 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;
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<PAGE>
(c) any adverse change in the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Company or any of its
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 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 10.6 prior to or at the time such Refunded Swing
Line Loans or other unpaid Swing Line Loans were made.
B. BORROWING MECHANICS. Loans made on any Funding Date (other than
Revolving Loans made pursuant to a request by Swing Line Lender pursuant to
subsection 2.1A(v) for the purpose of repaying any Refunded Swing Line Loans or
Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing
Issuing Lender for the amount of a drawing under a Letter of Credit issued by
it) shall be in an aggregate minimum amount of $5,000,000 and integral multiples
of $1,000,000 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 Loans it shall deliver to Administrative Agent a Notice of Borrowing no
later than 12:00 Noon (New York 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 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 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
Acquisition Loans, Term Loans, Tranche B Term Loans and Revolving Loans, whether
such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in the
case of any Loans requested to be made as Eurodollar Rate Loans, the initial
Interest Period requested therefor. 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.
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.
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 Acquisition Loans, Term Loans, Tranche B
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
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<PAGE>
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 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(v) or subsection 3.3B with respect to Revolving Loans used to repay
refunded Swing Line Loans or to reimburse 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 4.2 (in the case of Loans made
on the Effective Date) and 4.3 (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 customary rate set by Administrative Agent for the
correction of errors among banks 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 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 10.8, 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 Commitments
and Loans from time to time of each 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 Loans of
each 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 Company's Obligations in
respect of the applicable Loans.
(iii) Each Lender shall record on its internal records (including,
without limitation, any Notes held by such Lender) the amount of each Loan
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 Company's Obligations in respect of the applicable Loans;
and provided, further that in the event of any inconsistency between the
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Register and any Lender's records, the recordations in the Register shall
govern.
(iv) Company, Administrative Agent 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
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<PAGE>
subsection 10.1B(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 a Lender shall be
conclusive and binding on any subsequent holder, assignee or transferee of
the corresponding Commitments or Loans.
(v) Company hereby designates Administrative Agent 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
Administrative Agent serves in such capacity, Administrative Agent and its
officers, directors, employees, agents and affiliates shall constitute
Indemnitees for all purposes under subsection 10.3.
E. NOTES AND TRANCHE B TERM NOTES. Company shall execute and deliver on
the Effective Date to each Lender providing a Tranche B Term Loan Commitment (or
to Administrative Agent for that Lender) a Tranche B Term Note, substantially in
the form of Exhibit IV-E annexed hereto, to evidence that Lender's Tranche B
------------
Term Loans in the principal amount of that Lender's Tranche B Term Loans and
with other appropriate insertions. The Notes and the Obligations evidenced
thereby shall be governed by, subject to and benefit from all of the terms and
conditions of this Agreement and the other Loan Documents and shall be
guarantied and/or secured by the Collateral as provided in the Loan Documents.
Administrative Agent and Company may deem and treat the payee of any Note
as the owner thereof for all purposes hereof unless and until an Assignment
Agreement effecting the assignment or transfer thereof shall have been accepted
by Administrative Agent as provided in subsection 10.1B(ii). Any request,
authority or consent of any person or entity who, at the time of making such
request or giving such authority or consent, is the holder of any Note shall be
conclusive and binding on any subsequent holder, assignee or transferee of that
Note or of any Note or Notes issued in exchange therefor.
2.2 INTEREST ON THE LOANS.
---------------------
A. RATE OF INTEREST. Subject to the provisions of subsections 2:1B, 2.6
and 2.7, each Loan, except for Swing Line Loans, 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 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 Loan may be changed from time to time pursuant to subsection
2.2D. If on any day a 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 Acquisition
Loans, Term Loans, Tranche B 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 the
----
Applicable Margin; or
(ii) if a Eurodollar Rate Loan, then at the sum of the Adjusted
Eurodollar Rate plus the Applicable Margin.
----
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
----
the Applicable Margin.
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:
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(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 Loans
shall extend beyond June 30, 2002;
(vi) no Interest Period with respect to any portion of the Loans
shall extend beyond a date on which Company is required to make a scheduled
payment of principal on such Loans unless the sum of (a) the aggregate
principal amount of such Loans that are Base Rate Loans plus (b) the
----
aggregate principal amount of such 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 such Loan on such date;
(vii) Company may not select an initial Interest Period of longer
than one month with respect to Tranche B Term Loans made on the Effective
Date;
(viii) there shall be no more than 10 Interest Periods outstanding at
any time; and
(ix) 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 Acquisition Loans or Term Loan or Revolving Loans equal to
$5,000,000 and integral multiples of $1,000,000 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 the 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 $5,000,000 and
integral multiples of $1,000,000 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.
Company shall deliver a Notice of Conversion/Continuation to Administrative
Agent no later than 12:00 Noon (New York time) at least one Business Day in
advance of the proposed conversion date (in the case of a
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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 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.
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. POST-MATURITY INTEREST. Any principal payments on the Loans not paid
when due and, to the extent permitted by applicable law, any interest payments
on the Loans or any fees or other amounts owed hereunder not paid when due, in
each case whether at stated maturity, by notice of prepayment, by acceleration
or otherwise, shall thereafter bear interest (including post-petition interest
in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws
whether or not allowed as a claim against Company under the Bankruptcy Code or
other applicable bankruptcy laws) payable on demand at a rate which 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 Event of Default or otherwise prejudice or limit
any rights or remedies of Administrative Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed (i)
in the case of Base Rate Loans based on the Prime Rate, on the basis of a 365-
day or 366-day year, as the case may be, and (ii) in the case of all other
Loans, 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.
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A. COMMITMENT FEES.
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(i) Company agrees to pay to Administrative Agent, for distribution
to each Lender in proportion to that Lender's Pro Rata Share of the
Acquisition Facility Commitments, commitment fees for the period from and
including the Closing Date to and excluding the third anniversary of the
Closing Date equal to the average of the daily excess of the Acquisition
Facility Commitments, as then in effect, over the sum of the aggregate
principal amount of Acquisition Loans outstanding multiplied by the
-------------
Applicable Commitment Fee Percentage; and
(ii) Company agrees to pay to Administrative Agent, for distribution
to each Lender in proportion to that Lender's Pro Rata Share of the
Revolving Loan Commitments (other than Swing Line Loan Commitments),
commitment fees for the period from and including the Closing Date to and
excluding June 30, 2002 equal to the average of the daily excess of the
Revolving Loan Commitments over the aggregate principal amount of Revolving
Loans outstanding (but not any Swing Line Loans outstanding) multiplied by
-------------
the Applicable Commitment Fee Percentage.
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
March 31, June 30, September 30 and December 31 of each year, commencing on the
first such date to occur after the Closing Date and ending on June 30, 2002.
B. ADMINISTRATIVE AGENT FEE. Company agrees to pay to Administrative
Agent, an Administrative Agent's fee in the amount and at the times separately
agreed to by Administrative Agent and Company.
C. OTHER FEES. Company agrees to pay to Syndication Agent, Lead
Arranger, Administrative Agent and Lenders such other fees (including, without
limitation, amendment fees), in the amounts and at the times separately agreed
upon between Company, Syndication Agent, Lead Arranger and Administrative Agent.
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN COMMITMENTS; GENERAL PROVISIONS
-------------------------------------------------------------------------
REGARDING PAYMENTS; APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS
----------------------------------------------------------------------
UNDER SUBSIDIARY GUARANTY.
-------------------------
A. SCHEDULED PAYMENTS OF ACQUISITION LOANS.
(i) Scheduled Payments of Acquisition Loans. Company shall make
---------------------------------------
principal payments on the Acquisition Loans in installments on the dates
and in amounts equal to the percentage of the aggregate amount of the
Acquisition Loans outstanding on the third anniversary of the Closing Date,
as set forth below:
<TABLE>
<CAPTION>
=====================================================
SCHEDULED
REPAYMENTS
OF ACQUISITION
DATE LOANS
=====================================================
<S> <C>
September 30, 2000 5.0%
-----------------------------------------------------
December 31, 2000 5.0%
-----------------------------------------------------
March 31, 2001 5.0%
-----------------------------------------------------
June 30, 2001 5.0%
-----------------------------------------------------
September 30, 2001 10.0%
-----------------------------------------------------
December 31, 2001 10.0%
-----------------------------------------------------
March 31, 2002 15.0%
-----------------------------------------------------
June 30, 2002 45.0%
=====================================================
</TABLE>
; provided that the scheduled installments of principal of the Acquisition
--------
Loans provided for above shall be reduced in connection with any voluntary
or mandatory prepayments of the Acquisition Loans in accordance with
subsection 2.4B(iv); and provided further, that the Acquisition Loans and
-------- -------
all other amounts owed hereunder with respect to the Acquisition Loans
shall be paid in full no later than June 30,
32
<PAGE>
2002 with respect thereto and the final installment payable by Company
in respect of the Acquisition Loans on such date shall be in an amount, if
such amount is different from that provided for above, sufficient to repay
all amounts owing by Company under this Agreement with respect to the
Acquisition Loans.
(ii) Scheduled Payments of Term Loan. Company shall make principal
-------------------------------
payments on the Term Loans in installments on the dates and in the amounts
set forth below:
<TABLE>
<CAPTION>
==============================================================
SCHEDULED
REPAYMENT OF
DATE TERM LOAN
--------------------------------------------------------------
<S> <C>
September 30, 1998 $1,250,000
--------------------------------------------------------------
December 31, 1998 $1,250,000
--------------------------------------------------------------
March 31, 1999 $2,000,000
--------------------------------------------------------------
June 30, 1999 $2,000,000
--------------------------------------------------------------
September 30, 1999 $2,000,000
--------------------------------------------------------------
December 31, 1999 $2,000,000
--------------------------------------------------------------
March 31, 2000 $2,500,000
--------------------------------------------------------------
June 30, 2000 $2,500,000
--------------------------------------------------------------
September 30, 2000 $2,500,000
--------------------------------------------------------------
December 31, 2000 $2,500,000
--------------------------------------------------------------
March 31, 2001 $2,500,000
--------------------------------------------------------------
June 30, 2001 $2,500,000
--------------------------------------------------------------
September 30, 2001 $2,500,000
--------------------------------------------------------------
December 31, 2001 $2,500,000
--------------------------------------------------------------
March 31, 2002 $7,500,000
--------------------------------------------------------------
June 30, 2002 $7,500,000
==============================================================
</TABLE>
33
<PAGE>
; 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 June 30, 2002, 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 Loan.
(iii) Scheduled Payments of Tranche B Term Loans. Company shall make
------------------------------------------
principal payments on the Tranche B Term Loans in installments on the dates
and in the amounts set forth below:
<TABLE>
<CAPTION>
=======================================================
DATE SCHEDULED
REPAYMENT OF
TRANCHE B TERM
LOANS
-------------------------------------------------------
<S> <C>
December 31, 1998 $ 125,000
-------------------------------------------------------
March 31, 1999 $ 125,000
June 30, 1999 $ 125,000
September 30, 1999 $ 125,000
December 31, 1999 $ 125,000
-------------------------------------------------------
March 31, 2000 $ 125,000
June 30, 2000 $ 125,000
September 30, 2000 $ 125,000
December 31, 2000 $ 125,000
-------------------------------------------------------
March 31, 2001 $ 125,000
June 30, 2001 $ 125,000
September 30, 2001 $ 125,000
December 31, 2001 $ 125,000
-------------------------------------------------------
March 31, 2002 $ 125,000
June 30, 2002 $ 125,000
September 30, 2002 $ 3,750,000
December 31, 2002 $ 3,750,000
-------------------------------------------------------
March 31, 2003 $ 3,750,000
June 30, 2003 $ 3,750,000
September 30, 2003 $ 3,750,000
December 31, 2003 $ 3,750,000
-------------------------------------------------------
March 31, 2004 $ 3,750,000
June 30, 2004 $21,875,000
=======================================================
</TABLE>
; provided that the scheduled installments of principal of the Tranche B Term
--------
Loans set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Tranche B Term Loans in accordance with subsection
2.4C; and provided further that the Tranche B Term Loans and all other amounts
-------- -------
owed hereunder with respect to the Tranche B Term Loans shall be paid in full no
later than June 30, 2004, and the final installment payable by Company in
respect of the Tranche B 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 Tranche B Term Loans.
B. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS.
(i) Voluntary Prepayments. Company may, upon written or telephonic
---------------------
notice to Administrative Agent on or prior to 12:00 Noon (New York time) on
the date of prepayment, which notice,
34
<PAGE>
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 by 12:00 Noon (New York 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 Acquisition Loans, Term Loans, Tranche
B Term Loans or Revolving Loans on any Business Day in whole or in part in an
aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in
excess of that amount (or such lesser amount as shall constitute the aggregate
amount of all outstanding Loans, as the case may be); provided, however, that
-------- -------
with respect to any Eurodollar Rate Loan not prepaid on the expiration of the
Interest Period applicable thereto, Company shall pay any amount payable
pursuant to subsection 2.6D. Notice of prepayment having 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.
(ii) Voluntary Reductions of Commitments. Company may, upon not less
-----------------------------------
than three Business Days' prior written or telephonic notice 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 terminate in whole or
permanently reduce in part, without premium or penalty, the Acquisition Loan
Commitments, or the Revolving Loan Commitments in each case in an amount up to
the amount by which the Acquisition Facility Commitments, or the Revolving Loan
Commitments exceed the aggregate amount of all outstanding Acquisition Loans, or
aggregate Revolving Loan Exposure, respectively, at the time of such proposed
termination or reduction; provided that any such partial reduction of the
--------
Commitments shall be in an aggregate minimum amount of $5,000,000 and integral
multiples of $1,000,000 in excess of that amount. Company's notice to
Administrative Agent 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 Commitments shall be effective on the date
specified in Company's notice and shall reduce the applicable Commitment of each
Lender proportionately to its Pro Rata Share of such Commitments.
(iii) Mandatory Prepayments and Mandatory Reductions of Commitments.
-------------------------------------------------------------
(a) Prepayments and Reductions from Asset Sales. No later than
-------------------------------------------
the first Business Day following the date of receipt by Company or any
of its Subsidiaries of Net Cash Proceeds of any Asset Sale, Company
shall prepay first the Term Loans, Tranche B Term Loans and, after
-----
the third anniversary of the Closing Date, the Acquisition Loans on a
pro rata basis to the full extent thereof (in accordance with the
respective outstanding principal amounts thereof), and second the
------
Revolving Loans and, prior to the third anniversary of the Closing
Date, the Acquisition Loans on a pro rata basis to the full extent
thereof (in accordance with the respective outstanding principal
amounts thereof) in an amount equal to such Net Cash Proceeds.
Notwithstanding the foregoing, the Net Cash Proceeds of Specified
Asset Sales shall not be required to prepay Loans as set forth above
to the extent that and so long as such Net Cash Proceeds are (x)
within 180 days of receipt of such proceeds, reinvested in the
business of the Company and the Subsidiaries or, (y) within 180 days
of receipt of such proceeds committed for reinvestment and reinvested
within 300 days of receipt of such proceeds in the business of the
Company and the Subsidiaries, and (z) the aggregate principal amount
of all such proceeds not so reinvested at any time does not exceed
$10,000,000; provided that any such funds in excess of $10,000,000 not
--------
so committed or reinvested shall be used to make prepayments as
required pursuant to this subsection 2.4B(iii)(a). Concurrently with
any prepayment of the Loans and/or reduction of the applicable
Commitments pursuant to this subsection 2.4B(iii)(a), Company shall
deliver to Administrative Agent an Officers' Certificate demonstrating
the derivation of the Net Cash Proceeds of the correlative Asset Sale
from the gross sales price thereof. In the event that Company shall,
at any time after receipt of Cash Proceeds of any Asset Sale requiring
a prepayment or a reduction of the applicable Commitments pursuant to
this subsection 2.4B(iii)(a), determine that the prepayments and/or
35
<PAGE>
reductions of the applicable Commitments previously made in respect of
such Asset Sale were in an aggregate amount less than that required by
the terms of this subsection 2.4B(iii)(a), Company shall promptly make
an additional prepayment of the Loans (and, if applicable, the
applicable Commitments shall be permanently reduced), in the manner
described above in an amount equal to the amount of any such deficit,
and Company shall concurrently therewith deliver to Administrative
Agent an Officers' Certificate demonstrating the derivation of the
additional Net Cash Proceeds resulting in such deficit. Any mandatory
prepayments pursuant to this subsection 2.4B(iii)(a) shall be further
applied as specified in subsection 2.4B(iv).
(b) Prepayments and Reductions Due to Reversion of Surplus Assets
-------------------------------------------------------------
of Pension Plans. On the date of return to Company or any of its
----------------
Subsidiaries of any surplus assets of any pension plan of Company or any of
its Subsidiaries, Company shall prepay in an amount (the "NET REVERSION
AMOUNT") 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, and Company shall prepay first the Term
-----
Loans, Tranche B Term Loans and, after the third anniversary of the Closing
Date, the Acquisition Loans on a pro rata basis to the full extent thereof
(in accordance with the respective outstanding principal amounts thereof),
and second the Revolving Loans and, prior to the third anniversary of the
------
Closing Date, the Acquisition Loans on a pro rata basis to the full extent
thereof (in accordance with the respective outstanding principal amounts
thereof) in an amount equal thereto. Any such mandatory prepayments shall
be further applied as specified in subsection 2.4B(iv).
(c) Prepayments Due to Issuance of Equity Securities. No later
------------------------------------------------
than the first Business Day following the date of receipt by Company or any
of its Subsidiaries of the Cash proceeds (net of underwriting discounts and
commissions and other reasonable costs associated therewith) from the
issuance of any equity Securities of such Person (including without
limitation additional issuances of Company Common Stock but excluding (x)
issuances of Company Common Stock to officers or employees of Company to
the extent the proceeds from such issuances do not exceed in the aggregate
$1,000,000 during any fiscal year and issuances of any Securities
evidencing Indebtedness permitted to be incurred pursuant to subsection 7.1
and (y) issuance of equity Securities to the extent the proceeds of which
are used to fund Permitted Acquisitions), Company shall prepay first the
-----
Term Loans, Tranche B Term Loans and, after the third anniversary of the
Closing Date, the Acquisition Loans on a pro rata basis to the full extent
thereof (in accordance with the respective outstanding principal amounts
thereof), and second the Revolving Loans and, prior to the third
------
anniversary of the Closing Date, the Acquisition Loans on a pro rata basis
to the full extent thereof (in accordance with the respective outstanding
principal amounts thereof) in an amount equal to the proceeds of such
issuance; provided that on and after the date on which the Leverage Ratio
--------
(determined on a Pro Forma Basis giving effect to the issuance and
application of the equity securities proceeds) is less than or equal to
2.50:1.0, 50% of the proceeds otherwise required to be utilized to prepay
Loans pursuant to this subdivision (c) of subsection 2.4B(iii) may be
applied to repurchase or prepay the Unsecured Subordinated Notes. Any such
mandatory prepayments shall be further applied as specified in subsection
2.4B(iv).
(d) Prepayments Due to Issuance of Debt. On or prior to the
-----------------------------------
first Business Day after receipt by Company or any of its Subsidiaries of
any proceeds of any Indebtedness (other than the Loans, and any other
Indebtedness permitted by this Agreement), Company shall prepay first the
Term Loans, Tranche B Term Loans and, after the third anniversary of the
Closing Date, the Acquisition Loans on a pro rata basis to the full extent
thereof (in accordance with the respective outstanding principal amounts
thereof), and second the Revolving Loans and, prior to the third
anniversary of the Closing Date, the Acquisition Loans on a pro rata basis
to the full extent thereof (in accordance with the respective outstanding
principal amounts thereof) in an amount equal to the amount of such
proceeds; provided that payment or acceptance of the amounts provided for
in this subsection 2.4B(iii)(d) shall not constitute a waiver of any Event
of Default resulting from the incurrence of such Indebtedness or otherwise
prejudice any rights or remedies of Agents or Lenders. Any such mandatory
prepayments shall be further applied as specified in subsection 2.4(B)(iv).
36
<PAGE>
(e) Prepayments and Reductions from Net Insurance/Condemnation
----------------------------------------------------------
Proceeds. No later than the first Business Day following the date of
--------
receipt by Agents or by Company or any of its Subsidiaries of any Net
Insurance/Condemnation Proceeds that are required to be applied to
prepay the Loans pursuant to the provisions of subsection 6.4B,
Company shall prepay first the Term Loans, Tranche B Term Loans and,
-----
after the third anniversary of the Closing Date, the Acquisition Loans
on a pro rata basis to the full extent thereof (in accordance with the
respective outstanding principal amounts thereof), and second the
------
Revolving Loans and, prior to the third anniversary of the Closing
Date, the Acquisition Loans on a pro rata basis to the full extent
thereof (in accordance with the respective outstanding principal
amounts thereof) in an amount equal to such Net Insurance/Condemnation
Proceeds. Concurrently with any prepayment of the Loans and/or
reduction of the Revolving Loan Commitments pursuant to this
subsection 2.4B(iii)(e), Company shall deliver to Administrative Agent an
Officers' Certificate demonstrating the calculation of the amount (the "NET
PROCEEDS AMOUNT") of the Net Insurance/Condemnation Proceeds, 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, if applicable, the
Acquisition Loan Commitments and the Revolving Loan Commitments shall be
permanently reduced) in an amount equal to the amount of such excess, and
Company shall concurrently therewith deliver to Administrative Agent an
Officers' Certificate demonstrating the derivation of the additional Net
Proceeds Amount resulting in such excess. Any such mandatory prepayments
shall be applied as specified in subsection 2.4B(iv).
(f) Prepayments and Reductions from Consolidated Excess Cash
--------------------------------------------------------
Flow. In the event that there shall be Consolidated Excess Cash Flow for any
fiscal year commencing on or after December 29, 1997, within 100 days after
the last day of such fiscal year Company shall prepay first the Term Loans,
-----
Tranche B Term Loans and, after the third anniversary of the Closing Date,
the Acquisition Loans on a pro rata basis to the full extent thereof (in
accordance with the respective outstanding principal amounts thereof), and
second the Revolving Loans and, prior to the third anniversary of the
------
Closing Date, the Acquisition Loans on a pro rata basis to the full extent
thereof (in accordance with the respective outstanding principal amounts
thereof) in an amount equal to 50% of such Consolidated Excess Cash Flow;
provided that so long as the Leverage Ratio as of the end of Fiscal Year
immediately prior to the date of payment under this subsection 2.4B(f) is
less than or equal to 2.5:1.0 then only 25% of such Consolidated Excess Cash
Flow shall be required to be prepaid. Any such mandatory prepayments shall
be applied as specified in subsection 2.4B(iv).
(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 so
------
that the Total Utilization of Revolving Loan Commitments shall not at
any time exceed the Revolving Loan Commitments then in effect.
(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, with respect to the allocation of such prepayments among Loans and
scheduled amortization payments, if applicable, 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 to repay the Loans on a pro rata
basis (in accordance with the respective outstanding principal amounts
thereof) to the full extent thereof.
(b) Application of Mandatory Prepayments by Type of Loans and
---------------------------------------------------------
Order of Maturity. Any mandatory prepayments of the Loans pursuant to
-----------------
subsection 2.4B(iii) shall be applied first pro rata to the scheduled
----- --------
installments of principal of the applicable Loans set forth in
subsections 2.4A(i), 2.4A(ii) and 2.4A(iii), respectively, that are
unpaid at the time of such prepayment, to the full extent thereof,
second to prepay the Swing Line Loans to the full extent
------
37
<PAGE>
thereof, and third to prepay the Revolving Loans to the full extent
-----
thereof. Anything contained herein to the contrary notwithstanding, so long
as any Tranche B Term Loans are outstanding, in the event Company is
required to make any mandatory prepayment (a "WAIVABLE MANDATORY
PREPAYMENT") of the Tranche B Term Loans pursuant to subsection 2.4B(iii),
--------------------
not less than three Business Days prior to the date (the "REQUIRED
PREPAYMENT DATE") on which Company is required to make such Waivable
Mandatory Prepayment, Company shall notify Administrative Agent of the
amount of such prepayment, and Administrative Agent will promptly thereafter
notify each Lender holding an outstanding Tranche B Term Loan of the amount
of such Lender's Pro Rata Share of such Waivable Mandatory Prepayment and
such Lender's option to refuse such amount. Each such Lender may exercise
such option by giving written notice to Company and Administrative Agent of
its election to do so on or before the first Business Day (the "PREPAYMENT
CUT-OFF DATE") prior to the Required Prepayment Date (it being understood
that any Lender which does not notify Company and Administrative Agent of
its election to exercise such option on or before the Prepayment Cutoff Date
shall be deemed to have elected, as of the Prepayment Cutoff Date, not to
exercise such option). On the Required Prepayment Date, Company shall pay to
Administrative Agent the amount of the Waivable Mandatory Prepayment, which
amount shall be applied (i) in an amount equal to that portion of the
Waivable Mandatory Prepayment payable to those Lenders that have elected not
to exercise such option, to prepay the Tranche B Term Loans of such Lenders
(which prepayment shall be applied to the scheduled installments of
principal of the Tranche B Term Loans in accordance with subsection
----------
2.4A(iii)) and (ii) in an amount equal to that portion of the Waivable
----------
Mandatory Prepayment otherwise payable to those Lenders that have elected to
exercise such option, to prepay the Acquisition Loans after the third
anniversary of the Closing Date and the Term Loans on a pro rata basis (in
accordance with the respective outstanding principal amounts thereof) to the
full extent thereof (which prepayment shall be applied to the scheduled
installments of principal of the Acquisition Loans and Term Loans in
accordance with subsection 2.4A(i) and subsection 2.4A(ii), respectively).
---------- ----------
(c) Application of Prepayments to Base Rate Loans and Eurodollar
------------------------------------------------------------
Rate Loans. With respect to Acquisition Loans, Term Loans, Tranche B
----------
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 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 Day. 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. Subject to
-------------------------------------------------
subsection 2.2C of this Agreement, 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 shall be applied to the
payment of interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
-------------------------
payments in respect of Acquisition Loans, Term Loans, Tranche B 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
38
<PAGE>
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.
D. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER SUBSIDIARY
GUARANTY.
(i) Application of Proceeds of Collateral. Except as provided in
-------------------------------------
subsection 2.4B(iii)(a) with respect to prepayments from Asset Sales, 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 pursuant to
the exercise of rights and remedies under any Collateral Document shall be
applied in full or in part by 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 Agent in connection therewith,
and all amounts for which Agent is entitled to indemnification under such
Collateral Document and all advances made by Agent thereunder for the
account of the applicable Loan Party, and to the payment of all costs and
expenses paid or incurred by 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 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 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 Subsidiary Guaranty. All payments
-------------------------------------------------
received by Agent under the Subsidiary 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 the Subsidiary 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 the Subsidiary Guaranty;
39
<PAGE>
(b) thereafter, to the extent of any excess such payments, to the
payment of all other Guarantied Obligations (as defined in the Subsidiary
Guaranty) for the ratable benefit of the holders thereof; and
(c) thereafter, to the extent of any excess such payments, to the
payment to 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. ACQUISITION LOANS. The proceeds of the Acquisition Loans shall be
applied by Company to finance Permitted Acquisitions (which may include the
simultaneous repayment of debt assumed in connection with Permitted
Acquisitions) and to pay related costs and expenses.
B. TERM LOANS. The proceeds of the Term Loans were applied by Company in
accordance with the Existing Credit Agreement.
C. TRANCHE B TERM LOANS. The proceeds of the Tranche B Term Loans shall
be applied by Company to finance the Cinnabon Acquisition and to pay Transaction
Costs.
D. REVOLVING LOANS; SWING LINE LOANS. The proceeds of any Revolving Loans
and Swing Line Loans shall be applied by Company for working capital or general
corporate purposes.
E. MARGIN REGULATIONS. No portion of the proceeds of any borrowing under
this Agreement shall be used by Company or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
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.
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 10:00 A.M. (New York 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.
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 interbank Eurodollar 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 Lender 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 Administrative Agent) 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,
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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 interbank Eurodollar 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 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), for all
reasonable 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 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 clause (i) of the definition
of Adjusted 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 Company with
respect to a requested borrowing or conversion/continuation that has not yet
occurred shall be deemed to be rescinded by Company.
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2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
----------------------------------------
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions
of subsection 2.7B, 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 Closing
Date, or compliance by such Lender with any guideline, request or directive
issued or made after the Closing Date 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 interbank Eurodollar 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
reasonable 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.
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 determined on the
basis of 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 Administrative 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;
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(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 Administrative Agent or such Lender, as the case may be)
on behalf of and in the name of Administrative 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, Administrative 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 Closing Date (in the case of each Existing Lender), after the Effective
Date (in the case of each New Lender) or after the date of the Assignment
Agreement pursuant to which such Lender became a Lender (in the case 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 Existing Lender), on or prior to the Effective Date (in
the case of each New Lender) 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
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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 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) 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 Existing Lender) and on the
Effective Date (in the case of each New Lender) 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 after the Closing Date 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.
2.8 OBLIGATION OF LENDERS AND ISSUING LENDER 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
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;
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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 SECTION
3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
---------------------------------------------------------------------
THEREIN
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A. LETTERS OF CREDIT. Company acknowledges and confirms that Schedule 3.1
------------
annexed hereto sets forth each letter of credit issued under the Existing Credit
Agreement (collectively, the "EXISTING LETTERS OF CREDIT") and outstanding as of
the Effective Date. Company hereby represents, warrants, agrees, covenants and
(a) reaffirms that it has no (and it permanently and irrevocably waives and
releases Agents and Lenders from any, to the extent arising on or prior to the
Effective Date) defense, set off, claim or counterclaim against any Agent or
Lender in regard to its Obligations in respect of such Existing Letters of
Credit and (b) reaffirms its obligation to reimburse the applicable Issuing
Lenders for honored drawings under such Existing Letters of Credit in accordance
with the terms and conditions of this Agreement and the other Loan Documents
applicable to Letters of Credit issued hereunder. Based on the foregoing, each
Lender agrees that (1) each Existing Letter of Credit which is a Standby Letter
of Credit shall, as of the Effective Date, be deemed for all purposes of this
Agreement to be a Standby Letter of Credit issued hereunder, and (2) each
Existing Letter of Credit which is a Commercial Letter of Credit shall, as of
the Effective Date, be deemed for all purposes of this Agreement to be a
Commercial Letter of Credit issued hereunder. In addition to Company requesting
that Lenders make Revolving Loans pursuant to subsection 2.1A(iv) and that Swing
Line Lender make Swing Line Loans pursuant to subsection 2.1A(v), Company may
request, in accordance with the provisions of this subsection 3.1, from time to
time during the period from the Effective Date to but excluding June 30, 2002,
that Issuing Lender issue Letters of Credit for the account of Company for
general corporate purposes. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Company
herein set forth, Issuing Lender shall issue such Letters of Credit in
accordance with the provisions of this subsection 3.1; provided that Company
--------
shall not request that Issuing Lender issue (and Issuing Lender shall not
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) June 30, 2002 and (b) the date which is two years from the
date of issuance of such Letter of Credit; provided that the immediately
--------
preceding clause (b) shall not prevent 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 upon 40 days prior written request of
Company and the beneficiary thereof, so long as Issuing Lender notifies
Company or such beneficiary, as the case may be, in writing not less than
20 days prior to the expiration date that it has agreed to extend for any
such additional period; and provided, further that Issuing Lender shall
-------- -------
give notice that it will not 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 10.6) at the time Issuing
Lender must elect whether or not to allow such extension.
B. MECHANICS OF ISSUANCE.
(i) Notice of Issuance. Whenever Company desires the issuance of a
------------------
Letter of Credit, it shall deliver to Administrative Agent a Notice of
Issuance of Letter of Credit substantially in the form of Exhibit III
-----------
annexed hereto no later than 1:00 P.M. (New York time) at least five
Business Days or such shorter period as may be agreed to by 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
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Letter of Credit, (d) the name and address of the beneficiary, and (e) the
verbatim text of the proposed Letter of Credit or the proposed terms and
conditions thereof, including a precise description of any documents and
the verbatim text of any certificates to be presented by the beneficiary
which, if presented by the beneficiary prior to the expiration date of the
Letter of Credit, would require Issuing Lender to make payment under the
Letter of Credit. Company shall further execute and deliver any application
and other customary form documents required by Issuing Lender.
Company shall notify the applicable Issuing Lender (and Administrative
Agent, if Administrative Agent is not 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 a proposed
-------------------------------
Issuing Lender of a Notice of Issuance of Letter of Credit pursuant to
subsection 3.1B(i) requesting the issuance of a Letter of Credit, (a) in
the event Administrative Agent is the proposed Issuing Lender,
Administrative Agent shall be the Issuing Lender with respect to such
Letter of Credit, 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;
and (b) in the event any other Lender is the proposed Issuing Lender, such
Lender shall promptly notify Company and Administrative Agent whether or
not, in its sole discretion, it has elected to issue such Letter of Credit,
and (1) if such Lender so elects to issue such Letter of Credit it shall be
the Issuing Lender with respect thereto and (2) if such Lender fails to so
promptly notify Company and Administrative Agent or declines to be the
Issuing Lender with respect to such Letter of Credit in accordance with the
provisions of this subsection 3.1B Company may request Administrative Agent
or another Lender to (and in the case of the Administrative Agent,
Administrative Agent will) be the Issuing Lender with respect to such
Letter of Credit in accordance with the provisions of this subsection 3.1B.
(iii) Issuance of Letter of Credit. Upon satisfaction or waiver of
----------------------------
the conditions set forth in subsection 4.4, Issuing Lender shall issue the
requested Letter of Credit in accordance with Issuing Lender's standard
operating procedures.
(iv) Notification to Lenders. Upon the issuance of any Letter of
-----------------------
Credit, Issuing Lender shall promptly notify Administrative Agent (if
Issuing Lender is not Administrative Agent) and each other Lender of such
issuance. Promptly after receipt of such notice, Administrative Agent
shall notify each Lender of the amount of such Lender's respective
participation in such Letter of Credit, determined in accordance with
subsection 3.1C.
(v) Reports to Lenders. At the request of any Lender, Issuing
------------------
Lender shall deliver to each other Lender a report setting forth the
average for the immediately preceding calendar quarter of the daily maximum
amount available to be drawn under the Letters of Credit issued by Issuing
Lender that were outstanding during such calendar quarter, if any.
C. LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT. Immediately
upon the issuance of each Letter of Credit, each Lender having a Revolving Loan
Commitment shall be deemed to, and hereby agrees to, have irrevocably purchased
from Issuing Lender a participation in such Letter of Credit and drawings
thereunder in an amount equal to such Lender's Pro Rata Share of the maximum
amount which is or at any time may become available to be drawn thereunder.
D. EXISTING LETTERS OF CREDIT. As of the Closing Date the Existing
Letters of Credit shall be deemed to have been issued under this Agreement and
from and after the Closing Date shall be deemed Letters of Credit for all
purposes hereunder.
3.2 LETTER OF CREDIT FEES.
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Company agrees to pay the following amounts to Issuing Lender with respect
to Letters of Credit issued by it:
(i) with respect to each Letter of Credit, a fronting fee equal to
.25% per annum of the daily maximum amount available to be drawn under such
Letter of Credit payable in arrears on and to (but excluding) each March
31, June 30, September 30 and December 31 of each year and computed on the
basis of a 360-day year for the actual number of days elapsed; provided
--------
that the fronting fee payable with respect to each Letter of Credit shall
not be less than $500 per annum; and
(ii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each payment of a drawing made thereunder (without
duplication of the fees payable under clause (i) above), documentary and
processing charges in accordance with 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.
Company further agrees to pay to Administrative Agent, for distribution to
each Lender in proportion to that Lender's Pro Rate Share of the Revolving Loan
Commitments, a letter of credit fee equal to the product of (y) a percentage
equal to the Applicable Margin with respect to Eurodollar Loans and (z) daily
maximum amount available to be drawn under each Letter of Credit, payable in
arrears on and to (but excluding) each March 31, June 30, September 30 and
December 31 of each year and computed on the basis of a 360-day year for the
actual number of days elapsed.
3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS DRAWN 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 substantial compliance with
the terms and conditions of such Letter of Credit.
B. REIMBURSEMENT BY COMPANY OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. In
the event Issuing Lender has determined to honor a drawing under a Letter of
Credit issued by it, Issuing Lender shall immediately notify Company and
Administrative Agent, and Company shall reimburse 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 drawing; provided that, anything contained in this
--------
Agreement to the contrary notwithstanding, (i) unless Company shall have
notified Administrative Agent (if Issuing Lender is not Administrative Agent)
and Issuing Lender prior to 11:00 A.M. (New York time) on the date of such
drawing that Company intends to reimburse Issuing Lender for the amount of such
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 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 drawing
and (ii) subject to satisfaction or waiver of the conditions specified in
subsection 4.3B, Lenders shall, on the Reimbursement Date, make Revolving Loans
that are Base Rate Loans in the amount of such drawing, the proceeds of which
shall be applied directly by Administrative Agent to reimburse Issuing Lender
for the amount of such drawing; and provided, further that if for any reason
-------- -------
proceeds of Revolving Loans are not received by Issuing Lender on the
Reimbursement Date in an amount equal to the amount of such drawing, Company
shall reimburse Issuing Lender, on demand, in an amount in same day funds equal
to the excess of the amount of such 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 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 Lender resulting from the
failure of such Lender to make such Revolving Loans under this subsection 3.3B.
C. PAYMENT BY LENDERS OF UNREIMBURSED DRAWINGS UNDER LETTERS OF CREDIT.
(i) Payment by Lenders. In the event that Company shall fail for any
------------------
reason to reimburse Issuing Lender as provided in subsection 3.3B in an
amount equal to the amount of any drawing honored by Issuing Lender under a
Letter of Credit issued by it, Issuing Lender shall promptly notify each
other
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Lender having a Revolving Loan Commitment of the unreimbursed amount of
such drawing and of such other Lender's respective participation therein
based on such Lender's Pro Rata Share. Each Lender shall make available to
Issuing Lender an amount equal to its respective participation, in Dollars
and in same day funds, at the office of Issuing Lender specified in such
notice, not later than 1:00 P.M. (New York time) on the first business day
(under the laws of the jurisdiction in which such office of Issuing Lender
is located) after the date notified by Issuing Lender. In the event that
any Lender fails to make available to Issuing Lender on such business day
the amount of such Lender's participation in such Letter of Credit as
provided in this subsection 3.3C, Issuing Lender shall be entitled to
recover such amount on demand from such Lender together with interest
thereon at the rate customarily used by Issuing Lender for the correction
of errors among banks 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 Lender to recover from Issuing Lender any amounts made
available by such Lender to 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 Issuing Lender in respect of which payment was made by such Lender
constituted gross negligence or willful misconduct on the part of Issuing
Lender.
(ii) Distribution to Lenders of Reimbursements Received From Company.
---------------------------------------------------------------
In the event Issuing Lender shall have been reimbursed by other Lenders
pursuant to subsection 3.3C(i) for all or any portion of any drawing
honored by Issuing Lender under a Letter of Credit issued by it, Issuing
Lender shall distribute to each other Lender which has paid all amounts
payable by it under subsection 3.3C(i) with respect to such drawing such
other Lender's Pro Rata Share of all payments subsequently received by
Issuing Lender from Company in reimbursement of such drawing when such
payments are received. Any such distribution shall be made to a 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.
D. INTEREST ON AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
(i) Payment of Interest by Company. Company agrees to pay to
------------------------------
Issuing Lender, with respect to drawings made under any Letters of Credit
issued by it, interest on the amount paid by Issuing Lender in respect of
each such drawing from the date of such drawing 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 of such drawing 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 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 Issuing Lender of any payment of interest pursuant to
subsection 3.3D(i) with respect to a drawing under a Letter of Credit
issued by it, (a) Issuing Lender shall distribute to each other Lender
having a Revolving Loan Commitment, out of the interest received by Issuing
Lender in respect of the period from the date of such drawing to but
excluding the date on which 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
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 made
under such Letter of Credit, and (b) in the event Issuing Lender shall have
been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or
any portion of such drawing, Issuing Lender shall distribute to each other
Lender which has paid all amounts payable by it under subsection 3.3C(i)
with respect to such drawing such other Lender's Pro Rata Share of any
interest received by Issuing Lender in respect of that portion of such
drawing so reimbursed by other Lenders for the period from the date on
which Issuing Lender was so reimbursed by other Lenders to but excluding
the date on which such portion of such drawing is reimbursed by Company.
Any such distribution shall be made to a 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.
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3.4 OBLIGATIONS ABSOLUTE.
--------------------
Subject to the provisions of subsection 3.3A, the obligation of Company to
reimburse Issuing Lender for drawings made under the Letters of Credit issued by
it and to repay any Revolving Loans made by Lenders pursuant to subsection 3.3B
and the obligations of 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, 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 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), Issuing Lender or other Lender or any other
Person or, in the case of a Lender, against Company, whether in connection
with this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between Company or one of
its Subsidiaries and the beneficiary for which any Letter of Credit was
procured);
(iii) any draft, demand, certificate 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 Issuing Lender under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does
not 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 Company or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto; or
(vii) 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 Issuing Lender under the applicable
- --------
Letter of Credit shall not have constituted gross negligence or willful
misconduct of 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 LENDER'S DUTIES.
--------------------------------------------------
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless 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 Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of 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 Issuing Lender of a proper demand for payment made under any Letter of Credit
issued by it or (ii) the failure of 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 LENDER'S DUTIES. As between Company and Issuing
Lender, Company assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by Issuing Lender by, the respective beneficiaries of
such Letters of Credit. In furtherance and not in limitation of the foregoing,
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,
49
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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 Issuing Lender, including
without limitation any Governmental Acts, and none of the above shall affect or
impair, or prevent the vesting of, any of 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 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 Issuing Lender under any resulting
liability to Company.
Notwithstanding anything to the contrary contained in this subsection 3.5
and without limiting the provisions of subsection 3.3A, Company shall retain any
and all rights it may have against Issuing Lender for any liability arising
solely out of the gross negligence or willful misconduct of Issuing Lender, as
determined by a final judgment of a court of competent jurisdiction.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
-------------------------------------------------------
In the event that Issuing Lender or 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 Closing
Date, or compliance by Issuing Lender or any Lender with any guideline, request
or directive issued or made after the Closing Date by any central bank or other
governmental or quasi-governmental authority (whether or not having the force of
law):
(i) subjects Issuing Lender or any Lender (or its applicable lending
or letter of credit office) to any additional Tax (other than any Tax on
the overall net income of Issuing Lender or any 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
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 Issuing Lender or
participations therein purchased by any Lender; or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting Issuing Lender or any 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 Issuing Lender
or any 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 Issuing Lender or such Lender (or
its applicable lending or letter of credit office) with respect thereto; then,
in any case, Company shall promptly pay to Issuing Lender or such Lender, upon
receipt of the statement referred to in the next sentence, such additional
amount or amounts as may be necessary to compensate Issuing Lender or such
Lender for any such increased cost or reduction in amounts received or
receivable hereunder. Issuing Lender or such Lender shall deliver to Company a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to Issuing Lender or such
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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
4.1 CONDITIONS TO EXISTING LOANS AND LETTERS OF CREDIT.
--------------------------------------------------
The conditions to the making of the Existing Loans and the issuance of the
Existing Letters of Credit have been satisfied.
4.2 CONDITIONS TO TRANCHE B TERM LOANS.
----------------------------------
The obligations of Lenders to make the Tranche B Term Loans are, in
addition to the conditions precedent specified in subsection 4.3, subject to
prior or concurrent satisfaction of the following conditions:
A. COMPANY DOCUMENTS. On or before the Effective Date, Company shall
deliver or cause to be delivered to Lenders (or to Administrative Agent for
Lenders with sufficient originally executed copies, where appropriate, for
each Lender and its counsel) the following, each, unless otherwise noted,
dated the Effective Date:
(i) Certified copies of its Certificate of Incorporation,
together with a good standing certificate from the Secretary of State
of the State of Minnesota and each other state in which it 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 states, each dated a
recent date prior to the Effective Date;
(ii) Copies of its Bylaws, certified as of the Effective Date
by its corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and
authorizing the execution, delivery and performance of this Agreement,
the other Loan Documents and the Cinnabon Acquisition Documents to
which it is a party and approving the Cinnabon Acquisition as
contemplated by the Cinnabon Acquisition Documents, certified as of
the Effective Date by its corporate secretary or an assistant
secretary as being in full force and effect without modification or
amendment;
(iv) Signature and incumbency certificates of its officers
executing this Agreement and the other Loan Documents;
(v) Executed originals of this Agreement and (to the extent
not previously executed and delivered to the Lenders) the other Loan
Documents to which it is a party; and
(vi) Such other documents as Lead Arranger or Administrative
Agent may reasonably request.
B. ACQUISITION DOCUMENTS. On or before the Effective Date, Company shall,
or shall cause Acquisition Corp. 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 the Cinnabon
Acquisition, each dated the Effective Date:
(i) Certified copies of the Certificate of Incorporation of
Acquisition Corp., together with a good standing certificate from the
Secretary of State of Delaware and each other state in which Acquisition
Corp. is qualified as a foreign corporation to do business and, to the
extent generally available, a certificate
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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 Effective Date;
(ii) Copies of the Bylaws of Acquisition Corp., certified as of the
Effective Date by its corporate secretary or an assistant secretary;
(iii) Resolutions of the Board of Directors of Acquisition Corp.
approving and authorizing the execution, delivery and performance of the
Cinnabon Acquisition Agreement, and approving and authorizing the
consummation of the Cinnabon Acquisition in the manner contemplated by the
Cinnabon Acquisition Documents, certified as of the Effective Date by the
secretary or an assistant secretary of Acquisition as being in full force
and effect without modification or amendment; and
(iv) Signature and incumbency certificates of the officers of
Acquisition executing the Cinnabon Acquisition Agreement.
C. CINNABON ACQUISITION DOCUMENTS.
(i) Cinnabon Acquisition Documents. On or before the Effective
Date, Company shall, or shall cause Acquisition Corp. to, deliver to
Lenders (or to Administrative Agent for Lenders with sufficient originally
executed copies, where appropriate, for each Lender and its counsel) a
fully executed or conformed copy of each Cinnabon Acquisition Document,
each of which shall be reasonably satisfactory in form and substance to
Lead Arranger and Administrative Agent. The Cinnabon Acquisition Documents
shall each be in full force and effect and no provision thereof shall have
been modified or waived in any respect which could be reasonably expected
to have a Material Adverse Effect, in each case without the consent of Lead
Arranger and Administrative Agent, such consent not to be unreasonably
withheld.
(ii) No Material Litigation. There shall be no material litigation
----------------------
pending which challenges the Cinnabon Acquisition in any respect which is,
in the reasonable judgment of Lead Arranger or Administrative Agent,
material.
D. SECURITY INTERESTS. Company and Subsidiary Guarantors shall
have taken or caused to be taken (and Lead Arranger and Administrative
Agent shall have received satisfactory evidence thereof) such actions
(other than the filing or recording of items described in clauses (ii) and
(iv) below) in such a manner so that Administrative Agent, for the benefit
of Lenders, will have, a valid first priority security interest (subject to
Liens permitted under subsection 7.2) in the entire Collateral (except to
the extent any such security interest cannot be granted under applicable
laws). Such actions shall include, without limitation, (i) certificates
(which certificates shall be registered in the name of Administrative Agent
or properly endorsed in blank for transfer or accompanied by irrevocable
undated stock powers duly endorsed in blank, all in form and substance
satisfactory to Administrative Agent) representing the capital stock
pledged pursuant to the Company Pledge Agreement and delivery to
Administrative Agent of all other instruments (duly endorsed where
appropriate) evidencing the Collateral, (ii) delivery to Administrative
Agent of Uniform Commercial Code financing statements and fixture filings
as to the Collateral for all jurisdictions as may be necessary or desirable
to perfect the security interests in the Collateral, (iii) delivery to
Administrative Agent of the Acknowledgment and Consent and (iv) delivery to
Administrative Agent of such other documents and instruments that Lead
Arranger or Administrative Agent reasonably deems necessary or advisable to
establish, preserve and perfect as of the Closing Date the first priority
Liens granted to Administrative Agent on behalf of Lenders under the
Collateral Documents.
E. OPINIONS OF COMPANY'S COUNSEL. Lenders and their respective
counsel shall have received (i) originally executed copies of one or more
favorable written opinions of Cohen Pollock Merlin Axelrod & Tanenbaum,
LLP, Dorsey & Whitney, and Richards & O'Neil, L.L.P., counsel for Company,
in form and substance reasonably satisfactory to Lead Arranger and its
counsel and Administrative Agent, dated as of the Effective Date and
setting forth substantially the matters in the opinions designated in
Exhibits VI-A, VI-B and VI-C annexed hereto and as to such other matters as
------------- ---- ----
Lead Arranger and Administrative Agent acting on behalf of Lenders may
reasonably request, and (ii) evidence satisfactory to
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Lead Arranger and Administrative Agent that Company has requested such
counsel to deliver such opinions to Lenders.
F. OPINIONS OF LEAD ARRANGER'S COUNSEL. Lenders shall have received
originally executed copies of one or more favorable written opinions of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Lead Arranger, dated
as of the Effective Date, substantially in the form of Exhibit VI-D annexed
------------
hereto and as to such other matters as Lead Arranger acting on behalf of
Lenders may reasonably request.
G. FEES. Company shall have paid to Syndication Agent, Lead
Arranger, Administrative Agent and Lenders, the fees payable on the
Effective Date referred to in subsection 2.3.
H. NO MATERIAL ADVERSE EFFECT. Since December 29, 1996, no Material
Adverse Effect (in the reasonable opinion of Lead Arranger and
Administrative Agent) shall have occurred. Since June 14, 1998, there
shall not have been an adverse change, or any development involving a
prospective adverse change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
operation of Company and its Subsidiaries or of Cinnabon, which is, in the
reasonable judgment of Lead Arranger and Administrative Agent, material.
I. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS.
Company shall have delivered to Lead Arranger and Administrative Agent an
Officers' Certificate, in form and substance satisfactory to Lead Arranger
and Administrative Agent, to the effect that the representations and
warranties in Section 5 hereof are true, correct and complete in all
material respects on and as of the Effective Date to the same extent as
though made on and as of such date and that Company 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
such date except as otherwise disclosed to and agreed to in writing by Lead
Arranger, Administrative Agent and Requisite Lenders.
J. 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 Lead Arranger, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Lead Arranger and such counsel, and
Lead Arranger and such counsel shall have received all such counterpart
originals or certified copies of such documents as Lead Arranger or
Administrative Agent may reasonably request.
K. INSURANCE APPRAISAL; EVIDENCE OF INSURANCE. Administrative Agent
and Lead Arranger shall have received satisfactory certificates of
insurance with respect to each of the insurance policies required pursuant
to subsection 6.4, and Administrative Agent and Lead Arranger shall be
satisfied with the nature and scope of these insurance policies.
L. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF
WAITING PERIODS, ETC. Company shall have obtained all Governmental
Authorizations that are necessary in connection with the Cinnabon
Acquisition and the other transactions contemplated by the Loan Documents
and the Related Agreements, and the continued operation of the business
conducted by Vendor and its Subsidiaries in substantially the same manner
as conducted prior to the Acquisition, and each of the foregoing shall be
in full force and effect and in form and substance satisfactory to Lead
Arranger (except as disclosed to and approved by Lead Arranger). All
applicable waiting periods shall have expired without any action being
taken or threatened by any competent authority which would restrain,
prevent or otherwise impose adverse conditions on the Cinnabon 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.
M. CORPORATE STRUCTURE; MANAGEMENT.
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(i) Corporate Structure. The corporate organizational structure,
-------------------
capital structure and ownership of Company and its Subsidiaries, after
giving effect to the Cinnabon Acquisition, shall be as set forth on
Schedule 4.2M annexed hereto.
-------------
(ii) Management. The management structure of Company, after
----------
giving effect to the Cinnabon Acquisition, shall be as set forth on
Schedule 4.2M annexed hereto and there shall not have been any material
-------------
adverse changes to the Material Contracts since the Closing Date.
N. REPAYMENT OF SWING LINE LOANS. On the Effective Date, immediately
before and after giving effect to any borrowings hereunder on such date, no
Swing Line Loans shall be outstanding.
O. NO EVENT OF DEFAULT. Company shall have delivered to
Administrative Agent an Officer's Certificate, in form and substance
satisfactory to Administrative Agent, to the effect that immediately prior
to the Effective Date, no event has occurred and is continuing that would
constitute an Event of Default or Potential Event of Default under the
Existing Credit Agreement.
P. FINANCIAL STATEMENTS; PRO FORMA BALANCE SHEET. On or before the
Effective Date, Lenders shall have received from Company and be satisfied
with (i) audited financial statements of Vendor and its Subsidiaries for
the periods ending March 31, 1997 and March 31, 1998 (it being understood
and agreed that the foregoing audited financial statements for the said
periods shall not be released by Vendor to Company until the Effective
Date), consisting of consolidated and consolidating balance sheets and the
related consolidated and consolidating statements of income, stockholders'
equity and cash flows for such periods, (ii) unaudited financial statements
of Vendor and its Subsidiaries for the period from April 1, 1998 through
the monthly period most recently ended (for which such statements are
available), consisting of a consolidated balance sheet (prepared on a
divisional basis) and the related consolidated statement of income for the
period ending on each such date, all in reasonable detail and the accuracy
and preparation of which have been represented to by Vendor under the
Cinnabon Acquisition Agreement that they fairly present, in all material
respects, the financial condition of Vendor 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) audited financial statements of the
Company and its Subsidiaries for the period ending December 28, 1997,
consisting of consolidated and consolidating balance sheets and the related
consolidated and consolidating statements of income, stockholders' equity
and cash flows for such period, (iv) unaudited financial statements of
Company and its Subsidiaries for the period from December 29, 1997 through
August 9, 1998, consisting of a consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows for
the period ending on each such date, all in reasonable detail and certified
by the chief financial officer of the Company that they fairly present, in
all material respects, the financial condition of the 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 adjustments, (v) pro forma
combined balance sheets of Company and its Subsidiaries as at June 14,
1998, prepared in accordance with GAAP and reflecting the consummation of
the Merger, the related financings and the other transactions contemplated
by the Loan Documents, which pro forma financial statements shall be in
form and substance satisfactory to Lenders, and (vi) the Projections.
Q. CAPITALIZATION OF COMPANY. On or before the Effective Date,
Sponsor and other investors shall have purchased common stock of Company
for cash consideration of not less than $20,000,000, which amount shall be
contributed by Company to the consideration due under the Cinnabon
Acquisition Agreement.
For purposes of determining compliance with the conditions specified
in subsection 4.2, each Lender that has executed this Agreement or
subsequently becomes a party to this Agreement shall be deemed to have
consented to, approved or accepted or to be satisfied with each document or
other matter either sent or made available by Administrative Agent to such
Lender for consent, approval, acceptance or satisfaction, or required
hereunder to be consented to or approved by or acceptable or satisfactory
to the Lender or Administrative Agent, unless Administrative Agent shall
have received written notice from such Lender prior to the Closing Date
specifying its objection thereto and either such objection shall not have
54
<PAGE>
been withdrawn by written notice to Administrative Agent to that effect on
or prior to the Effective Date or, if any borrowing on the Effective Date
has been requested, the Lender shall not have made available to
Administrative Agent on or prior to the Closing date the Lender's Pro Rata
Share of such borrowing.
4.3 CONDITIONS TO ALL LOANS.
The obligations of Lenders to make Loans on each Funding Date are subject
to the following conditions precedent:
A. Administrative Agent shall have received 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 president, 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.
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 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
Company, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Company or any of
its Subsidiaries or any property of Company or any of its Subsidiaries
that has not been disclosed by 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 Tranche B Term Loans, prior to the
Effective Date), and 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 Lead Arranger, Administrative Agent or of Requisite
Lenders, would be expected to have a Material Adverse Effect; 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.
4.4 CONDITIONS TO ISSUANCE OF LETTERS OF CREDIT.
-------------------------------------------
55
<PAGE>
The issuance of any Letter of Credit (other than the Existing Letters of
Credit) hereunder (whether or not 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 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 president, 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 Issuing Lender may reasonably require in
connection with the issuance of such Letter of Credit.
B. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.3B 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.
COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make (or
maintain, as the case may be) the Loans, to induce Issuing Lender to issue (or
maintain, as the case may be) Letters of Credit and to induce other Lenders to
purchase participations therein, Company represents and warrants to each Lender,
on the date of this Agreement, on the Effective Date, on each Funding Date and
on the date of issuance of each Letter of Credit, that the following statements
are true, correct and complete; provided, however, that any representations and
--------
warranties made on the Effective Date only regarding Vendor and its Subsidiaries
are based upon Company's knowledge as of the Effective Date:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
----------------------------------------------------------------
SUBSIDIARIES.
------------
A. ORGANIZATION AND POWERS. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
Company 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 to carry out the transactions
contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. Company 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. Company and its Subsidiaries are engaged only in
the businesses permitted to be engaged in pursuant to subsection 7.14.
D. SUBSIDIARIES. All of the Subsidiaries of Company (as of the Effective
Date and after giving effect to the Cinnabon 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(xvii). The capital stock of
each of the Subsidiaries of Company 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 Company 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, singly or in the aggregate, 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 Company and each of its Subsidiaries in each of
the Subsidiaries of Company identified therein.
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<PAGE>
5.2 AUTHORIZATION OF BORROWING, ETC.
-------------------------------
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance of
the Loan Documents have been duly authorized by all necessary corporate action
on the part of Company.
B. NO CONFLICT. After giving effect to the consummation of the
transactions contemplated hereby to occur on the Effective Date, the execution,
delivery and performance by Company of the Loan Documents and the consummation
of the transactions contemplated by the Loan Documents do not and will not (i)
violate any provision of any law or any governmental rule or regulation
applicable to Company or any of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws or any other organizational documents of Company or any
of its Subsidiaries or any order, judgment or decree of any court or other
agency of government binding on Company or any of its 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 Company or any of
its Subsidiaries, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Company or any of its Subsidiaries
(other than any Liens created under any of the Loan Documents in favor of
Administrative Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Company or any of its Subsidiaries, except for such approvals or
consents which will be obtained on or before the Effective Date and disclosed in
writing to Lenders and except as disclosed on Schedule 5.2B.
-------------
57
<PAGE>
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Company of the Loan Documents and the consummation of the transactions
contemplated by the Loan Documents 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
filings required in connection with the perfection of security interests granted
pursuant to the Collateral Documents.
D. BINDING OBLIGATION. This Agreement has, and each of the other Loan
Documents have been duly executed and delivered by Company and this Agreement
and each of the other Loan Documents is the legally valid and binding obligation
of Company, enforceable against Company 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 UNSECURED SUBORDINATED NOTES. The Unsecured
Subordinated Notes are the legally valid and binding obligations of Company,
enforceable against Company 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 subordination provisions of the
Unsecured Subordinated Notes will be enforceable against the holders thereof,
and the Loans and all other monetary Obligations hereunder are and will be
within the definition of "SENIOR DEBT" included in such provisions. The
Unsecured Subordinated Notes, when issued and sold, will either (a) have been
registered or qualified under applicable federal and state securities laws or
(b) be exempt therefrom.
F. COLLATERAL DOCUMENTS. Except as set forth in Schedule 5.2F, the
-------------
security interests created in favor of Administrative Agent under the Collateral
Documents (to the extent purported to be created thereunder) will at all times
from and after the Effective Date constitute, as security for the obligations
purported to be secured thereby, a legal, valid and enforceable security
interest in and Lien on all of the Collateral referred to therein in favor of
Administrative Agent for the benefit of the Lenders and, from and after the date
of filing of the documents delivered on the Closing Date pursuant to subsection
4.2D perfected and prior to the rights of all third persons (other than
Permitted Encumbrances) in accordance with the requirements of all applicable
Collateral Documents. Each Loan Party has title to its Collateral as set forth
in clauses (i), (ii) and (iii) of subsection 5.5, as the case may be, and all
such Collateral is free and clear of all Liens except for Liens permitted by
subsection 7.2. No consents, filings or recordings are required in order to
perfect (or maintain the perfection or priority of) the security interests
purported to be created by any of the Collateral Documents, other than such as
have been obtained and which remain in full force and effect and uniform
commercial code financing statements to be filed, or delivered to Administrative
Agent for filing, on the Effective Date and periodic uniform commercial code
continuation filings or as is specifically otherwise permitted by the terms of
any applicable Collateral Document.
5.3 FINANCIAL CONDITION.
-------------------
A. FINANCIAL STATEMENTS. Company has heretofore delivered to Lenders, at
Lenders' request, the following financial statements and information: (i) the
audited consolidated balance sheet of Company and its Subsidiaries for fiscal
years 1996 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for the
fiscal year then ended together with auditors letters provided to Company in
respect of such balance sheets, (ii) the unaudited consolidated balance sheet of
Company and its Subsidiaries for the Company's last fiscal period ending August
9, 1998 and the related unaudited consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for the
period from December 28, 1997 to the fiscal period then ended, (iii) a pro forma
balance sheet for Company and its Subsidiaries as of June 14, 1998 giving effect
to the transaction to be consummated on the Effective Date together with an
income statement for Company and its Subsidiaries for the three fiscal periods
ending on such date, (iv) the consolidated balance sheet of Vendor and its
Subsidiaries as at June 30, 1998 and the related consolidated statements of
income, stockholders' equity and cash flows of Vendor and its Subsidiaries for
the three-month period then ended, together with the corresponding figures for
the corresponding period ending on June 30 of the previous year, together with
monthly financial statements of Vendor and its Subsidiaries for each month from
June 30, 1998 to the month most recently ended (for which such statements are
available), and (v) the financial statements required to be delivered pursuant
to subsection 4.2P. All such statements were prepared in conformity with GAAP
and fairly present, in all material respects, the financial position (on a
consolidated 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
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<PAGE>
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 and to the omission of
footnotes. Neither Company, Acquisition Corp. nor Vendor has (and will not
following the funding of the Tranche B Term 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 or the most recent financial statements
delivered by Company pursuant to subsection 6.1 of the Existing Credit Agreement
or subsection 4.2P of this Agreement in the case of Vendor and which singly or
in the aggregate would reasonably be expected to have a Material Adverse Effect.
B. PROJECTIONS. On and as of the Effective Date, the financial
projections of Company and its Subsidiaries for fiscal years 1998 through 2004
(giving effect to the Cinnabon Acquisition) previously delivered to Lenders (the
"PROJECTIONS") are based on good faith estimates and assumptions made by the
management of Company, it being recognized, however, that projections as to
future events are not to be viewed as facts and that the actual results during
the period or periods covered by the Projections may differ from the projected
results and that the differences may be material. Notwithstanding the foregoing,
as of the Effective Date, management of Company believed that the Projections
were reasonable and attainable.
5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
---------------------------------------------------------
Since December 31, 1996, no event or change has occurred that has caused or
evidences, either in any case or in the aggregate, a Material Adverse Effect.
Since the Closing Date, neither Company nor any of its Subsidiaries 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.
5.5 TITLE TO PROPERTIES; LIENS.
--------------------------
After giving effect to the transactions contemplated by this Agreement to
occur on the Effective Date, and subject to Permitted Encumbrances, Company and
its Subsidiaries have (i) good, sufficient and legal title to (in the case of
fee interests in real property), (ii) 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 of the
Existing Credit Agreement, 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, or the leasehold properties the loss
of which could not reasonably be expected to have a Material Adverse Effect.
Except as permitted by this Agreement or the Collateral Documents, all such
properties and assets are free and clear of Liens.
5.6 LITIGATION; ADVERSE FACTS.
-------------------------
There are no actions, suits, proceedings, arbitrations or governmental
investigations (whether or not purportedly on behalf of Company or any of its
Subsidiaries) 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, pending or, to the knowledge of Company,
threatened against or affecting Company or any of its Subsidiaries or any
property of Company or any of its Subsidiaries that, individually or in the
aggregate, would reasonably be expected to result in a Material Adverse Effect.
Neither Company nor any of its Subsidiaries is (i) in violation of any
applicable laws that, individually or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect or (ii) 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, would 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 Company and its Subsidiaries required to be filed by any of them have
been timely filed, and all material taxes, assessments, fees and other
governmental charges upon Company and its Subsidiaries and upon their respective
properties, assets, income,
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<PAGE>
businesses and franchises which would be delinquent if unpaid have been paid.
Company knows of no proposed material tax assessment against Company or any of
its Subsidiaries which is not being actively contested by Company or such
Subsidiary 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.
--------------------------------------------------------
A. Neither Company nor any of its Subsidiaries 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. Neither Company nor any of its Subsidiaries 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.
5.9 GOVERNMENTAL REGULATION.
-----------------------
Neither Company nor any of its Subsidiaries 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. Neither Company nor any of its Subsidiaries 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.
B. Following application of the proceeds of each Loan, not more than 25%
of the value of the assets (either of Company only 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 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. Company and each of its ERISA Affiliates are in compliance in all
material respects with all 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 obligations under each
Employee Benefit Plan in all material respects.
B. There has been no ERISA Event which is continuing or in respect of
which there is any outstanding liability of Company or any of its ERISA
Affiliates which would reasonably be expected to have a Material Adverse Effect.
No ERISA Event is reasonably expected to occur which would reasonably be
expected to have a Material Adverse Effect.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code or conversion rights under applicable state law or except as set
forth in Schedule 5.11 annexed hereto, no Employee Benefit Plan provides health
-------------
or welfare benefits (through the purchase of insurance or otherwise) for any
retired or former employees of Company or any of its ERISA Affiliates.
D. As of the most recent valuation date for any Pension Plan, the excess
of the actuarial present value (determined on the basis of reasonable
assumptions employed by the independent actuary for such Pension Plan) of the
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) over the fair
market value of the assets of such
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Pension Plan, individually or in the aggregate for all Pension Plans (excluding
for purposes of such computation any Pension Plans with respect to which there
is no such excess), 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 Company or
any of its 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 for all Multiemployer Plans, based
on information available pursuant to Section 4221(e) of ERISA, does not exceed
$1,000,000.
5.12 CERTAIN FEES.
------------
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 Company
hereby indemnifies Lenders against, and agrees that it will hold 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.
------------------------
A. The operations of Company and each of its Subsidiaries (including,
without limitation, all operations and conditions at or in the Facilities)
comply in all material respects with all Environmental Laws except to the extent
a failure to so comply would not have a Material Adverse Effect;
B. None of the operations of Company or any of its Subsidiaries is
subject to any judicial or administrative proceeding alleging the violation of
or liability under any Environmental Laws which if adversely determined could
reasonably be expected to have a Material Adverse Effect;
C. Neither Company nor any of its Subsidiaries nor any of their
respective Facilities or operations are subject to any outstanding written order
or agreement with any governmental authority or private party relating to (a)
prior administrative or judicial proceedings relating to the violation by
Company or such Subsidiary of any Environmental Laws or (b) any Environmental
Claims; and
D. No Hazardous Materials exist on, under or about any Facility in a
manner that has a reasonable possibility of giving rise to an Environmental
Claim having a Material Adverse Effect, and neither Company nor any of its
Subsidiaries has filed any notice or report of a Release of any Hazardous
Materials that in any single case or in the aggregate has a reasonable
possibility of giving rise to an Environmental Claim having a Material Adverse
Effect.
5.14 EMPLOYEE MATTERS.
----------------
Neither Company nor any of its Subsidiaries as of the date hereof is party
to any collective bargaining agreement. Except as set forth on Schedule 5.14,
there is no strike, work stoppage, slow down, lock-out or other labor dispute
pending or, to the knowledge of Company, threatened involving Company or any of
its Subsidiaries that could reasonably be expected to have a Material Adverse
Effect.
5.15 SOLVENCY.
---------
Each of Company and each of its Subsidiaries, is and, upon the incurrence
of any Obligations by Company on any date on which this representation is made,
will be, Solvent except to the extent the failure of any such Subsidiaries to be
Solvent would not in the aggregate be reasonably expected to have a Material
Adverse Effect.
5.16 INTELLECTUAL PROPERTY.
-----------------------
A. Company and its Subsidiaries own, or are licensed (to the extent
required to be so licensed) to use, the Intellectual Property and all such
Intellectual Property is, to the extent reasonably deemed necessary and
appropriate by Company for the conduct of its business, fully protected and duly
and properly registered, filed or
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issued in the appropriate office and jurisdictions for such registrations,
filing or issuances, and Company owns all of the right, title and interest in
and to the "Churchs Fried Chicken " and "Popeyes Chicken and Biscuits"
trademarks and the other Intellectual Property listed on Schedule 5.16 under the
-------------
applicable laws of the United States free and clear of any Lien (other than
Permitted Encumbrances and Liens created in favor of Administrative Agent on
behalf of Lenders pursuant to the Loan Documents).
B. Except as disclosed in Schedule 5.16, no material claim has been
-------------
asserted by any Person with respect to the use of any such Intellectual
Property, or challenging or questioning the validity or effectiveness of any
such Intellectual Property. Except as disclosed in Schedule 5.16, the use of
-------------
such Intellectual Property by Company or any of its Subsidiaries does not
infringe on the rights of any Person, subject to such claims and infringements
as do not, in the aggregate, give rise to any liabilities on the part of Company
or any of its Subsidiaries that are material to Company or any of its
Subsidiaries. The consummation of the transactions contemplated by this
Agreement or the Refinancings will not in any material manner or to any material
extent impair the ownership of (or the license to use, as the case may be) any
of such Intellectual Property by Company or any of its Subsidiaries.
5.17 APPLICABLE LAW.
--------------
Company and each of its Subsidiaries is in compliance with the
requirements of all applicable laws, rules, regulations, orders, applications,
reporting and licensing requirements of all governmental authorities except for
violations thereof which in the aggregate could not reasonably be expected to
have a Material Adverse Effect.
5.18 REAL PROPERTY.
-------------
A. Neither Company nor any of its Subsidiaries owns any interest in real
property other than the Real Property Assets identified in Schedule 5.18A
--------------
annexed hereto (as supplemented from time to time pursuant to subsection
6.1(xvii)).
B. Except as set forth in Schedule 5.18B, with respect to each lease
--------------
for a Real Property Asset in which the Company or one of its Subsidiaries has a
leasehold interest, either (i) no consent is required from the lessor thereunder
in order for the Company or applicable Subsidiary to encumber its leasehold
interest or (ii) the Company or such Subsidiary has obtained from the lessor all
required consents to the Mortgages and assignment and modification thereof, to
the extent required and not excluded by subsection 6.11.
5.19 INSURANCE.
---------
Company and its Subsidiaries maintain, with financially sound and
reputable insurers, insurance with respect to its properties and business and
the properties and business of its Subsidiaries, against loss or damage of the
kinds customarily insured against by corporations of established reputation
engaged in the same or similar business of such types and in such amounts as are
customarily carried under similar circumstances by such other corporations, all
as determined by the officers of Company in their reasonable discretion.
5.20 RELATED AGREEMENTS.
------------------
A. DELIVERY OF RELATED AGREEMENTS. Company has delivered to Agents
complete and correct copies of each Related Agreement and of all exhibits and
schedules thereto.
B. VENDOR'S WARRANTIES. Except to the extent otherwise set forth herein
or in the schedules hereto, to Company's knowledge each of the representations
and warranties given by Vendor to Company in the Cinnabon Acquisition Agreement
was true and correct in all material respects as of the Effective Date (or as of
any earlier date to which such representation and warranty specifically
relates), subject to the qualifications set forth in the schedules to the
Cinnabon Acquisition Agreement.
C. WARRANTIES OF COMPANY. Subject to the qualifications and the schedules
set forth therein, each of the representations and warranties given by Company
to Vendor in the Cinnabon Acquisition Agreement was true and correct in all
material respects as of the Effective Date.
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D. SURVIVAL. Notwithstanding anything in the Cinnabon Acquisition
Agreement to the contrary, the representations and warranties of Company set
forth in subsections 5.20B and 5.20C shall, for purposes of this Agreement,
survive the Effective Date for the benefit of Agents and Lenders.
5.21 DISCLOSURE.
----------
No representation or warranty of Company or any of its Subsidiaries
contained in any Loan Document or in any other document, certificate or written
statement furnished to Lenders by or on behalf of Company or any of its
Subsidiaries for use in connection with the transactions contemplated by this
Agreement (including, without limitation, the Summary Information Memorandum
dated September 1998, slides and other material distributed to Lenders in
syndication meetings and for due diligence purposes) contains as of its date any
untrue statement of a material fact or omits to state a material fact (known to
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 Company to be reasonable at the time made,
it being recognized by Lenders that such projections as to future events are not
to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results. There are
no facts known (or which should upon the reasonable exercise of diligence be
known) to 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.
COMPANY'S AFFIRMATIVE COVENANTS
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,
Company shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
--------------------------------------
Company will maintain, and cause each of its 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 Administrative Agent and Lenders:
(i) Four-week Financials: as soon as available and in any event
--------------------
within 30 days after the end of each four-week accounting period ending
after the Closing Date, a consolidated profit and loss statement for
Company and its Subsidiaries as at the end of such four-week period in the
form prepared for presentation to the Board of Directors of Company for
such period and for the period from the beginning of the then current
fiscal year to the end of such period;
(ii) Quarterly Financials: as soon as available and in any event
--------------------
within 45 days after the end of each of the first, second and third fiscal
quarter of each fiscal year, (a) the consolidated and consolidating balance
sheets of Company and its Subsidiaries as at the end of such fiscal quarter
and the related consolidated and consolidating statements of income,
stockholders' equity and cash flows of Company 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 consolidated plan for the current fiscal year delivered
pursuant to subsection 6.1(xiii), 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 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 adjustments, and (b) a narrative report
describing the operations of Company and its Subsidiaries in the form
prepared for presentation to the Board of Directors of Company for such
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fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter;
(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 and
consolidating balance sheets of Company and its Subsidiaries as at the end
of such fiscal year and the related consolidated and consolidating
statements of income, stockholders' equity and cash flows of Company 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 consolidated plan delivered pursuant to
subsection 6.1(xiii) for the fiscal year covered by such financial
statements, 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 Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, (b) a narrative report describing the operations of
Company and its Subsidiaries in the form prepared for presentation to the
Board of Directors of Company for such fiscal year, and (c) in the case of
such consolidated financial statements, a report thereon of Arthur Andersen
& Co. 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 Company 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 Company 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 Company and its Subsidiaries pursuant
to subdivisions (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 Company 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 Company has taken, is
taking and proposes to take with respect thereto; and (b) together with
each delivery of financial statements of Company 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
and the provisions of 2.4B(iii);
(v) Reconciliation Statements: if, as a result of any change in
-------------------------
accounting principles from those used in the preparation of the audited
financial statements referred to in subsection 5.3, the consolidated
financial statements of Company 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 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 Company and its Subsidiaries for (y) the current
fiscal year to the effective date of such change and (z), if requested by
Administrative Agent, the one full fiscal year 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;
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(vi) Accountants' Certification: together with each delivery of
--------------------------
consolidated financial statements of Company 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 Company by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of Company 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;
(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 Company to its
security holders or by any Subsidiary of Company to its security holders
other than 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 Company or any of its
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
Company through its corporate office to the public concerning material
developments in the business of Company or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any executive officer of
-----------------------
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
Company or any of its 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 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 Company 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 Company has taken, is taking and proposes to
take with respect thereto;
(x) Litigation or Other Proceedings: promptly upon any executive
-------------------------------
officer of Company obtaining knowledge of (1) the institution of, or non-
frivolous threat of, any action, suit, proceeding (whether administrative,
judicial or otherwise), governmental investigation or arbitration against
or affecting Company or any of its Subsidiaries or any property of Company
or any of its Subsidiaries (collectively, "PROCEEDINGS") not previously
disclosed in writing by Company to Lenders or (2) any material development
in any Proceeding that, in any case:
(x) if adversely determined, has a reasonable possibility of
giving rise to a Material Adverse Effect; or
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(y) 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 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 that could have a Material
Adverse Effect, a written notice specifying the nature thereof, what action
Company or any of its 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 Company or any of its ERISA Affiliates with the Internal Revenue
Service with respect to each Pension Plan; (b) all notices received by
Company or any of its ERISA Affiliates concerning an ERISA Event with
respect to a Multiemployer Plan that could have a Material Adverse Effect;
and (c) such other documents or governmental reports or filings relating to
any Employee Benefit Plan as Administrative Agent shall reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
---------------
later than 75 days after the beginning of each fiscal year, (a) a
consolidated and consolidating plan and financial budget for such fiscal
year, including without limitation budgeted consolidated and consolidating
balance sheets and budgeted consolidated and consolidating statements of
income and cash flows of Company and its Subsidiaries for such fiscal year,
and an explanation of the assumptions on which such budgets are based, and
(b) to the extent otherwise prepared by Company, projected consolidated and
consolidating statements of income and cash flows of Company and its
Subsidiaries for the period remaining through June 30, 2004 together with
an explanation of the assumptions on which such long term projections are
based;
(xiv) Insurance: as soon as practicable and in any event by April 1
---------
of each fiscal year, a report in form and substance satisfactory to
Administrative Agent outlining all material deviations in insurance
coverage maintained as of the date of such report by Company and its
Subsidiaries from that maintained during the immediately preceding period;
(xv) Environmental Audits and Reports: as soon as practicable
--------------------------------
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of Company or any of its Subsidiaries or by
independent consultants, with respect to significant environmental matters
at any Facility or which relate to an Environmental Claim which would
reasonably be expected to result in a Material Adverse Effect;
(xvi) Board of Directors: with reasonable promptness, written
------------------
notice of any material change in the Board of Directors of Company or any
of its Subsidiaries;
(xvii) New Subsidiaries; New Real Property: (x) not less than ten
-----------------------------------
Business Days prior to any Person becoming a Subsidiary of Company, a
written notice setting forth with respect to such Person (a) the date on
which such Person will become 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) and (y) no less than once during each six month
period, a list of real property acquired by Company and its Subsidiaries
since the date of the last list provided pursuant to this clause 6.1(xvii);
(xviii) Existing Agreement Financial Covenants: on or before the
--------------------------------------
Effective Date, an Officer's Certificate to Lenders evidencing pro forma
compliance with the requirements of subsection 7.6 of the Existing Credit
Agreement as of June 14, 1998;
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(xix) Other Information: with reasonable promptness, such other
-----------------
information and data with respect to Company or any of its Subsidiaries as
from time to time may be reasonably requested by any Lender through
Administrative Agent.
6.2 CORPORATE EXISTENCE, ETC.
-------------------------
Except as permitted under subsection 7.7, Company will, and will cause each
of its 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.
6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
----------------------------------------------
A. Company will, and will cause each of its 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 being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor.
B. Company will not, nor will it permit any of its Subsidiaries to, file
or consent to the filing of any consolidated income tax return with any Person
(other than Company or any of its Subsidiaries).
6.4 MAINTENANCE OF PROPERTIES; INSURANCE.
------------------------------------
A. Company will, and will cause each of its 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 Company and its Subsidiaries (including, without limitation, Intellectual
Property) and from time to time will make or cause to be made all appropriate
repairs, renewals and replacements thereof. Company will maintain or cause to be
maintained, with financially sound and reputable insurers, insurance with
respect to its properties and business and the properties and businesses of its
Subsidiaries against loss or damage of the kinds customarily carried or
maintained under similar circumstances by corporations of established reputation
engaged in similar businesses. Each such policy of insurance (other than general
liability policies) shall name Administrative Agent for the benefit of Lenders
as the loss payee thereunder and shall provide for at least 30 days prior
written notice to Administrative Agent of any modification or cancellation of
such policy.
B. APPLICATION OF NET INSURANCE/CONDEMNATION PROCEEDS. Upon receipt by
--------------------------------------------------
Company or any of its Subsidiaries of any proceeds constituting Net
Insurance/Condemnation Proceeds so long as no Event of Default or Potential
Event of Default shall have occurred or be continuing, Company or such
Subsidiary may retain and apply such Net Insurance/Condemnation Proceeds (i) in
the case of business interruption insurance for working capital and general
corporate purposes and (ii) in the case of any other insurance proceeds to
promptly and diligently apply such Net Insurance/Condemnation Proceeds to pay or
reimburse the cost of repairing or restoring or replacing the assets in respect
of which such Net Insurance/Condemnation Proceeds were received within 300 days
of receipt thereof, provided that any such Net Insurance/Condemnation Proceeds
not so applied shall be used to prepay the Loans as provided in subsection
2.4B(iii)(e).
6.5 INSPECTION; LENDER MEETING
--------------------------
Company shall, and shall cause each of its Subsidiaries to, permit any
authorized representatives designated by any Lender to visit and inspect any of
the properties of Company or any of its Subsidiaries, including its and their
financial and accounting records, and to make copies and take extracts
therefrom, 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 be reasonably requested and provided that Lenders shall make
reasonable efforts to coordinate their visits and inspections with each other to
minimize the number of such
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visits and inspections. Without in any way limiting the foregoing, Company will,
upon the request of Administrative Agent or Requisite Lenders, participate in a
meeting of Administrative Agent and Lenders once during each calendar year to be
held at Company's corporate offices (or such other location as may be agreed to
by Company and Administrative Agent) at such time as may be agreed to by Company
and Administrative Agent.
6.6 COMPLIANCE WITH LAWS, ETC.
--------------------------
Company shall, and shall cause each of its Subsidiaries to, comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which would reasonably be expected to
cause a Material Adverse Effect.
6.7 ENVIRONMENTAL DISCLOSURE AND INSPECTION.
---------------------------------------
A. Company shall, and shall cause each of its Subsidiaries to, exercise
all due diligence in order to comply and cause (i) all tenants under any leases
or occupancy agreements affecting any portion of the Facilities currently owned
and leased and (ii) all other Persons on or occupying such property, to comply
with all Environmental Laws noncompliance with which would individually or in
the aggregate reasonably be expected to have a Material Adverse Effect.
B. Company agrees that Administrative Agent may, from time to time, (i)
upon reasonable belief based upon information obtained after the Closing Date of
the existence of a past or present Release or threatened Release of any
Hazardous Materials into, onto, beneath or from any Facility or (ii) upon the
occurrence and during the continuance of an Event of Default, retain, at
Company's expense, an independent professional consultant to review any report
relating to Hazardous Materials prepared by or for Company and to conduct its
own investigation of any Facility owned, leased or operated by Company or any of
its Subsidiaries, and Company agrees to use its commercially reasonable efforts
to obtain permission for Administrative Agent's professional consultant to
conduct its own investigation of any Facility previously owned, leased or
operated by Company or any of its Subsidiaries. Company hereby, grants to the
extent no consent of a landlord is required or, if landlord consent is required,
to use its reasonable efforts to obtain a landlord consent to grant, to
Administrative Agent and its agents, employees, consultants and contractors the
right to enter into or on to the Facilities currently owned, leased, operated by
Company or any of its Subsidiaries to perform such tests on such property as are
reasonably necessary to conduct such a review and/or investigation. Any such
investigation of any Facility shall be conducted, unless otherwise agreed to by
Company and Administrative Agent, during normal business hours and, to the
extent reasonably practicable, shall be conducted so as not to interfere with
the ongoing operations at any such Facility or to cause any damage or loss to
any property at such Facility. Company and Administrative Agent hereby
acknowledge and agree that any report of any investigation conducted at the
request of Administrative Agent pursuant to this subsection 6.7B will be
obtained and shall be used by Administrative Agent 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.
Administrative Agent agrees to deliver a copy of any such report to Company with
the understanding that Company acknowledges and agrees that (i) it will
indemnify and hold harmless Administrative Agent and each Lender from any costs,
losses or liabilities relating to Company's use of or reliance on such report,
(ii) neither Administrative Agent nor any Lender makes any representation or
warranty with respect to such report, and (iii) by delivering such report to
Company, neither Administrative Agent nor any Lender is requiring or
recommending the implementation of any suggestions or recommendations contained
in such report. Company acknowledges that Administrative Agent's exercise of its
rights under this subsection 6.7B shall not be deemed generation, treatment,
storage, transportation, disposal or arrangement for disposal of Hazardous
Materials.
C. Company shall promptly advise Lenders in writing and in reasonable
detail of (i) any Release of any Hazardous Materials required to be reported to
any federal, state or local governmental or regulatory agency under any
applicable Environmental Laws, (ii) any and all written communications with
respect to any Environmental Claims that have a reasonable possibility of giving
rise to a Material Adverse Effect or with respect to any Release of Hazardous
Materials required to be reported to any federal, state or local governmental or
regulatory agency, (iii) any remedial action taken by Company or any other
Person in response to (a) any Hazardous Materials on, under or about any
Facility, the existence of which has a reasonable possibility of resulting in an
Environmental Claim having a Material Adverse Effect, or (b) any Environmental
Claim that would reasonably be expected to have a Material Adverse Effect, (iv)
Company's discovery of any occurrence or condition on any real
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property adjoining or in the vicinity of any Facility that could cause such
Facility or any part thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws, and (v)
any request for information from any governmental agency that suggests such
agency is investigating whether Company or any of its Subsidiaries may be
potentially responsible for a Release of Hazardous Materials.
D. Company shall promptly notify Lenders of (i) any proposed acquisition
of stock, assets, or property by Company or any of its Subsidiaries that could
reasonably be expected to expose Company or any of its Subsidiaries to, or
result in, Environmental Claims that would reasonably be expected to have a
Material Adverse Effect or that could reasonably be expected to have a material
adverse effect on any Governmental Authorization then held by Company or any of
its Subsidiaries and (ii) any proposed action to be taken by Company or any of
its Subsidiaries to commence manufacturing, industrial or other operations that
would reasonably be expected to subject Company or any of its Subsidiaries to
additional laws, rules or regulations, including, without limitation, laws,
rules and regulations requiring additional environmental permits or licenses.
E. Company shall, at its own expense, provide copies of such documents or
information as Lead Arranger or Administrative Agent may reasonably request in
relation to any matters disclosed pursuant to this subsection 6.7.
6.8 COMPANY'S REMEDIAL ACTION REGARDING HAZARDOUS MATERIALS.
--------------------------------------------------------
Company shall promptly take, and shall cause each of its Subsidiaries
promptly to take, any and all necessary response action in connection with the
presence, storage, use, disposal, transportation or Release of any Hazardous
Materials on, under or about any Facility in order to comply with all applicable
Environmental Laws and Governmental Authorizations to the extent that the
failure to so comply could reasonably be expected to have a Material Adverse
Effect. In the event Company or any of its Subsidiaries undertakes any remedial
action with respect to any Hazardous Materials on, under or about any Facility,
Company or such Subsidiary shall conduct and complete such remedial action in
compliance in all material respects with all applicable Environmental Laws, and
in accordance in all material respects with the policies, orders and directives
of all federal, state and local governmental authorities except when, and only
to the extent that, Company's or such Subsidiary's liability for such presence,
storage, use, disposal, transportation or discharge of any Hazardous Materials
is being contested in good faith by Company or such Subsidiary.
6.9 ENVIRONMENTAL INDEMNITY.
-----------------------
Company shall fully and promptly pay, perform, discharge, defend (subject
to Indemnitee's reasonable approval of Company's selection of counsel),
indemnify and hold harmless each Indemnitee from and against any action, suit,
proceeding, claim or loss (an "INDEMNIFIED ENVIRONMENTAL CLAIM") suffered or
incurred by that Indemnitee under or on account of any Environmental Laws or any
Release of any Hazardous Materials relating to the Facilities or any Hazardous
Materials generated at or originating from the Facilities by or at the direction
of Company or its Subsidiaries) other than any liability to the extent that such
liability results solely from the gross negligence or willful misconduct of the
Indemnitee, all as evidenced by a final judgment of a court of competent
jurisdiction; provided, however, that if Indemnities acquire title to any
-------- -------
Facility and Company and its Subsidiaries are no longer in possession of the
Facility (the "CUT-OFF DATE") at the time of an Indemnified Environmental Claim,
such Indemnified Environmental Claim shall be covered by the indemnity set forth
in this subsection 6.9 only if it arises out of or as a result of: (i) the
occurrence, at any time prior to the Cut-off Date, of any use, storage, holding,
existence, or Release of any Hazardous Materials whether currently known or
unknown; (ii) any use, storage, holding, existence, or Release of any Hazardous
Materials that Company or any of its Subsidiaries caused or contributed to
directly or indirectly at any time whether currently known or unknown; (iii) any
violation, prior to the Cut-off Date, of any applicable Environmental Laws
relating to any Facility or to the ownership, use, occupancy or operation
thereof; (iv) any investigation, inquiry, order, hearing, action or other
proceeding by or before any governmental authority in connection with any use,
storage, holding, existence or Release of any Hazardous Materials prior to the
Cut-off Date whether currently known or unknown; or (v) the inaccuracy or breach
of any representation or warranty set forth in any Loan Document.
6.10 EXECUTION OF LOAN DOCUMENTS BY FUTURE SUBSIDIARIES6.
------------------------------------------------------
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In the event that any Person becomes a Subsidiary of Company which is
organized under the law of the United States or any state thereof 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
the Subsidiary Guaranty and a Subsidiary Pledge Agreement, a Subsidiary Security
Agreement, a Subsidiary Trademark Security Agreement, and Additional Mortgages
on all fee interests and material leasehold interests as Administrative Agent or
Requisite Lenders may request and to take all such further action and execute
all such further documents and instruments as may be required to grant
creditors' rights and grant and perfect in favor of Administrative Agent, for
the benefit of Lenders, subject to a first-priority Lien in all of the Real
Property Assets and all of the personal property assets of such Subsidiary
Guarantor (provided that with respect to leased Real Property Assets, Company
--------
and its Subsidiaries shall not be required to grant any security interests
requested by Administrative Agent or Requisite Lenders which require a landlord
consent if Company has exercised commercially reasonable efforts to obtain such
consent and has been unable to do so), all in form and substance reasonably
satisfactory to Administrative Agent. Company shall deliver to Administrative
Agent, together with such Loan Documents, (i) certified copies of such
Subsidiary's Articles or Certificate of Incorporation or comparable
organizational documents, together with a good standing certificate from the
Secretary of State of the jurisdiction of its incorporation or organization,
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 corporate 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 incumbency and signatures
of the officers of such Subsidiary executing the guaranty and the Collateral
Documents to which such Subsidiary is a party and (b) the fact that the attached
resolutions of the Board of Directors of such Subsidiary authorizing the
execution, delivery and performance of such Loan Documents are in full force and
effect and have not been modified or rescinded, and (iv) a favorable opinion of
counsel to such Subsidiary, in form and substance reasonably 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 the such
Loan Documents against such Subsidiary, and (d) such other matters as
Administrative Agent may reasonably request, all of the foregoing to be
reasonably satisfactory in form and substance to Administrative Agent and its
counsel.
6.11 COVENANTS REGARDING ACQUISITION PROPERTIES.
-----------------------------------------------
A. With respect to Real Property Assets to be acquired by Company or any
of its Subsidiaries after the Effective Date that individually has a book value
greater than or equal to $250,000 or in the aggregate has a book value greater
than or equal to $5,000,000 (each an "ACQUISITION PROPERTY" and collectively,
the "ACQUISITION PROPERTIES") Company shall, and shall cause its Subsidiaries
to, (i) not less than ten (10) days prior to the acquisition thereof, notify
Administrative Agent and Lead Arranger in writing of such pending acquisition;
(ii) not later than the date on which such property is acquired, deliver to
Administrative Agent and Lead Arranger a mortgage, deed of trust or deed to
secure debt (each an "ADDITIONAL MORTGAGE" and collectively the "ADDITIONAL
MORTGAGES") substantially in the form attached hereto as Exhibit XV to be
----------
executed by Company or applicable Subsidiary, encumbering each such Acquisition
Property; (iii) not later than the date on which such property is acquired, have
delivered to Administrative Agent and Lead Arranger a title report in respect of
any such Acquisition Property to be owned by Company or one of its Subsidiaries
in fee and, if reasonably required by Administrative Agent, a title report in
respect of any such Acquisition Property to consist of material leasehold
interests; (iv) if such Acquisition Property is to be held by Company or one of
its Subsidiaries as a leasehold interest, exercise commercially reasonable
efforts to obtain and deliver to Administrative Agent and Lead Arranger (x) the
consent of the lessor thereof to the encumbering by Company or the applicable
Subsidiary of its leasehold interest as a condition to Company's obligation to
deliver an Additional Mortgage and (y) upon the request of Administrative Agent,
deliver to Administrative Agent and Lead Arranger an estoppel letter from the
landlord, in form and substance reasonably satisfactory to Administrative Agent;
and (v) not less than ten (10) days prior to the acquisition thereof, in the
case of any such Acquisition Property to be owned in fee, deliver to
Administrative Agent and Lead Arranger environmental audits prepared by
nationally recognized professional consultants or other consultants mutually
acceptable to Company and Administrative Agent, in form, scope and substance
satisfactory to Administrative Agent in its reasonable discretion.
B. If required pursuant to subsection 6.11A, on or prior to the date on
which any such Acquisition Property is acquired by Company or one of its
Subsidiaries, Company shall have, or have caused such Subsidiary to have, with
respect to each such Acquisition Property (i) delivered to Administrative Agent
fully executed
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counterparts of an Additional Mortgage previously approved by Administrative
Agent and Lead Arranger, together with evidence that such Additional Mortgage
has been recorded in all places to the extent necessary or desirable, in the
reasonable judgment of Administrative Agent, so as to effectively create a valid
and enforceable first priority lien (or such other priority lien as may be
specified in the applicable Additional Mortgage), subject to Permitted
Encumbrances, on such Acquisition Property in favor of Administrative Agent (or
such other trustee as may be required or desired under local law) for the
benefit of Lenders; (ii) if required to order a title report pursuant to
subsection 6.11(a)(iii) above, deliver an ALTA mortgagee title insurance policy
(each an "ADDITIONAL MORTGAGEE POLICY" and collectively, the "ADDITIONAL
MORTGAGEE POLICIES") issued by the Title Company, in an amount reasonably
satisfactory to Administrative Agent (but not in excess of Agent's reasonable
determination of the fair market value of the Acquisition Property), assuring
Administrative Agent that the Additional Mortgage to be executed in connection
with the acquisition thereof creates a valid and enforceable first priority
mortgage lien (or such other priority lien as may be specified in the Additional
Mortgage) on such Acquisition Property, free and clear of all defects and
encumbrances except Permitted Encumbrances, and subject to a standard survey
exception, and which Additional Mortgagee Policy 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 (iii) if the Acquisition Property is to be leased or
subleased by the Company or applicable Subsidiary to a non-Affiliate of Company
a counterpart agreement of subordination, non-disturbance and attornment
substantially in the form attached hereto as Exhibit VIII, subordinating the
------------
leasehold interest of such third party to the Additional Mortgage and the Lien
created thereby, which agreement shall be executed by Company or the applicable
Subsidiary as lessor (or sublessor, as the case may be) and the lessee (or
sublessee, as the case may be).
Nothing stated in this Section 6.11 shall be interpreted so as to allow
the Company or any of its Subsidiaries to acquire fee or leasehold title to any
Real Property Asset on or after the Closing Date except in accordance with the
terms of Section 7.7 hereof.
6.12 FURTHER ASSURANCES.
------------------
A. At any time or from time to time upon the request of Administrative
Agent, the Company will, at its expense, promptly execute, acknowledge and
deliver such further documents and do such other acts and things as such
Administrative Agent may reasonably request in order to effect fully the
purposes of the Loan Documents and to provide for payment of the Obligations in
accordance with the terms of this Agreement, the Notes and the other Loan
Documents. In furtherance and not in limitation of the foregoing, the Company
shall take, and cause each of its Subsidiaries to take, such actions as
Administrative Agent may reasonably request from time to time (including,
without limitation, the execution and delivery of guaranties, security
agreements, pledge agreements, mortgages, deeds of trust, stock powers,
financing statements and other documents, the filing or recording of any of the
foregoing, and the delivery of stock certificates and other collateral with
respect to which perfection is obtained by possession) to ensure that the
Obligations are guarantied by Subsidiary Guarantors and are secured by such of
the assets of the Company and its Subsidiaries as is provided in the Loan
Documents.
B. The Company shall promptly record and file or cause to be recorded and
filed, as soon as practicable after the Closing Date, the Closing Date
Mortgages, Uniform Commercial Code Financing Statements and Fixture Filings and
all other necessary documents, certificates and affidavits in the appropriate
real and personal property records or filing office in each jurisdiction where
the Collateral is located. In connection therewith, the Company shall cooperate
with the Administrative Agent and with the Title Company and shall pay all
recording and filing fees, taxes (including mortgage recording taxes) and all
other costs and expenses incurred with respect thereto.
6.13 YEAR 2000.
---------
No later than December 31, 1998, Company shall perform, except for the
implementation of a replacement program in respect of point of service cash
registers in approximately 450 retail stores, the installation of which shall
have occurred no later than June 30, 1999, all acts reasonably necessary to
ensure that Company and its Subsidiaries are Year 2000 Compliant. Such acts
shall include, to the extent reasonably necessary to become Year 2000 Compliant,
performing a comprehensive review and assessment of all of Company's systems and
adopting a detailed plan, with itemized budget, for the remediation, monitoring
and testing of such systems. Company shall, immediately upon request, provide to
Administrative Agent such certifications or other evidence of Company's
compliance with the terms of this paragraph as Administrative Agent may from
time to time require.
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<PAGE>
SECTION 7.
COMPANY'S NEGATIVE COVENANTS
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,
Company shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 7.
7.1 INDEBTEDNESS.
------------
Company shall not, and shall not permit any of its 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) Company may become and remain liable with respect to the
Unsecured Subordinated Notes;
(iii) Company 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;
(iv) Company and its Subsidiaries may become and remain liable with
respect to intercompany Indebtedness, provided that (a) all such
--------
intercompany Indebtedness shall be evidenced by intercompany notes; (b) the
obligations of each obligor on such Indebtedness shall be subordinated in
right of payment to the payment and performance of such obligor's
Obligations, if any, (whether as a borrower, guarantor or pledgor of
Collateral under the Loan Documents to which such obligor is a party)
pursuant to the terms of the intercompany notes; (c) such intercompany
Indebtedness shall be reduced pro tanto by the amount of any payments made
--- -----
by such obligor in respect of its Obligations under any guarantee of the
Obligations; and (d) the Intercompany Notes evidencing such indebtedness
shall be pledged to Lenders;
(v) Company may remain liable with respect to Indebtedness
described in Schedule 7.1 annexed hereto and any renewals or refinancings
------------
thereof;
(vi) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness under Capital Leases, to the extent permitted under
subsection 7.8;
(vii) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness incurred in connection with the construction of
properties for its "turnkey" program in an aggregate principal amount not
to exceed $15,000,000 outstanding at any time; and
(viii) Company and its Subsidiaries may become and remain liable with
respect to other Indebtedness in an aggregate principal amount not to
exceed $20,000,000 at any time outstanding; provided that not more than
--------
$10,000,000 of such Indebtedness may be secured pursuant to the provisions
of subsection 7.2A(iii).
7.2 LIENS AND RELATED MATTERS.
-------------------------
A. PROHIBITION ON LIENS. Company shall not, and shall not permit any of
its 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 Company or any of its 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
72
<PAGE>
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 and Liens securing the Obligations;
(ii) Liens described in Schedule 7.2 annexed hereto and Liens
------------
securing the refinancing of the Indebtedness secured by such Liens to the
extent permitted by subsection 7.1; and
(iii) Other Liens securing Indebtedness outstanding pursuant to
clause (vii) and (viii) of subsection 7.1, provided that Liens securing
--------
Indebtedness permitted under subsection 7.1(vii) and (viii) shall not
encumber any assets other than the assets (and proceeds thereof) purchased
or financed with the proceeds of such Indebtedness;
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Company or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted 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 (i) with respect to specific
property encumbered to secure payment of particular Indebtedness in accordance
with this subsection 7.2 or to be sold pursuant to an executed agreement with
respect to an Asset Sale, (ii) with respect to assets in connection with the
incurrence of Indebtedness permitted under subsection 7.1(vi) or 7.1(vii), or
(iii) pursuant to the terms of Unsecured Note Indenture, neither Company nor any
of its Subsidiaries shall enter into any agreement 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. Company will not, and will not permit any of its 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, except (a) customary nonassignment
provisions in contracts or leases entered into in the ordinary course of
business, (b) encumbrances or restrictions contained in agreements relating to
Indebtedness incurred by Company or a Subsidiary of Company; provided (1) such
--------
Indebtedness is permitted to be incurred pursuant to subsection 7.1, (2) the
encumbrances or restrictions relate solely to the property or assets of such
Subsidiary, (3) are customary for the type of Indebtedness being incurred and
(4) are no more restrictive in any material respect than the existing
restrictions.
7.3 INVESTMENTS; JOINT VENTURES7.
------------------------------
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:
(i) Company and its Subsidiaries may make and own Investments in
Cash and Cash Equivalents;
(ii) Company may make and own Investments in Subsidiaries of
Company;
(iii) Company and its Subsidiaries may continue to own the
Investments owned by them and described in Schedule 7.3 annexed hereto;
------------
(iv) Company may make and own Investments consisting of notes
received in connection with Asset Sales permitted under subsection 7.7;
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<PAGE>
(v) Company may make extensions of credit or otherwise provide
credit support to franchisees in respect of the deferral of royalty
payments, rental payments, taxes, equipment sales, financing of restaurant
properties, franchise agreements and development or territory agreements of
such franchisees, provided that the aggregate amount thereof created after
--------
the Closing Date shall at no time be outstanding in an amount greater than
$2,000,000 to any franchisee or $12,500,000 to all franchisees;
(vi) Company may make Investments in or loans to franchisees not
specified in subsection 7.4(vi) in an aggregate amount not to exceed
$1,500,000 at any one time outstanding;
(vii) Company may continue to own loans evidenced by the Employee Tax
Loan Notes in an aggregate principal amount not to exceed $5,000,000 at any
one time outstanding;
(viii) Company may make and own Investments consisting of notes
received from employees of Company and its Subsidiaries in connection with,
and in an amount not to exceed the purchase price of, their purchase of
Company Common Stock, provided such notes are secured by the Company Common
Stock being purchased with the proceeds thereof;
(ix) Company may make and own Investments to be held by a grantor
trust established by Company for the purpose of providing a deferred
compensation plan for certain members of management; provided that the
--------
aggregate amount of all such Investments made shall not at any time exceed
$5,000,000;
(x) Company may make and own other Investments in an amount not to
exceed $5,000,000 in the aggregate;
(xi) Company may make and own the Permitted Foreign Joint Venture
Investment; and
(xii) Company may make and own Investments permitted pursuant to
subsection 7.7.
7.4 CONTINGENT OBLIGATIONS.
----------------------
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:
(i) 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 Interest Rate Agreements with respect to the Obligations;
(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;
(v) Company and its Subsidiaries, as applicable, may remain liable
with respect to Contingent Obligations described in Schedule 7.4 annexed
------------
hereto;
(vi) Company and its Subsidiaries may become and remain liable with
respect to other Contingent Obligations; provided that the maximum
--------
aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all such Contingent Obligations shall at no time
exceed $5,000,000;
(vii) Company may become and remain liable with respect to commodity
hedging arrangements entered into in the ordinary course of business;
74
<PAGE>
(viii) Company may become and remain liable with respect to Permitted
Earnout Agreements;
(ix) To the extent constituting a Contingent Obligation, Company may
become and remain liable with respect to credit support obligations
relating to franchisees permitted under subsection 7.3(v) and 7.3(ix); and
(x) Guarantees of Unsecured Subordinated Notes to the extent
required under the terms of the Unsecured Subordinated Note Indenture.
7.5 RESTRICTED JUNIOR PAYMENTS.
--------------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment; provided that Company may (i) make regularly
--------
scheduled payments of principal and interest in respect of the Unsecured
Subordinated Notes in accordance with the terms of, and only to the extent
required by, and subject to the subordination provisions contained in, the
Unsecured Subordinated Note Indenture, as the Unsecured Subordinated Note
Indenture may be amended from time to time to the extent permitted under
subsection 7.15 and repurchases or redemptions of Unsecured Subordinated Notes
with the proceeds of equity securities as contemplated by subsection
2.4B(iii)(c), and (ii) make, so long as no Potential Event of Default or Event
of Default shall have occurred and be continuing, payments to purchase Company
Common Stock or options, warrants or rights to purchase or acquire Company
Common Stock to officers or employees or former officers or employees (or their
estates or estate beneficiaries) upon death, disability, retirement or
termination of employment from Company or its Subsidiaries not to exceed
$1,500,000 during any fiscal year, plus the amount of any Cash proceeds received
----
by Company from the sale of Company Common Stock to officers or employees of
Company or its Subsidiaries within such fiscal year and (iii) other Restricted
Junior Payments described in Schedule 7.5.
------------
75
<PAGE>
7.6 FINANCIAL COVENANTS.
-------------------
A. MINIMUM CASH INTEREST COVERAGE RATIO. Company shall not permit the
ratio (the "CASH INTEREST COVERAGE RATIO") of (i) Consolidated EBITDA to (ii)
Consolidated Cash Interest Expense for any four-fiscal quarter period ending on
the dates set forth below to be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
==========================================
FISCAL MINIMUM
QUARTER CASH INTEREST
Ending Coverage Ratio
==========================================
<S> <C>
06/14/98 2.25:1.00
==========================================
09/06/98 2.25:1.00
==========================================
12/27/98 2.25:1.00
==========================================
03/21/99 2.50:1.00
==========================================
06/13/99 2.50:1.00
==========================================
09/05/99 2.50:1.00
==========================================
12/26/99 2.50:1.00
==========================================
03/19/00 2.75:1.00
==========================================
06/11/00 2.75:1.00
==========================================
09/03/00 2.75:1.00
==========================================
12/31/00 2.75:1.00
==========================================
03/25/01 and 3.00:1.00
thereafter
==========================================
</TABLE>
76
<PAGE>
B. MAXIMUM LEVERAGE RATIO. Company shall not permit the ratio (the
"LEVERAGE RATIO") of (i) Consolidated Total Debt as of the dates set forth below
to (ii) Consolidated EBITDA for the four-fiscal quarter period ending on the
dates set forth below to exceed the correlative ratio indicated:
<TABLE>
<CAPTION>
FISCAL MAXIMUM
QUARTER LEVERAGE
Ending Ratio
==========================================
<S> <C>
06/14/98 4.00:1.00
==========================================
09/06/98 4.00:1.00
==========================================
12/27/98 4.00:1.00
==========================================
03/21/99 4.00:1.00
==========================================
06/13/99 4.00:1.00
==========================================
09/05/99 4.00:1.00
==========================================
12/26/99 4.00:1.00
==========================================
03/19/00 3.75:1.00
==========================================
06/11/00 3.75:1.00
==========================================
09/03/00 3.75:1.00
==========================================
12/31/00 3.75:1.00
==========================================
03/25/01 and 3.50:1.00
thereafter
==========================================
</TABLE>
77
<PAGE>
C. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not permit the ratio
(the "FIXED CHARGE COVERAGE RATIO") of (i) Consolidated EBITDA to (ii)
Consolidated Fixed Charges for any four-fiscal quarter period ending on the
dates set forth below shall not be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
===========================================
FISCAL MINIMUM
QUARTER FIXED CHARGE
Ending Coverage
===========================================
<S> <C>
06/14/98 1.25:1.00
===========================================
09/06/98 1.25:1.00
===========================================
12/27/98 1.25:1.00
===========================================
03/21/99 1.30:1.00
===========================================
06/13/99 1.30:1.00
===========================================
09/05/99 1.30:1.00
===========================================
12/26/99 1.30:1.00
===========================================
03/19/00 1.35:1.00
===========================================
06/11/00 1.35:1.00
===========================================
09/03/00 1.35:1.00
===========================================
12/31/00 1.35:1.00
===========================================
03/25/01 and 1.40:1.00
thereafter
===========================================
</TABLE>
78
<PAGE>
D. MAXIMUM SENIOR LEVERAGE RATIO.
Company shall not permit the Senior Leverage Ratio as of the last day of
any four-fiscal quarter period to exceed 2.50:1.00.
E. CERTAIN CALCULATIONS.
(i) With respect to any calculation of Consolidated Interest Expense
or Consolidated Cash Interest Expense for purposes of subsection 7.6 for a
four-fiscal quarter period including the initial Funding Date, Consolidated
Interest Expense and Consolidated Cash Interest Expense shall be calculated
on a pro forma basis assuming, in each case, that the initial Funding Date,
--- -----
and the Refinancings and the borrowings by the Company to fund the same
pursuant to this Agreement and the Unsecured Subordinated Notes, occurred
on the first day of the applicable four-fiscal quarter period and assuming
further, for purposes of calculation of the pro forma interest accrued on
--- -----
the Loans during such periods prior to the Closing Date that all Loans
outstanding were Eurodollar Loans and that the applicable reference
interest rates were the average effective Adjusted Eurodollar Rates plus
----
the Applicable Margin for Loans outstanding during the period from the
initial Funding Date through the date of determination.
(ii) With respect to any period during which a Permitted Acquisition
is made, for purposes of determining compliance with the financial
covenants set forth in this subsection 7.6, Consolidated EBITDA,
Consolidated Interest Expense and Consolidated Cash Interest Expense shall
be calculated with respect to such periods and such Permitted Acquisition
on a pro forma basis (a "PRO FORMA BASIS"), including any pro forma expense
and cost reductions calculated on a basis consistent with Regulation S-X
promulgated under the Securities Act), using the audited (if available)
historical financial statements of all entities or assets so acquired or to
be acquired and the consolidated financial statements of Company and its
Subsidiaries which shall be reformulated as if such Permitted Acquisition,
and any other Permitted Acquisitions which have been consummated during
such period, and any Indebtedness or other liabilities incurred in
connection therewith had been consummated or incurred at the beginning of
such period (and assuming that such Indebtedness bears interest during any
portion of the applicable measurement period prior to the acquisition date
at the average effective Adjusted Eurodollar Rates plus the Applicable
----
Margin applicable to outstanding Loans during such period), and otherwise
in conformity with certain procedures to be agreed upon between
Administrative Agent and Company, all such calculations to be in form and
substance satisfactory to Administrative Agent.
F. PRO FORMA COMPLIANCE FOR PERMITTED ACQUISITIONS.
On or prior to the consummation of a Permitted Acquisition financed in
whole or in part with the proceeds of an Acquisition Loan, Company shall deliver
to Administrative Agent an Officer's Certificate, demonstrating compliance, (y)
on a Pro Forma Basis, with the financial covenants set forth in Schedule 7.6 as
of the fiscal quarter most recently ended, after giving effect to such Permitted
Acquisition and (z) projected compliance, on a Pro Forma Basis, with the
financial covenants set forth in this subsection 7.6 as of the last day of the
next succeeding fiscal quarter.
7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
----------------------------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to, alter
the corporate, capital or legal structure of Company or any of its 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, sublease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any part of its business, property or fixed
assets, whether now owned or hereafter acquired (other than in the ordinary
course of business), or acquire by purchase or otherwise any portion of 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
(other than in the ordinary course of business), except:
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<PAGE>
(i) any Subsidiary of Company may be merged with or into Company or
any other Subsidiary of Company, 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 other wholly owned Subsidiary of
Company; provided that, in the case of such a merger, Company or such
--------
wholly owned Subsidiary shall be the continuing or surviving corporation;
(ii) 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;
(iii) Company and its Subsidiaries may lease stores owned or leased
by the Company or Subsidiaries to franchisees; provided that the rentals
--------
received under any such lease reflect the fair market value of such
property;
(iv) subject to subsection 7.13, Company and its Subsidiaries may
sell or dispose of (y) the Far West Division and (z) may make other Asset
Sales (other than Specified Asset Sales) having an aggregate fair market
value not in excess of $10,000,000; provided that (a) the consideration
--------
received for each such Asset Sale shall be in an amount at least equal to
the fair market value thereof; (b) the consideration for each such Asset
Sale (other than the Far West Division) is at least 75% Cash, and the
balance is promissory notes payable to Company or its Subsidiaries; and (c)
the proceeds of such Asset Sales shall be applied as required by subsection
2.4B(iii)(a);
(v) Company and its Subsidiaries may make Investments permitted
pursuant to subsection 7.3;
(vi) Company and its Subsidiaries may make Permitted Acquisitions;
and (vii) Company and its Subsidiaries may make Specified Asset Sales; and
(viii) Company and Acquisition Corp. may consummate the Cinnabon
Acquisition on the Effective Date.
7.8 CAPITAL EXPENDITURES7.
-----------------------
A. CONSOLIDATED CAPITAL EXPENDITURES. Except as set forth in subdivision
B of this subsection 7.8, Company shall not, and shall not permit its
Subsidiaries to, make or incur Consolidated Capital Expenditures, in any fiscal
year or period indicated below, in an aggregate amount in excess of the
corresponding amount (the "MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES AMOUNT")
set forth in the chart below opposite such fiscal year or period; provided that
--------
with respect to the Maximum Consolidated Capital Expenditure Amount for any
fiscal year or period, at Company's option such amount may be increased (a) by a
portion (not to exceed 20%) of the Maximum Consolidated Capital Expenditure
amount for the immediately preceding fiscal year which was not utilized during
such preceding fiscal year, and (b) a portion (not to exceed 15%) of the amount
of Maximum Consolidated Capital Expenditures Amount for the immediately
succeeding year (which, to the extent of such increase shall reduce the amount
of the Maximum Consolidated Capital Expenditure Amount for such succeeding
year), provided that in no event shall the aggregate amount of the increases to
--------
the Maximum Consolidated Capital Expenditures Amount pursuant to the foregoing
clauses (a) and (b) in any fiscal year or period exceed $10,000,000; provided
--------
further that the Maximum Consolidated Capital Expenditures Amount for each
- -------
fiscal year set forth below shall be increased by the amount of Consolidated
Excess Cash flow for the immediately preceding fiscal year not required to be
used to prepay Loans pursuant to subsection 2.4B(iii)(f).
<TABLE>
<CAPTION>
====================================================
Maximum Consolidated
FISCAL CAPITAL EXPENDITURES
Year/Period Amount
====================================================
<S> <C>
1998 $35,000,000
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
=============================================================
<S> <C>
0
=============================================================
1999 and thereafter $45,000,000
=============================================================
0
</TABLE>
; provided that each of the Maximum Consolidated Capital Expenditure Amounts
--------
provided for above shall be increased by an aggregate amount equal to 15% of the
purchase price paid by Company in connection with any Permitted Acquisition;
provided further that such aggregate amount shall be allocated pro rata among
- -------- -------
the remaining periods set forth above after the consummation of the Permitted
Acquisition.
B. In addition to the foregoing, Company may make Consolidated Capital
Expenditures (i) in connection with Permitted Acquisitions and (ii) with the
proceeds of Specified Asset Sales, and such Consolidated Capital Expenditures
made pursuant to this subsection 7.8B shall not be included for the purposes of
calculating the Maximum Consolidated Capital Expenditures set forth in
subsection 7.8A.
7.9 FISCAL YEAR.
-----------
Company shall not change the fiscal year-end of Company and its
Subsidiaries from the last Sunday in December of each calendar year.
7.10 SALES AND LEASEBACKS.
--------------------
Company shall not, and shall not permit any of its 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 Company or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than Company or
any of its Subsidiaries) or (ii) which Company 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 Company or any of its Subsidiaries
to any Person (other than Company or any of its Subsidiaries) in connection with
such lease; provided that the foregoing shall not apply with respect to (i) any
--------
sale-leaseback transaction consummated prior to the Closing Date and (ii) any
property acquired after the Closing Date; provided that (y) the sale of such
--------
property constitutes a Specified Asset Sale and (z) the aggregate sale price
paid to the Company with respect to all sales or transfers of such property
shall not exceed $15,000,000.
7.11 SALE OR DISCOUNT OF RECEIVABLES.
-------------------------------
Company shall not, and shall not permit any of its 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.
---------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, 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 Company or with any Affiliate of Company or of any
such holder, on terms that are less favorable to 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, (ii)
reasonable and customary compensation or employee benefit arrangements with any
officer or member of the Board of Directors of Company or any of its
Subsidiaries entered into in the ordinary course of business and consistent with
past practice or (iii) any transactions permitted pursuant to clause (ii) or
(iii) of subsection 7.5 or clauses (vii) and (viii) of subsection 7.3.
7.13 DISPOSAL OF SUBSIDIARY STOCK.
----------------------------
Except for any sale of any Regulatory Shares or 100% of the capital stock
or other equity Securities of any of its Subsidiaries in compliance with the
provisions of subsection 7.7(iv), Company shall not:
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<PAGE>
(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, 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 Effective Date (after giving
effect to the Cinnabon Acquisition) and similar or related businesses or
businesses acquired pursuant to a Permitted Acquisition or otherwise commenced
by Company or its Subsidiaries; provided that any such business other than the
--------
food service business shall be entered into after reasonable notice to the
Lenders and after consultation with the Administrative Agent and (ii) such other
lines of business as may be consented to by Requisite Lenders; provided,
--------
however, that Company will not permit its Subsidiary, AFC Properties, Inc., a
- -------
Georgia corporation, to own, purchase, hold, acquire (including by lease or
sublease) any property other than such property it holds as at the Closing Date.
7.15 AMENDMENTS OF DOCUMENTS RELATING TO SUBORDINATED INDEBTEDNESS.
-------------------------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to, amend
or otherwise change the terms of the Unsecured Subordinated Note Indenture or
the Unsecured Subordinated Notes, 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 the Unsecured Subordinated Notes, 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 (other
than to eliminate any such event of default), change the redemption, prepayment
or defeasance provisions thereof, change the subordination provisions thereof
(or of any guaranty thereof), 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 the Unsecured Subordinated Notes (or a trustee or other
representative on their behalf) which would be adverse to Company or Lenders.
Company shall not designate any Indebtedness as "Designated Senior Indebtedness"
under the terms of the Unsecured Subordinated Note Indenture without the prior
written consent of Administrative Agent and Requisite Lenders.
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 Company to pay any interest, any fee or
any other amount due under this Agreement within five days after the date due;
or
8.2 DEFAULT IN OTHER AGREEMENTS.
---------------------------
(i) Failure of Company or any of its Subsidiaries to pay when due any
principal of or interest on or other amounts (to the extent such other amounts
are in excess of $750,000) owing in respect of on one or more items of
Indebtedness (other than Indebtedness referred to in subsection 8.1) or
Contingent Obligations in an individual principal amount of $750,000 or more or
with an aggregate principal amount of $3,000,000 or more, in each case beyond
the end of any grace period provided therefor; or (ii) breach or default by
Company (which breach or default
82
<PAGE>
occurs or continues after the Closing Date) or any of its Subsidiaries with
respect to any other material 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 Company to perform or comply with any term or condition
contained in subsection 2.4, 2.5 or 6.2 or Section 7 of this Agreement; or
8.4 BREACH OF WARRANTY.
------------------
Any representation, warranty, certification or other statement made by
Company or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by Company 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.
-----------------------------------
Company 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 30 days after the earlier
of (i) an officer of Company becoming aware of such default or (ii) receipt by
Company of notice from Administrative Agent or any Lender 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 involuntary case under the 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 Company or any of its Material 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 Company or any of its Material 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 Company or any of its Material 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 Company or any of its Material Subsidiaries, and any such event
described in this clause (ii) shall continue for 60 days unless dismissed,
bonded or discharged; or
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
--------------------------------------------------
(i) Company or any of its Material 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 Company or any of its Material Subsidiaries
shall make any assignment for the benefit of creditors; or (ii) Company or any
of its Material 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 Company or any of its Material Subsidiaries (or any
83
<PAGE>
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.
-------------------------
Any final money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $750,000 or (ii) in
the aggregate at any time an amount in excess of $3,000,000 (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 Company or
any of its Subsidiaries or any of their respective assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any
event later than five days prior to the date of any proposed sale thereunder);
or
8.9 DISSOLUTION.
-----------
Any order, judgment or decree shall be entered against Company or any of
its Subsidiaries decreeing the dissolution or split up of Company 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 liability of Company or any of its ERISA Affiliates in
excess of $1,000,000 during the term of this Agreement; or there exists, as of
any valuation date for a Pension Plan, an excess of the actuarial present value
(determined on the basis of reasonable assumptions employed by the independent
actuary for such Pension Plan) of benefit liabilities (as defined in Section
4001(a)(16) of ERISA) over the fair market value of the assets of such Pension
Plan, individually or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with respect to which there is no
such excess) which exceeds $1,000,000; or
8.11 CHANGE IN CONTROL.
-----------------
There shall occur any of (i) (a) prior to an initial public offering of the
Company Common Stock, Freeman Spogli & Co. Incorporated and its Affiliates,
PENMAN Private Equity Fund L.P. and senior management of the Company shall cease
to beneficially own and control in the aggregate at least (1) a majority of the
issued and outstanding shares of capital stock of Company entitled (without
regard to the occurrence of any contingency) to vote for the election of members
of the Board of Directors of Company and (2) more than 50% of the economic
interest in all outstanding capital stock of Company or (b) prior to an initial
public offering of Company Common Stock, Freeman Spogli & Co. Incorporated and
its Affiliates shall cease to own and control 40% of the economic interest in
all the outstanding capital stock of the Company, or (ii) following an initial
public offering of the Company Common Stock, (1) Freeman Spogli & Co.
Incorporated and its Affiliates , PENMAN Private Equity Fund L.P. and senior
management of Company, in the aggregate shall cease to beneficially own and
control at least 35% of the issued and outstanding shares of capital stock of
Company entitled (without regard to the occurrence of any contingency) to vote
for the election of members of the Board of Directors of Company and (2) any
other Person or Persons acting together that would constitute a group (for
purposes of Section 13(d) of the Security Exchange Act of 1934, or any successor
provision thereto), together with any Affiliates thereof, shall beneficially own
35% or more of the aggregate voting power of all classes of capital stock of
Company entitled to vote generally in the election of directors; or (iii) either
(a) any Person or Persons acting together that would constitute a group (for
purposes of Section 13(d) of the Security Exchange Act of 1934, or any successor
provision thereto), together with any Affiliates thereof, shall beneficially own
30% or more of the aggregate voting power of all classes of stock of Company
entitled to vote generally in the election of directors and Freeman Spogli & Co.
Incorporated and its Affiliates, PENMAN Private Equity Fund L.P. and senior
management of Company, in the aggregate at such time shall not own and control
more than 30% of the issued and outstanding shares of capital stock of Company
entitled (without regard to the incurrence of any contingency) to vote for the
election of members of the Board of Directors of Company or (b) prior to an
initial public offering, principals or employees of Freeman Spogli & Co.
Incorporated or its Affiliates shall cease to comprise at least 40% of the Board
of Directors of Company; or (iv) the occurrence of any "Change of Control" under
the Unsecured Subordinated Note Indenture; or
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<PAGE>
8.12 FAILURE OF SECURITY.
-------------------
Upon or after execution and delivery thereof, any Collateral Document
shall, at any time, cease to be in full force and effect in any material respect
(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 the validity or
enforceability thereof shall be contested in writing by any Loan Party, or the
Administrative Agent shall not have or shall cease to have a valid and perfected
first priority security interest (subject to Permitted Encumbrances) in any
Collateral purported to be covered thereby (other than Collateral the aggregate
fair market value of which does not exceed $750,000), in each case for any
reason other than the failure of Administrative Agent or any Lender to take any
action within its control; or
8.13 INVALIDITY OF SUBSIDIARY GUARANTY.
---------------------------------
Any Subsidiary Guaranty of a Material Subsidiary for any reason other than
the satisfaction in full of all Obligations, ceases to be in full force and
effect or is declared to be null and void, or any Guarantor denies that it has
any further liability, including, without limitation, with respect to future
advances by Lenders, under any such Subsidiary Guaranty or other guarantee or
gives notice to such effect; or
8.14 SUBORDINATION PROVISIONS.
------------------------
Company shall fail to comply with the subordination provisions contained in
the Unsecured Subordinated Note Indenture or the subordination provisions
contained in the Unsecured Subordinated Note Indenture shall be declared null
and void.
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 Company, and the obligation of each Lender to make any Loan, the
obligation of Issuing Lender to issue any Letter of Credit 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 Issuing Lender to
issue any Letter of Credit shall thereupon terminate; provided that the
--------
foregoing shall not affect in any way the obligations of Lenders under
subsection 3.3C(i) or the obligations of Lenders to purchase participations in
any unpaid Swing Line Loans as provided in subsection 2.1A(v).
Any amounts described in clause (b) above, when received by Administrative
Agent shall be delivered to Administrative Agent and 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 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, 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 10.6, 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 to benefit Company and do
not grant Company the right to require Lenders to rescind or annul any
acceleration
85
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hereunder or preclude Lenders from exercising any of their rights and remedies
under the Loan Documents, even if the conditions set forth herein are met.
SECTION 9.
AGENTS
9.1 APPOINTMENT.
-----------
GSCP is hereby appointed Lead Arranger and Syndication Agent hereunder and
each Lender hereby authorizes Lead Arranger and Syndication Agent to act as its
agent in accordance with the terms of this Agreement and the other Loan
Documents. CIBC 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 and the Collateral Documents. Agents agree to act upon the
express conditions contained in this Agreement and the other Loan Documents, as
applicable. The provisions of this Section 9 are solely for the benefit of
Agents and Lenders and Company shall have no rights as a third party beneficiary
of any of the provisions thereof. In performing its functions and duties under
this Agreement, each 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 Company or any of its Subsidiaries.
Upon the Effective Date, all obligations of Syndication Agent and Lead Arranger
hereunder shall terminate.
9.2 POWERS AND DUTIES; GENERAL IMMUNITY.
-----------------------------------
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes each of
the Agents 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 such Agent by the terms hereof and thereof,
together with such powers, rights and remedies as are reasonably incidental
thereto. Agents shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Loan Documents. Agents may
each exercise such powers, rights and remedies and perform such duties by or
through their agents or employees. Agents shall not 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 Agents 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. Agents shall not 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 Agents to Lenders or by or on behalf of
Company to Agents or any Lender in connection with the Loan Documents and the
transactions contemplated thereby or for the financial condition or business
affairs of Company or any other Person liable for the payment of any
Obligations, nor shall Agents 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,
Administrative Agent shall not 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. None of Agents nor any of their respective
officers, directors, partners, employees or agents shall be liable to Lenders
for any action taken or omitted by Agents under or in connection with any of the
Loan Documents except to the extent caused by their respective gross negligence
or willful misconduct. If Agents shall request instructions from Lenders with
respect to any act or action (including the failure to take an action) in
connection with this Agreement or any of the other Loan Documents, Agents shall
be entitled to refrain from such act or taking such action unless and until
Agents shall have received instructions from Requisite Lenders. Without
prejudice to the generality of the foregoing, (i) 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
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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 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
(where so instructed) refraining from acting under this Agreement or any of the
other Loan Documents in accordance with the instructions of Requisite Lenders.
Each Agent shall be entitled to refrain from exercising any power, discretion or
authority vested in it under this Agreement or any of the other Loan Documents
unless and until it has obtained the instructions of Requisite Lenders.
D. AGENTS ENTITLED TO ACT AS LENDERS. 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 each 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 Company or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and
other consideration from Company for services in connection with this Agreement
and otherwise without having to account for the same to Lenders.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
------------------------------------------------------------------
CREDITWORTHINESS.
----------------
Each Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of 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 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.
9.4 RIGHT TO INDEMNITY.
------------------
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent (and its respective affiliates and partners), 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 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 the amount of 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.
9.5 COLLATERAL DOCUMENTS.
--------------------
Without limiting the generality of subsection 9.1, each Lender hereby
further authorizes Administrative Agent to enter into the Collateral Documents
as secured party on behalf of and for the benefit of Lenders and agrees to be
bound by the terms of each of the Collateral Documents and the Subsidiary
Guaranty; provided that, except as otherwise provided below, Administrative
--------
Agent shall not enter into or consent to any amendment, modification,
termination or waiver of any provision contained in any Collateral Document and
the Subsidiary Guaranty without the prior consent of Requisite Lenders.
Anything contained in any of the Loan Documents to the contrary notwithstanding,
each Lender agrees that no Lender shall have any right individually to realize
upon any of the collateral under any Collateral Document and the Subsidiary
Guaranty, it being understood and agreed that all powers, rights and remedies
under the Collateral Documents and the Subsidiary Guaranty may be exercised
solely
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by Administrative Agent for the benefit of Lenders in accordance with the
terms thereof. Each Lender hereby authorizes Administrative Agent (i) to
release or subordinate Collateral as permitted or required under this Agreement
or the Collateral Documents and the Subsidiary Guaranty, and agrees that a
certificate executed by Administrative Agent evidencing such release of
Collateral shall be conclusive evidence of such release as to any third party
and (ii) to enter into any amendments of the Collateral Documents and the
Subsidiary Guaranty to cure any ambiguity, defect or inconsistency or to amend
provisions relating to ministerial or administrative matters which do not
materially adversely affect the rights of the Lenders thereunder. In the event
Company receives a notice regarding any Subject Lease (as such term is defined
in the Closing Date Mortgages) pursuant to clause (b) of item (i) of Schedule
--------
5.2F, Administrative Agent shall release the Subject Lease of record from the
- ----
offending Closing Date Mortgage; provided that the Administrative Agent shall be
--------
satisfied that such landlord or lessor claim specified in such notice is in good
faith.
9.6 SUCCESSOR ADMINISTRATIVE AGENT 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
consultation with Company, to appoint a successor Administrative Agent. Upon
the acceptance of any appointment 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 or removed Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Section 9 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 9.6A shall also constitute the
resignation or removal of CIBC or its successor as Swing Line Lender, and any
successor Agent appointed pursuant to subsection 9.6A 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 Agent and Swing Line Lender substantially in
the form of Exhibit IV-D annexed hereto, in the principal amount of the Swing
------------
Line Loan Commitment then in effect and with other appropriate insertions.
9.7 AGENT AUTHORIZED TO RELEASE SECURITY INTERESTS.
----------------------------------------------
Each Lender hereby further authorizes Administrative Agent to enter into
each Collateral Document as secured party on behalf of and for the benefit of
Lenders and agrees to be bound by the terms of each Collateral Document;
provided that Administrative Agent shall not enter into or consent to any
- --------
amendment, modification, termination or waiver of any provision contained in any
Collateral Document without the prior consent of Requisite Lenders; provided
--------
further, however, that, without further written consent or authorization from
- ------- -------
Requisite Lenders, Administrative Agent may execute any documents or instruments
necessary to effect the release of any asset constituting Collateral from the
Lien of the applicable Collateral Document in the event that such asset is sold
or otherwise disposed of in a transaction effected in accordance with subsection
7.7 (and shall, at the reasonable request of Company execute such documents and
instruments). Anything contained in any of the Loan Documents to the contrary
notwithstanding, each Lender agrees that no Lender shall have any right
individually to realize upon any of the Collateral under any Collateral Document
(including without limitation through the exercise of a right of set-off against
call deposits of such Lender in which any funds on deposit in the Collateral
Account may from time to time be invested), it being understood and agreed that
all rights and remedies under the Collateral Documents may be exercised solely
by Administrative Agent for the benefit of Lenders in accordance with the terms
thereof.
SECTION 10.
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MISCELLANEOUS
10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
-------------------------------------------------------------
A. GENERAL. Each Lender shall have the right at any time to (i) subject
to Section 10.1B, 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 10.1B(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 Agent and Swing Line Lender to the extent contemplated by subsection
9.6. Except as otherwise provided in this subsection 10.1, 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
(provided such Affiliate can reasonably be expected to be able to perform
its obligations hereunder) or another Lender, with the giving of notice to
Company and Administrative Agent or (b) be assigned in an aggregate amount
of not less than $5,000,000 (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 giving of notice to Company and with
the consent of Company and Administrative Agent (which consent of Company
and Administrative Agent shall not be unreasonably withheld). 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 an assignment processing and recordation fee of
(a) $2,000 in respect of assignments made between parties which are not
Lenders as at the date hereof and (b) $500 in respect of assignments made
between parties one of which is a Lender as at the date hereof 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); provided, however, that such
-------- -------
assignment processing and recordation fee shall not be required where the
assignee is an Affiliate of the assignor. Upon such execution, delivery,
and acceptance and recordation, from and after the effective date specified
in such Assignment Agreement, (1) 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 (2) 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 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, (x) the
assigning Lender shall continue to be entitled to the benefits of
subsection 2.7, 3.5A, 3.6, 6.9 and 10.3 hereof subsequent to the
effectiveness of such assignment and (y) if such Lender is
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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 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-A, Exhibit IV-B, Exhibit IV-C or
------------ ------------ ------------
Exhibit IV-E annexed hereto, as the case may be, with appropriate
------------
insertions, to reflect the new Commitments and/or outstanding 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 assignment processing and recordation fee referred to in subsection
10.1B(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 Administrative Agent and
Company have consented to the assignment evidenced thereby (in each case to
the extent such consent is required pursuant to subsection 10.1B(i)), (a)
accept such Assignment Agreement by executing a counterpart thereof as
provided therein (which acceptance shall evidence any required consent of
Administrative 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
10.1B(ii).
(iii) Representation of Lenders. Each Lender initially party to this
-------------------------
Agreement hereby represents, and each Person that becomes a Lender pursuant
to an assignment permitted by this subsection 10.1B upon its becoming a
Lender under this Agreement shall be deemed to represent, that it is a
commercial lender, other financial institution or other "accredited
investor" (as defined in Regulation D under the Securities Act) which makes
loans in the ordinary course of its business and is acquiring the Loans
without a view to distribution of the Loans within the meaning of the
federal securities laws, and that it will make or acquire Loans for its own
account in the ordinary course of such business; provided that, subject to
--------
the provisions of this subsection 10.1, the disposition of any promissory
notes or other evidences of or interests in Indebtedness held by such
Lender shall at all times be within its exclusive control.
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 final maturity of the principal
amount of any Loan or Commitment or interest on 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 or (iii) or the
release of all or substantially all of the Collateral other than in accordance
with the terms of the Loan Documents, 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 10.4 and 10.5, (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
10.1, 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
Company 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 10.19.
10.2 EXPENSES.
--------
Whether or not the transactions contemplated hereby shall be consummated,
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 Company (including without limitation any opinions
requested by Lenders as to any legal matters arising hereunder) and of Company'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 and insurance requirements; (iii) the reasonable fees, expenses
and disbursements of counsel to Agents (including allocated costs of internal
counsel) in connection with 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
Company; (iv) all other actual and reasonable costs and expenses (including
reasonable fees and expenses of counsel) incurred by Syndication Agent and
Administrative Agent in connection with the syndication of the Commitments and
the negotiation, preparation and execution of the Loan Documents and any
consents, amendments, waivers or other modifications thereto and the
transactions contemplated thereby; (v) the reasonable costs of customary audits
conducted by Administrative Agent; and (vi) 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
Administrative Agent and Lenders in enforcing any Obligations of or in
collecting any payments due from Company 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 Subsidiary Guaranty) 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.
10.3 INDEMNITY.
---------
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend (subject to Indemnitee's selection of counsel),
indemnify, pay and hold harmless Syndication Agent, Lead Arranger,
Administrative Agent and Lenders, and the officers, directors, partners,
employees, agents and affiliates of Syndication Agent, Administrative Agent,
Lead Arranger and Lenders (collectively called the "INDEMNITEES") from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including without limitation the reasonable fees and
disbursements of counsel for such 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), whether direct, indirect or consequential and
whether based on any federal, state or foreign laws, statutes, rules or
regulations (including without limitation 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 this Agreement or the other Loan Documents or the transactions
contemplated hereby or thereby (including without limitation Lenders' agreement
to make the Loans hereunder or the use or intended use of the proceeds of any of
the Loans or the issuance of Letters of Credit hereunder or the use or intended
use of any of the Letters of Credit hereunder or the use or intended use
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 Subsidiary Guaranty)) (collectively called the "INDEMNIFIED
LIABILITIES"); provided that Company shall not have any obligation to any
--------
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent
such Indemnified Liabilities arise solely from the gross negligence or willful
misconduct of that Indemnitee as determined by a final judgment of a court of
competent jurisdiction; and provided, further, that any Indemnified
-------- -------
Environmental Claim arising after the Cut-off Date shall be covered by the
indemnity set forth in this subsection 10.3 only if it arises out of or as a
result of: (i) the occurrence, at any time prior to the Cut-off Date, of any
use, storage, holding, existence, or Release of any Hazardous Materials whether
currently known or unknown; (ii) any use, storage, holding, existence of Release
of any Hazardous
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Materials that Company or any of its Subsidiaries caused or contributed to
directly or indirectly at any time whether currently known or unknown; (iii) any
violation, prior to the Cut-off Date, of any applicable Environmental Laws
relating to any Facility or to the ownership, use, occupancy or operation
thereof; (iv) any investigation, inquiry, order, hearing, action or other
proceeding by or before any governmental authority in connection with any use,
storage, holding, existence, or Release of any Hazardous Materials prior to the
Cut-off Date whether currently known or unknown; or (v) the inaccuracy or breach
of any representation or warranty set forth in any loan document. To the extent
that the undertaking to defend, indemnify, pay and hold harmless set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, 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 the Indemnitees or any
of them.
10.4 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 Company at any time or from
time to time subject to the consent of Administrative Agent, without notice to
Company or to any other Person (other than Administrative Agent), 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 Company against and
on account of the obligations and liabilities of 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 assigns,
pledges and grants to Administrative Agent and each Lender a security interest
in all deposits and accounts maintained with Administrative Agent or such Lender
as security for the Obligations.
10.5 RATABLE SHARING.
---------------
Lenders hereby agree among themselves that if any of them shall, whether
by voluntary payment (excluding voluntary payments made and applied in
accordance with 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 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 Administrative Agent and each
other Lender of the receipt of such payment and (ii) apply a portion of such
payment to purchase participations or other interests (which it shall be deemed
to have purchased from each seller of a participation or other interests
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 Company or
otherwise, those purchases shall be rescinded and the purchase prices paid for
such participations or other interests shall be returned to such purchasing
Lender ratably to the extent of such recovery, but without interest. Company
expressly consents to the foregoing arrangement and agrees that any holder of a
participation or other interests 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 Company to that holder with respect thereto as fully as if that holder were
owed the amount of the participation or other interests held by that holder.
10.6 AMENDMENTS AND WAIVERS.
----------------------
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No amendment, modification, termination or waiver of any provision of this
Agreement, the Notes or the Collateral Documents, and no consent to any
departure by 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 the
aggregate Commitments to an amount in excess of $350,000,000 or reduces the
principal amount of any of the Loans; changes in any manner the percentages
required under the definition of "Requisite 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 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 2.2I) 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 the Liens granted in favor of Administrative Agent
with respect to any material portion of the Collateral other than in accordance
with the terms of the Loan Documents; releases any guaranty of the Obligations;
or changes in any manner the provisions contained in subsection 8.1 or this
subsection 10.6 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
Administrative 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 Section 3
shall be effective without the written concurrence of Issuing Lender, (iv) no
amendment, modification, termination or waiver of any provision of subsection
2.1A (v) 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, and (v) no amendment, modification,
termination or waiver of any provision of Section 9 or of any other provision of
this Agreement which, by its terms, expressly requires the approval or
concurrence of Lead Arranger or Administrative Agent shall be effective without
the written concurrence of Lead Arranger or Administrative Agent respectively.
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 Company in any case shall entitle 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 10.6 shall be binding upon each Lender at the time outstanding, each
future Lender and, if signed by Company, on Company. Notwithstanding the above,
any amendment, modification, termination, waiver or consent of any provision of
this Agreement, the Notes or the Collateral Documents which increases the amount
of a Lender's Commitment shall be effective only if evidenced by a writing
signed by the affected Lender.
10.7 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.
10.8 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, 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 Administrative 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 Company and Administrative 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.
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10.9 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 Company set forth in subsections 2.6D, 2.7, 3.5A,
3.6, 6.9, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in
subsections 9.2C, 9.4 and 10.5 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.
10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Administrative 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.
10.11 MARSHALLING; PAYMENTS SET ASIDE.
-------------------------------
Neither Administrative Agent nor any Lender shall be under any obligation
to marshal any assets in favor of Company or any other party or against or in
payment of any or all of the Obligations. To the extent that Company makes a
payment or payments to Administrative Agent or Lenders (or to Administrative
Agent for the benefit of Lenders), or Administrative Agent 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, 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.
10.12 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.
10.13 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.
10.14 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.
10.15 APPLICABLE LAW.
--------------
94
<PAGE>
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.
10.16 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 10.1). Neither
Company's rights or obligations hereunder nor any interest therein may be
assigned or delegated by Company without the prior written consent of all
Lenders.
10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT COMPANY ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH
OBLIGATION. Company hereby 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 Company at its address provided in subsection 10.8, such
service being hereby acknowledged by Company to be sufficient for personal
jurisdiction in any action against Company in any such court and to be otherwise
effective and binding service in every respect. Nothing herein shall affect the
right to serve process in any other manner permitted by law or shall limit the
right of any Lender to bring proceedings against Company in the courts of any
other jurisdiction.
10.18 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
LENDER/COMPANY 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
10.18 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.
10.19 CONFIDENTIALITY.
---------------
95
<PAGE>
Each Lender shall hold all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as confidential by
Company in accordance with such Lender's customary procedures for handling
confidential information of this nature, it being understood and agreed by
Company that in any event a Lender may make disclosures to their examiners,
outside auditors, counsel and other professional advisors, Affiliates of such
Lender or, provided it agrees to the confidentiality obligations set forth
herein, 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 sale of participations therein 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 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 Company or any of its Subsidiaries.
10.20 MAXIMUM AMOUNT.
--------------
A. It is the intention of Company and Lenders to conform strictly to the
usury and similar laws relating to interest from time to time in force, and all
agreements between Company, Administrative Agent and Lenders, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever, whether by acceleration
of maturity hereof or otherwise, shall the amount paid or agreed to be paid in
the aggregate to Lenders or to Administrative Agent on behalf of Lenders as
interest hereunder or under the other Loan Documents or in any other security
agreement given to secure the Obligations, or in any other document evidencing,
securing or pertaining to the indebtedness evidenced hereby or thereby, exceed
the maximum amount permissible under applicable usury or such other laws (the
"MAXIMUM AMOUNT"). If under any circumstances whatsoever fulfillment of any
provision hereof, or of any of the other Loan Documents, at the time performance
of such provision shall be due, shall involve exceeding the Maximum Amount,
then, ipso facto, the obligation to be fulfilled shall be reduced to the Maximum
---- -----
Amount. For the purposes of calculating the actual amount of interest paid
and/or payable hereunder in respect of laws pertaining to usury or such other
laws, all sums paid or agreed to be paid to the holder hereof for the use,
forbearance or detention of the indebtedness of Company evidenced hereby,
outstanding from time to time shall, to the extent permitted by applicable law,
be amortized, pro rated, allocated and spread from the date of disbursement of
the proceeds of the Loans until payment in full of all of such indebtedness, so
that the actual rate of interest on account of such indebtedness is uniform
throughout the term hereof. The terms and provisions of this subsection shall
control and supersede every other provision of all agreements between Company,
the Administrative Agent and the Lenders.
B. If under any circumstances Lenders shall receive an amount which
would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the principal amount of the Loans and shall be treated as a
voluntary prepayment under subsection 2.4B(i), and shall be so applied in
accordance with subsection 2.4B(iv) hereof, or if such amount exceeds the unpaid
balance of the Loans and any other indebtedness of Company in favor of Lenders,
the excess shall be deemed to have been a payment made by mistake and shall be
refunded to Company.
10.21 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 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
Administrative Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
It is the intention of each of the parties hereto that the Existing Credit
Agreement be amended and restated so as to preserve the perfection and priority
of all security interests securing indebtedness and obligations under the
Existing Credit Agreement and the other Loan Documents and that all indebtedness
and obligations of Company and
96
<PAGE>
its Subsidiaries hereunder and thereunder shall be secured by the Collateral
Documents and that this Agreement shall not constitute a novation of the
obligations and liabilities existing under the Existing Credit Agreement or be
deemed to evidence or constitute repayment of all or any portion of any such
obligations or liabilities. The parties hereto further acknowledge and agree
that this Agreement constitutes an amendment of the Existing Credit Agreement
made under the terms of subsection 10.6 thereof.
The Agreement shall become effective upon the execution of a counterpart
hereof by Company, Administrative Agent, Existing Lenders and the New Lenders;
and receipt by Company and Administrative Agent of written or telephonic
notification of such execution and authorization of delivery thereof; provided
--------
that, unless and until all of the conditions set forth in subsections 4.2 and
4.3 have been satisfied or waived in accordance with subsection 10.6 of the
Existing Credit Agreement, the Existing Credit Agreement shall remain in full
force and effect without giving effect to the amendments set forth herein, all
as if this Agreement had never been executed and delivered.
[Remainder of page intentionally left blank]
97
<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.
COMPANY:
AFC ENTERPRISES, INC.
By: __________________________________
Name:
Title: Chief Financial Officer
Notice Address:
AFC Enterprises, Inc.
Suite 1700
Six Concourse Parkway
Atlanta , Georgia 30328
Tel: (770) 353-9500
Fax: (770) 353-3074
Attention: Gerald Wilkins
Chief Financial Officer
with a copy to:
Attention: Samuel N. Frankel, Esq.
General Counsel
S-1
<PAGE>
SYNDICATION AGENT GOLDMAN SACHS CREDIT PARTNERS L.P.,
AND LEAD ARRANGER:
individually as a Lender
and as Syndication Agent and Lead
Arranger
By: _____________________________________________
Authorized Signatory
Notice Address:
Goldman Sachs Credit Partners L.P.
85 Broad Street
New York, New York 10004
Attention: Stephen King
S-2
<PAGE>
ADMINISTRATIVE AGENT: CANADIAN IMPERIAL BANK OF
COMMERCE,
as Administrative Agent
By: ______________________________________
Name:
Title:
Notice Address:
Canadian Imperial Bank of Commerce
Agency Services
425 Lexington Avenue
New York, New York 10017
Attention: Marybeth Ross
Tel: 212 856-3691
Fax: 212 856-3763
S-3
<PAGE>
LENDERS: CIBC INC.
as a Lender
By: _________________________________
Name:
Title:
Notice Address:
CIBC Inc.
425 Lexington Avenue
New York, New York 10017
Attention: Katherine Bass
Tel: 212-856-3916
Fax: 212-856-3991
S-4
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION,
AS A LENDER
By: _____________________________
Name:
Title:
Notice Address:
GE Capital-Commercial Finance
201 High Ridge Road
Sanford, CT 06927-5100
Attention: Joseph Baldini
S-5
<PAGE>
VAN KAMPEN AMERICAN CAPITAL
SENIOR FLOATING RATE FUND,
AS A LENDER
By: _______________________________
Name:
Title:
Notice Address:
Van Kampen American Capital
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Jeffrey Maillet
S-6
<PAGE>
CREDIT LYONNAIS, NEW YORK BRANCH,
AS A LENDER
By: ___________________________________
Name:
Title:
Notice Address:
Credit Lyonnais, New York Branch
1301 Avenue of the Americas
Leveraged Finance Group, 12th Floor
New York, New York 10019
Attention: Attila Koc
S-7
<PAGE>
HIBERNIA NATIONAL BANK,
AS A LENDER
By: __________________________________
Name:
Title:
Notice Address:
Hibernia National Bank
313 Carondellet Street
(7D130)
New Orleans, LA 70161
Attention: Karen Debllieux/Troy Villafarra
S-8
<PAGE>
KZH ING-1 LLC,
AS A LENDER
By: _____________________________________
Name:
Title:
Notice Address:
KZH ING-1 LLC
c/o The Chase Manhattan Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Attention: Robert Goodwin/Joe Nerich
S-9
<PAGE>
LTCB TRUST COMPANY,
AS A LENDER
By: __________________________________
Name:
Title:
Notice Address:
LTCB Trust Company
Suite 2801
245 Peachtree Street
Atlanta, GA 30303
Attention: Rebecca Silbert
S-10
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
AS A LENDER
By: _______________________________
Name:
Title:
Merrill Lynch Senior Floating Rate Fund, Inc.
800 Scudders Mill Road
Plainsboro, NJ 08536
Attention: John Johnson
S-11
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
AS A LENDER
By: ________________________________
Name:
Title:
Notice Address:
PNC Bank, National Association
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Robert Mitchell
S-12
<PAGE>
[INTENTIONALLY LEFT BLANK]
S-13
<PAGE>
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By: _______________________________
Name:
Title:
Notice Address:
Sanwa Business Credit Corporation
One South Wacker Drive
Suite 3900
Chicago, Illinois 60606
Attention: Tracy Cassello
S-14
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION,
AS A LENDER
By: _______________________________
Name:
Title:
Notice Address:
Transamerica Business Credit Corporation
Suite C-301
555 Theodore Fremd Avenue
Rye, NY 10580
Attention: Paul Dellova
S-15
<PAGE>
EXHIBIT 10.85
AFC ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN
<PAGE>
AFC ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN
Effective as of the 1st day of January, 1998, AFC Enterprises, Inc. (the
"Controlling Company") hereby establishes the AFC Enterprises, Inc. Deferred
Compensation Plan (the "Plan").
BACKGROUND AND PURPOSE
----------------------
A. GOAL. The Controlling Company desires to provide its designated key
----
management and highly compensated employees (and those of its affiliated
companies that participate in the Plan) with an opportunity (i) to defer the
receipt and income taxation of a portion of such employees' annual compensation,
and (ii) to receive, on a deferred basis, matching contributions made with
respect to at least a portion of such employees [] own deferrals.
B. PURPOSE. The purpose of the Plan document is to set forth the terms
-------
and conditions pursuant to which these deferrals may be made and to describe the
nature and extent of the employees' rights to their deferred amounts.
C. TYPE OF PLAN. The Plan constitutes an unfunded, nonqualified
------------
deferred compensation plan that benefits certain designated employees who are
within a select group of key management or highly compensated employees.
STATEMENT OF AGREEMENT
----------------------
To establish the Plan with the purposes and goals as hereinabove described,
the Controlling Company hereby sets forth the terms and provisions as follows:
i
<PAGE>
AFC ENTERPRISES, INC
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS ................................ 1
1.1 Account..................................... 1
1.2 Administrative Committee.................... 1
1.3 Annual Bonus................................ 1
1.4 Annual Bonus Election....................... 1
1.5 Beneficiary................................. 1
1.6 Board....................................... 1
1.7 Code........................................ 1
1.8 Compensation................................ 1
1.9 Controlled Group............................ 2
1.10 Controlling Company......................... 2
1.11 Deferral Contributions...................... 2
1.12 Deferral Election........................... 2
1.13 Disability or Disabled...................... 2
1.14 Effective Date.............................. 2
1.15 Eligible Employee........................... 2
1.16 ERISA....................................... 2
1.17 Financial Hardship.......................... 2
1.18 Investment Election......................... 3
1.19 Investment Funds............................ 3
1.20 Matching Contributions...................... 3
1.21 Participant................................. 3
1.22 Participating Company....................... 3
1.23 Plan........................................ 3
1.24 Plan Year................................... 3
1.25 Savings Plan................................ 3
1.26 Surviving Spouse............................ 3
1.27 Trust or Trust Agreement.................... 4
1.28 Trustee..................................... 4
1.29 Trust Fund.................................. 4
1.30 Valuation Date.............................. 4
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE II ELIGIBILITY AND PARTICIPATION................................. 5
2.1 Eligibility.................................................... 5
(a) Annual Participation....................................... 5
(b) Interim Plan Year Participation............................ 5
2.2 Procedure for Admission................................... 5
2.3 Cessation of Eligibility.................................. 5
(a) Cessation of Eligible Status............................... 5
(b) Inactive Participant Status................................ 5
ARTICLE III PARTICIPANTS' ACCOUNTS; DEFERRALS AND CREDITING.............. 6
3.1 Participants' Accounts......................................... 6
(a) Establishment of Accounts.................................. 6
(b) Nature of Contributions and Accounts....................... 6
(c) Several Liabilities........................................ 6
(d) General Creditors.......................................... 6
3.2 Deferral Contributions......................................... 6
(a) Effective Date............................................. 7
(b) Term....................................................... 7
(c) Amount..................................................... 7
(d) Revocation................................................. 7
(e) Annual Bonus Election...................................... 7
(f) Crediting of Deferred Compensation......................... 8
3.3 Contributions.................................................. 8
3.4 Debiting of Distributions...................................... 8
3.5 Crediting of Earnings.......................................... 9
3.6 Vesting........................................................ 9
3.7 Notice to Participants of Account Balances..................... 9
3.8 Good Faith Valuation Binding................................... 9
3.9 Errors and Omissions in Accounts............................... 10
ARTICLE IV INVESTMENT FUNDS.............................................. 11
4.1 Selection by Administrative Committe........................... 11
4.2 Participant Direction of Deemed Investments.................... 11
(a) Nature of Participant Direction........................... 11
(b) Investment of Contributions............................... 11
(c) Investment of Existing Account Balances................... 11
(d) Administrative Committee Discretion....................... 12
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE V PAYMENT OF ACCOUNT BALANCES............................... 13
5.1 Benefit Payments Upon Termination of Service
for Reasons Other Than Death.............................. 13
(a) General Rule Concerning Benefit Payments............. 13
(b) Timing of Distribution............................... 13
5.2 Form of Distribution...................................... 13
(a) Single-Sum Payment................................... 14
(b) Annual Installments.................................. 14
5.3 Death Benefits............................................ 14
5.4 In-Service Distributions.................................. 15
(a) Hardship Distribut ................................. 15
(b) Distributions with Forfeiture........................ 15
5.5 Beneficiary Designation................................... 16
(a) General.............................................. 16
(b) No Designation or Designee Dead or Missing........... 16
5.6 Taxes..................................................... 16
ARTICLE VI CLAIMS................................................... 17
6.1 Claims.................................................... 17
(a) Initial Claim........................................ 17
(b) Appeal............................................... 17
(c) Satisfaction of Claims............................... 17
ARTICLE VII SOURCE OF FUNDS; TRUST.................................. 18
7.1 Source of Funds........................................... 18
7.2 Trust..................................................... 18
(a) Establishment........................................ 18
(b) Distributions........................................ 18
(c) Status of the Trust.................................. 18
ARTICLE VIII ADMINISTRATIVE COMMITTEE............................... 19
8.1 Action.................................................... 19
8.2 Rights and Duties......................................... 19
8.3 Compensation, Indemnity and Liability..................... 20
ARTICLE IX AMENDMENT AND TERMINATION................................ 21
9.1 Amendments................................................ 21
9.2 Termination of Plan....................................... 21
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
ARTICLE X MISCELLANEOUS............................................ 22
10.1 Taxation................................................. 22
10.2 No Employment Contract................................... 22
12.3 Headings................................................. 22
10.4 Gender and Number........................................ 22
10.5 Assignment of Benefits................................... 22
10.6 Legally Incompetent...................................... 22
10.7 Governing Law............................................ 23
EXHIBIT A PARTICIPATING COMPANIES.................................. A-1
</TABLE>
v
<PAGE>
ARTICLE I
DEFINITIONS
-----------
For purposes of the Plan, the following terms, when used with an initial
capital letter, shall have the meaning set forth below unless a different
meaning plainly is required by the context.
1.1. ACCOUNT shall mean, with respect to a Participant or Beneficiary,
-------
the total dollar amount or value evidenced by the last balance posted in
accordance with the terms of the Plan to the account record established for such
Participant or Beneficiary.
1.2. ADMINISTRATIVE COMMITTEE shall mean the committee appointed by
------------------------
the Board to administer the Plan, as provided in Article VIII.
1.3. ANNUAL BONUS shall mean that portion of an Eligible Employee's
------------
Compensation designated by the Administrative Committee as an annual bonus
payable with respect to services performed during a Plan Year.
1.4. ANNUAL BONUS ELECTION shall mean a written election form on which
---------------------
a Participant may elect to defer under the Plan all or a portion of his Annual
Bonus.
1.5. BENEFICIARY shall mean, with respect to a Participant, the
-----------
person(s) designated in accordance with Section 5.5 to receive any death
benefits that may be payable under the Plan upon the death of the Participant.
1.6. BOARD shall mean the Board of Directors of the Controlling
-----
Company.
1.7. CODE shall mean the Internal Revenue Code of 1986, as amended,
----
and any succeeding federal tax provisions.
1.8 COMPENSATION shall mean, for a Participant for any Plan Year, the
total of such Participant's wages as defined in Section 3401(a) of the Code
together with all other compensatory payments to the Participant by a
Participating Company with respect to which the Participating Company must
furnish to the Participant a written statement pursuant to Sections 6041(d) and
6051(a)(3) of the Code, but determined without regard to any rules (such as the
exception for agricultural labor in Section 3401(a)(2) of the Code) which limit
the remuneration included in wages based on the nature or location of the
employment or services performed.
Notwithstanding the above, Compensation shall include (i) any
amount which is contributed by a Participating Company pursuant to a salary
reduction agreement and which is not includible in the gross income of the
Participant under Sections 125, 402(e)(3), 402(h) or 403(b) of the Code for such
Plan Year and (ii) Deferral Contributions for such Plan Year.
1.9 CONTROLLED GROUP shall mean all of the companies that are either
----------------
(i) members of the
<PAGE>
same controlled group of corporations (within the meaning of Code Section
414(b)) or (ii) under common control (within the meaning of Code Section
414(c)), with the Controlling Company.
1.10 CONTROLLING COMPANY shall mean AFC Enterprises, Inc., a
-------------------
corporation with its principal place of business in Atlanta, Georgia.
1.11 DEFERRAL CONTRIBUTIONS shall mean, for each Plan Year, that
----------------------
portion of a Participant's Compensation (inclusive of Annual Bonus deferrals)
deferred under the Plan pursuant to Section 3.2.
1.12 DEFERRAL ELECTION shall mean a written election form (or election
-----------------
in any other format permitted by the Administrative Committee) on which a
Participant may elect to defer a portion of his Compensation (other than his
Annual Bonus) under the Plan.
1.13 DISABILITY OR DISABLED shall mean a Participant's status as
----------------------
disabled under the Controlling Company's long-term disability program.
1.14 EFFECTIVE DATE shall mean January 1, 1998, the date that the Plan
--------------
initially shall be effective.
1.15 ELIGIBLE EMPLOYEE shall mean, for a Plan Year or portion of a
-----------------
Plan Year, an individual:
(a) Who is a member of a select group of highly compensated or
key management employees who the Administrative Committee, in its sole
discretion, determines is eligible to participate in the Plan; and
(b) Who has satisfied the minimum compensation and/or other
classification requirements, if any, established from time to time by the
Administrative Committee.
1.16 ERISA shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
1.17 FINANCIAL HARDSHIP shall mean a severe financial hardship to the
------------------
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of the Participant's dependent [as defined in Code Section
152(a)], loss of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant. Financial Hardship shall be determined
by the Administrative Committee on the basis of the facts of each case,
including information supplied by the Participant in accordance with uniform
guidelines prescribed from time to time by the Administrative Committee;
provided, the Participant will be deemed not to have a Financial Hardship to the
extent that such hardship is or may be relieved:
(a) Through reimbursement or compensation by insurance or
otherwise;
2
<PAGE>
(b) By liquidation of the Participant's assets, to the extent the
liquidation of assets would not itself cause severe financial hardship; or
(c) By cessation of deferrals under the Plan.
Examples of what are not considered to be unforeseeable emergencies include the
need to send a Participant's child to college or the desire to purchase a home.
1.18 INVESTMENT ELECTION shall mean an election, made in such form as the
-------------------
Administrative Committee may direct or permit, pursuant to which a Participant
may elect the Investment Funds to be used in determining the rate of return to
be applied to the amounts credited to the Participant's Account.
1.19 INVESTMENT FUNDS shall mean the investment funds selected from time to
----------------
time by the Administrative Committee for purposes of determining the rate of
return to be applied to the amounts credited to Participants' Accounts.
1.20 MATCHING CONTRIBUTIONS shall mean, for each Plan Year, the amount
----------------------
credited to a Participant's Account pursuant to Section 3.3.
1.21 PARTICIPANT shall mean any person who has been admitted to, and has
-----------
not been removed from, participation in the Plan pursuant to the provisions of
Article II.
1.22 PARTICIPATING COMPANY shall mean the Controlling Company and any
---------------------
members of its Controlled Group that adopt the Plan as participating companies
therein. A list of such members that are participating in the Plan shall be set
forth on Exhibit A hereto.
1.23 PLAN shall mean the AFC Enterprises, Inc. Deferred Compensation Plan,
----
as contained herein and all amendments hereto. For tax purposes and purposes of
Title I of ERISA, the Plan is intended to be an unfunded, nonqualified deferred
compensation plan covering certain designated employees who are within a select
group of key management or highly compensated employees.
1.24 PLAN YEAR shall mean the 12-consecutive-month period ending on
---------
December 31 of each year.
1.25 SAVINGS PLAN shall mean the AFC Enterprises, Inc. 401(k) Savings Plan.
------------
1.26 SURVIVING SPOUSE shall mean, with respect to a Participant, the person
----------------
who is treated as married to such Participant under the laws of the state in
which the Participant resides. The determination of a Participant's Surviving
Spouse shall be made as of the date of such Participant's death.
1.27 TRUST OR TRUST AGREEMENT shall mean the separate agreement or
------------------------
agreements
3
<PAGE>
between the Controlling Company and the Trustee governing the creation of the
Trust Fund, and all amendments thereto.
1.28 TRUSTEE shall mean the party or parties so designated from time to
-------
time pursuant to the terms of the Trust Agreement.
1.29 TRUST FUND shall mean the total amount of cash and other property held
----------
by the Trustee (or any nominee thereof) at any time under the Trust Agreement.
1.30 VALUATION DATE shall mean each day of the Plan Year on which the
--------------
Plan's recordkeeper and the Trustee are each open to the public for business, or
such other date(s) determined by the Administrative Committee in its sole
discretion.
4
<PAGE>
ARTICLE II
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.1 ELIGIBILITY.
-----------
(a) ANNUAL PARTICIPATION. Each individual who is an Eligible Employee
--------------------
as of the first day of a Plan Year shall be eligible to participate in the Plan
for the entire Plan Year. Such individual's participation shall become
effective as of the first day of such Plan Year (assuming he satisfies the
procedures for admission described below).
(b) INTERIM PLAN YEAR PARTICIPATION.
-------------------------------
(i) Each individual who is an Eligible Employee as of the
Effective Date shall be eligible to participate in the Plan. Such individual's
participation shall become effective as of the Effective Date (assuming he
satisfies the procedures for admission described below).
(ii) Each individual who becomes an Eligible Employee during a
Plan Year shall be eligible to participate in the Plan for a portion of such
Plan Year. Such individual's participation shall become effective as of the
first day of the calendar month coinciding with or next following the date he
becomes an Eligible Employee (assuming he satisfies the procedures for admission
described below).
2.2 PROCEDURE FOR ADMISSION.
-----------------------
Each Eligible Employee shall become a Participant by completing such
forms and providing such data in a timely manner, as are required by the
Administrative Committee as a precondition of participation in the Plan. Such
forms and data may include, without limitation, a Deferral Election, the
Eligible Employee's acceptance of the terms and conditions of the Plan, and the
designation of a Beneficiary to receive any death benefits payable hereunder.
2.3 CESSATION OF ELIGIBILITY.
------------------------
(a) CESSATION OF ELIGIBLE STATUS. The Administrative Committee may
----------------------------
remove an employee from active participation in the Plan if, as of any day
during a Plan Year, he ceases to satisfy the criteria which qualified him as an
Eligible Employee, in which case his deferrals under the Plan shall cease.
(b) INACTIVE PARTICIPANT STATUS. Even if his active participation in
---------------------------
the Plan ends, an employee shall remain an inactive Participant in the Plan
until the earlier of (i) the date the full amount of his vested Account (if any)
is distributed from the Plan, or (ii) the date he again becomes an Eligible
Employee and recommences participation in the Plan. During the period of time
that an employee is an inactive Participant in the Plan, his vested Account
shall continue to be credited with earnings as provided for in Section 3.5.
5
<PAGE>
ARTICLE III
PARTICIPANTS' ACCOUNTS; DEFERRALS AND CREDITING
-----------------------------------------------
3.1 PARTICIPANTS' ACCOUNTS.
----------------------
(a) ESTABLISHMENT OF ACCOUNTS. The Administrative Committee shall
-------------------------
establish and maintain an Account on behalf of each Participant. Each Account
shall be credited with (i) Deferral Contributions, (ii) Matching Contributions,
and (iii) earnings attributable to such Account, and shall be debited by
distributions. Each Account of a Participant shall be maintained until the
vested value thereof has been distributed to or on behalf of such Participant or
his Beneficiary.
(b) NATURE OF CONTRIBUTIONS AND ACCOUNTS. The amounts credited to a
------------------------------------
Participant's Account shall be represented solely by bookkeeping entries.
Except as provided in Article VI, no monies or other assets shall actually be
set aside for such Participant, and all payments to a Participant under the Plan
shall be made from the general assets of the Participating Companies.
(c) SEVERAL LIABILITIES. Each Participating Company shall be
-------------------
severally (and not jointly) liable for the payment of benefits under the Plan in
an amount equal to the total of (i) all undistributed Deferral Contributions
withheld from Participants' Compensation paid or payable by each such
Participating Company, (ii) all undistributed Matching Contributions
attributable to Deferral Contributions described in clause (i) hereof, and (iii)
all undistributed earnings attributable thereto. The Administrative Committee
shall allocate the total liability to pay benefits under the Plan among the
Participating Companies pursuant to this formula, and the Administrative
Committee's determination shall be final and binding.
(d) GENERAL CREDITORS. Any assets which may be acquired by a
-----------------
Participating Company in anticipation of its obligations under the Plan shall be
part of the general assets of such Participating Company. A Participating
Company's obligation to pay benefits under the Plan constitutes a mere promise
of such Participating Company to pay such benefits, and a Participant or
Beneficiary shall be and remain no more than an unsecured, general creditor of
such Participating Company.
3.2 DEFERRAL CONTRIBUTIONS.
----------------------
Each Eligible Employee who is or becomes eligible to participate in
the Plan for all or any portion of a Plan Year may elect to have Deferral
Contributions made on his behalf for such Plan Year by completing and delivering
to the Administrative Committee (or its designee) a Deferral Election and/or
Annual Bonus Election setting forth the terms of his election. Subject to the
terms and conditions set forth below, a Deferral Election may provide for the
reduction of an Eligible Employee's Compensation payable in each regular
paycheck paid during the Plan Year for which the Deferral Election is in effect,
and an Annual Bonus Election shall provide for the reduction of an Eligible
Employee's Annual Bonus payable during the Plan year for which the Annual Bonus
Election is in effect. Subject to any modifications, additions or exceptions
that the Administrative Committee, in its sole discretion, deems necessary,
appropriate or helpful, the following terms shall
6
<PAGE>
apply to such elections:
(a) EFFECTIVE DATE.
--------------
(i) INITIAL DEFERRAL ELECTION. A Participant's initial Deferral
-------------------------
Election with respect to his Compensation for any Plan Year shall be effective
for the first paycheck earned after the date the Deferral Election becomes
effective. To be effective, a Participant's initial Deferral Election must be
made before the first day of the Plan Year for which Deferral Contributions will
be made. If a Participant first becomes eligible to participate in the Plan on
a date other than the first day of a Plan Year, the Participant's Deferral
Election must be made no later than 30 days after the date on which the
Participant first becomes eligible to make Deferral Contributions under the
Plan. If an Eligible Employee fails to submit a Deferral Election in a timely
manner, he shall be deemed to have elected not to participate in the Plan for
that Plan Year.
(i) SUBSEQUENT DEFERRAL ELECTION. A Participant's subsequent
----------------------------
Deferral Election with respect to his Compensation for any Plan Year must be
made on or before the last day of the Plan Year immediately preceding the Plan
Year for which he desires to participate and in which the Compensation to be
deferred is earned.
(b) TERM. Each Participant's Deferral Election shall remain in
----
effect for all such Compensation earned during a Plan Year until the earliest of
(i) the last day of such Plan Year, (ii) the date the Participant ceases to be
an active Participant for such Plan Year, or (iii) the date the Participant
revokes such Deferral Election. If a Participant is transferred from the
employment of one Participating Company to the employment of another
Participating Company, his Deferral Election with the first Participating
Company will remain in effect and will apply to his Compensation from the second
Participating Company until the earliest of those events set forth in the
preceding sentence.
(c) AMOUNT. A Participant may elect to defer his Compensation payable
------
in each regular paycheck in 1 percent increments, up to a maximum of 20 percent
(or such other maximum percentage or amount, if any, established by the
Administrative Committee from time-to-time).
(d) REVOCATION. A Participant may revoke his Deferral Election by
----------
delivering a written notice of revocation to the Administrative Committee, and
such revocation shall be effective as soon as practicable after the date on
which it is received by the Administrative Committee. A Participant who revokes
a Deferral Election may enter into a new Deferral Election with respect to his
Compensation for any subsequent Plan Year by making such Deferral Election on or
before the last day of the Plan Year immediately preceding the Plan Year for
which he desires to participate and in which the Compensation to be deferred is
payable.
7
<PAGE>
(e) ANNUAL BONUS ELECTION. A Participant may complete and deliver to
---------------------
the Administrative Committee (or its designee) an Annual Bonus Election with
respect to an Annual Bonus payable for a Plan Year. The terms of such Annual
Bonus Election shall be determined by reference to the foregoing provisions of
this Section 3.2; provided, the following modifications shall apply:
(i) A Participant's Annual Bonus Election shall be effective
for the Annual Bonus payable after the date the Annual Bonus Election is
delivered to the Administrative Committee (or its designee). The Participant
shall deliver the Annual Bonus Election to the Administrative Committee (or its
designee) on or before the last day of the Plan Year immediately preceding the
Plan Year during which the amount of the Annual Bonus becomes definitely
ascertainable and payable.
(ii) Such Annual Bonus Election shall remain in effect only for
the Plan Year for which it is effective and a Participant may not revoke his
Annual Bonus Election.
(iii) If a Participant does not make an Annual Bonus Election for
a Plan Year, no part of his Annual Bonus shall be deferred under the Plan.
(iv) The Participant may elect to defer his Annual Bonus in 1
percent increments, up to 100 percent, (or such other maximum amount, if any,
established by the Administrative Committee from time to time).
(v) Such Annual Bonus Election shall terminate at the date the
Participant ceases to be an active Participant.
(f) CREDITING OF DEFERRED COMPENSATION. For each Plan Year that a
----------------------------------
Participant has a Deferral Election and/or an Annual Bonus Election in effect,
the Administrative Committee shall credit the amount of such Participant's
Deferral Contributions to his Account on, or as soon as practicable after, the
Valuation Date on which such amount would have been paid to him but for his
Deferral Election and/or an Annual Bonus Election.
3.3 MATCHING CONTRIBUTIONS.
----------------------
As of such date or time as the Administrative Committee, in its sole
discretion, determines from time-to-time, the Administrative Committee may
credit to the Account of each Participant who was employed by the Controlling
Company or a member of the Controlled Group on the last day of a Plan Year a
Matching Contribution in an amount, or equal to such percentage of a
Participant's Deferral Contributions for that Plan Year, as the Administrative
Committee may determine.
3.4 DEBITING OF DISTRIBUTIONS.
-------------------------
As of each Valuation Date, the Administrative Committee shall debit
each Participant's Account for any amount distributed from such Account since
the immediately preceding Valuation Date.
8
<PAGE>
3.5 CREDITING OF EARNINGS.
---------------------
As of each Valuation Date prior to the date as of which distribution
of a Participant's Account balance is made or commences, the Administrative
Committee shall credit to each Participant's Account the amount of earnings
and/or losses applicable thereto for the period since the immediately preceding
Valuation Date. Such crediting of earnings and/or losses shall be effective as
of each Valuation Date, as follows:
(a) The Administrative Committee first shall determine the rate of
return for the period since the immediately preceding Valuation Date for each of
the Investment Funds;
(b) The Administrative Committee next shall determine the amount of
(i) each Participant's Account that was deemed invested in each such Investment
Fund as of the immediately preceding Valuation Date; minus (ii) the amount of
any distributions debited from the amount determined in clause (i) since the
immediately preceding Valuation Date; and
(c) The Administrative Committee shall then apply the rate of return
for each such Investment Fund for such Valuation Date (as determined in
subsection (a) hereof) to the Participant's amount deemed invested in such
Investment Fund for such Valuation Date (as determined in subsection (b)
hereof), and the total amount of earnings and/or losses resulting therefrom
shall be credited to such Participant's Account as of the applicable Valuation
Date.
(d) Deferral Contributions and Matching Contributions shall be
credited with earnings from the date such amounts would have been paid to the
Participant but for his Deferral and/or Bonus Election.
3.6 VESTING.
-------
A Participant shall at all times be fully vested in his Deferral
Contributions and the earnings credited to his Account with respect to such
Deferral Contributions. The Matching Contributions credited to a Participant's
Account and the earnings credited with respect thereto shall vest in accordance
with the vesting schedule under the Savings Plan based on the Participant's
years of service as determined under the Savings Plan.
3.7 NOTICE TO PARTICIPANTS OF ACCOUNT BALANCES.
------------------------------------------
At least once for each Plan Year, the Administrative Committee shall
cause a written statement of a Participant's Account balance to be distributed
to the Participant.
3.8 GOOD FAITH VALUATION BINDING.
----------------------------
In determining the value of the Accounts, the Administrative Committee
shall exercise its best judgment, and all such determinations of value (in the
absence of bad faith) shall be binding upon all Participants and their
Beneficiaries.
9
<PAGE>
3.9 ERRORS AND OMISSIONS IN ACCOUNTS.
--------------------------------
If an error or omission is discovered in the Account of a Participant
or in the amount of a Participant's deferrals, the Administrative Committee, in
its sole discretion, shall cause appropriate, equitable adjustments to be made
as soon as administratively practicable following the discovery of such error or
omission.
10
<PAGE>
ARTICLE IV
INVESTMENT FUNDS
----------------
4.1 SELECTION BY ADMINISTRATIVE COMMITTEE.
-------------------------------------
From time to time, the Administrative Committee shall select two or
more Investment Funds for purposes of determining the rate of return on amounts
deemed invested in accordance with the terms of the Plan. The Administrative
Committee may change, add or remove Investment Funds on a prospective basis at
anytime(s) and in any manner it deems appropriate.
4.2 PARTICIPANT DIRECTION OF DEEMED INVESTMENTS.
-------------------------------------------
Each Participant generally may direct the manner in which his Account
shall be deemed invested in and among the Investment Funds; provided, such
investment directions shall be made in accordance with the following terms:
(a) NATURE OF PARTICIPANT DIRECTION. The selection of Investment
-------------------------------
Funds by a Participant shall be for the sole purpose of determining the rate of
return to be credited to his Account, and shall not be treated or interpreted in
any manner whatsoever as a requirement or direction to actually invest assets in
any Investment Fund or any other investment media. The Plan, as an unfunded,
nonqualified deferred compensation Plan, at no time shall have any actual
investment of assets relative to the benefits or Accounts hereunder.
(b) INVESTMENT OF CONTRIBUTIONS. Each Participant may make an
---------------------------
Investment Election prescribing the percentage of the future contributions that
will be deemed invested in each Investment Fund. An initial Investment Election
of a Participant shall be made as of the date the Participant commences
participation in the Plan and shall apply to all contributions credited to such
Participant's Account after such date. Such Participant may make subsequent
Investment Elections as of any Valuation Date, and each such election shall
apply to all such specified contributions credited to such Participant's Account
after the Administrative Committee (or its designee) has a reasonable
opportunity to process such election. Any Investment Election made pursuant to
this subsection with respect to future contributions shall remain effective
until changed by the Participant.
(c) INVESTMENT OF EXISTING ACCOUNT BALANCES. Each Participant may
---------------------------------------
make an Investment Election prescribing the percentage of his existing Account
balance that will be deemed invested in each Investment Fund. Such Participant
may make such Investment Elections as of any Valuation Date, and each such
election shall be effective after the Administrative Committee (or its designee)
has a reasonable opportunity to process such election. Each such election shall
remain in effect until changed by such Participant.
11
<PAGE>
(d) ADMINISTRATIVE COMMITTEE DISCRETION. The Administrative Committee
-----------------------------------
shall have complete discretion to adopt and revise procedures to be followed in
making such Investment Elections. Such procedures may include, but are not
limited to, the process of making elections, the permitted frequency of making
elections, the incremental size of elections, the deadline for making elections
and the effective date of such elections. Any procedures adopted by the
Administrative Committee that are inconsistent with the deadlines or procedures
specified in this Section shall supersede such provisions of this Section
without the necessity of a Plan amendment.
12
<PAGE>
ARTICLE V
PAYMENT OF ACCOUNT BALANCES
---------------------------
5.1 BENEFIT PAYMENTS UPON TERMINATION OF SERVICE FOR REASONS OTHER THAN
-------------------------------------------------------------------
DEATH.
- -----
(a) GENERAL RULE CONCERNING BENEFIT PAYMENTS. In accordance with the
----------------------------------------
terms of subsection (b) hereof, if a Participant terminates his employment with
the Controlling Company and all other members of the Controlled Group for any
reason other than death, he (or his Beneficiary, if he dies after such
termination of employment but before distribution of his Account) shall be
entitled to receive or begin receiving a distribution of the total of: (i) the
entire vested amount credited to his Account, determined as of the Valuation
Date on which such distribution is processed; plus (ii) the vested amount of
----
Deferral and Matching Contributions made since such Valuation Date; and minus
-----
(iii) the amount of any distributions made to the Participant since such
Valuation Date. For purposes of this subsection, the phrase "Valuation Date on
which such distribution is processed" refers to the Valuation Date established
for such purpose by administrative practice, even if actual payment is made or
commenced at a later date due to delays in valuation, administration or any
other procedure.
(b) TIMING OF DISTRIBUTION.
----------------------
(i) Except as provided in subsection (b)(ii) hereof, the vested
benefit payable to a Participant under this Section shall be made or
commenced as soon as administratively feasible after the Participant
terminates his employment with the Controlling Company and all other
members of the Controlled Group for any reason other than death.
(ii) A Participant may elect, at the time he makes each Deferral
Election and/or Annual Bonus Election, to have his benefit payable with
respect to that election paid (or commenced) on any date (on or before the
date his employment terminates, but not earlier than 3 years after the end
of the Plan Year for which the Deferral Election applies) specified in such
election. A Participant may elect a different benefit commencement date
with respect to each Deferral Election and/or Annual Bonus Election;
provided the Administrative Committee, in its sole discretion, may limit
the number of different benefit commencement dates a Participant may elect
with respect to all his benefits payable under the Plan. The Administrative
Committee shall pay (or commence the payment of) the Participant's benefit
as soon as administratively feasible after the time(s) specified in such
Deferral Election(s) and/or Annual Bonus Election(s). If the portion of a
Participant's Account payable on a benefit commencement date includes non-
vested Matching Contributions and the Participant's employment with the
Controlling Company and all other members of the Controlled Group has not
terminated, such amounts shall not be forfeited and shall be paid on the
Participant's next benefit commencement date(s) to the extent they become
further vested.
(iii) Notwithstanding a Participant's election in subsection
(b)(ii), if the Participant's employment with the Controlling Company and all
other members of the Controlled
13
<PAGE>
Group terminates before a given benefit commencement date elected by a
Participant, his benefit corresponding to such benefit commencement date shall
be immediately payable.
5.2 FORM OF DISTRIBUTION.
--------------------
(a) SINGLE-SUM PAYMENT. Except as provided in subsection (b) hereof,
------------------
the benefit payable to a Participant under Section 5.1 shall be distributed in
the form of a single-sum payment in cash.
(b) ANNUAL INSTALLMENTS. A Participant may elect, at the time he
-------------------
makes each Deferral Election and/or Annual Bonus Election, to have his benefit
payable with respect to that election paid in the form of annual or quarterly
installment payments. To the extent a Participant elects multiple benefit
commencement dates in accordance with Section 5.1(b)(ii), such Participant may
elect at the time of such subsequent Deferral Election(s) and/or Annual Bonus
Election(s) with respect to the total benefit corresponding to each benefit
commencement date, to receive such total benefit in the form of annual or
quarterly installments. If a Participant does not elect the installment form of
distribution with respect to his benefit corresponding to a benefit commencement
date (as selected in accordance with Section 5.1(b)(ii)), his benefit
corresponding to such benefit commencement date shall be paid in the form of a
single-sum payment in cash unless, at least 1 year before such benefit
commencement date, the Participant makes a one-time election in writing to
receive such benefit in the form of annual or quarterly installment payments (in
accordance with the terms of this subsection). If a Participant elects the
installment form of distribution with respect to a benefit commencement date (as
selected in accordance with Section 5.1(b)(ii), at least 1 year before such
benefit commencement date the Participant may make a one-time election in
writing to further delay the payment of the benefit corresponding to such
benefit commencement date (by electing a longer term of installment payments in
accordance with the terms of this subsection). The following terms and
conditions shall apply to installment payments made under the Plan:
(i) The installment payments shall be made in substantially
equal installments over a period not to exceed 15 years (adjusted for
earnings between payments in the manner described in Section 3.5). The
initial value of the obligation for the installment payments shall be equal
to the amount of the Participant's Account balance calculated in accordance
with the terms of Section 5.1(a).
(ii) If a Participant dies after payment of his benefit from the
Plan has begun, but before his entire benefit has been distributed, the
remaining amount of his Account balance shall be distributed to the
Participant's designated Beneficiary in the form of a single-sum payment in
cash.
(iii) Notwithstanding a Participant?s election of installment
payments under this subsection (b), if a Participant?s employment with the
Controlling Company and all other members of the Controlled Group
terminates before a given benefit commencement date, his benefit
corresponding to such benefit commencement date shall be paid in the form
of a single-sum payment in cash.
5.3 DEATH BENEFITS.
--------------
14
<PAGE>
If a Participant dies before payment of his benefit from the Plan is
made or commenced, the Beneficiary or Beneficiaries designated by such
Participant in his latest beneficiary designation form filed with the
Administrative Committee shall be entitled to receive a distribution of the
total of (i) the entire vested amount credited to such Participant's Account,
determined as of the Valuation Date on which such distribution is processed;
plus (ii) the vested amount of Deferral and Matching Contributions made since
- ----
such Valuation Date; and minus (iii) the amount of any distributions made to the
-----
Participant since such Valuation Date. For purposes of this Section, the phrase
"Valuation Date on which such distribution is processed" refers to the Valuation
Date established for such purpose by administrative practice, even if actual
payment is made at a later date due to delays in valuation, administration or
any other procedure. The benefit shall be distributed to such Beneficiary or
Beneficiaries as soon as administratively feasible after the date of the
Participant's death, in the form of a single-sum payment in cash.
5.4 IN-SERVICE DISTRIBUTIONS.
------------------------
(a) HARDSHIP DISTRIBUTIONS. Upon receipt of an application for an in-
-----------------------
service hardship distribution and the Administrative Committee's decision, made
in its sole discretion, that a Participant has suffered a Financial Hardship,
such Participant shall be entitled to receive an in-service distribution. Such
distribution shall be paid in a single-sum payment in cash as soon as
administratively feasible after the Administrative Committee determines that the
Participant has incurred a Financial Hardship. The amount of such single-sum
payment shall be limited to the amount that the Administrative Committee
determines is reasonably necessary to meet the Participant's requirements
resulting from the Financial Hardship. The amount of such distribution shall
reduce the Participant's Account balance as provided in Section 3.4.
(b) DISTRIBUTIONS WITH FORFEITURE. Notwithstanding any other
-----------------------------
provision of this Article V to the contrary, a Participant may elect, at any
time prior to termination of his employment with the Controlling Company and all
other members of the Controlled Group, to receive a distribution of a portion of
the total of (i) the entire vested amount credited to his Account, determined as
of the Valuation Date on which such distribution is processed; plus (ii) the
----
vested amount of Deferral Contributions and Matching Contributions made since
such Valuation Date; and minus (iii) the amount of any distributions made to the
-----
Participant since such Valuation Date. Such distribution shall be made in the
form of a single-sum payment in cash as soon as administratively feasible after
the date of the Participant's election under this subsection (b). At the time
such distribution is made, an amount equal to 10% of the amount distributed
shall be permanently and irrevocably forfeited (and, if the distribution request
is for 90% or more of such Participant's Account, the forfeiture amount shall be
deducted from his distribution amount to the extent there otherwise will be an
insufficient remaining Account balance from which to deduct this forfeiture).
In addition, the Participant receiving such distribution shall immediately cease
to actively participate in the Plan and shall not be eligible to resume active
participation in the Plan for a period of 1 year after such distribution. Such
Participant may resume active participation in the Plan on the first day of the
calendar month coincident with or next following the 1-year anniversary of such
distribution by making a new Deferral Election and satisfying any other
procedures for admission under Section 2.2. If the Participant fails to make a
new Deferral Election before the date he is eligible to resume active
participation in the Plan, he shall be deemed to have elected not to participate
in the Plan for
15
<PAGE>
the remainder of that Plan Year.
5.5 BENEFICIARY DESIGNATION.
-----------------------
(a) GENERAL. Participants shall designate and from time to time may
-------
redesignate their Beneficiaries in such form and manner as the Administrative
Committee may determine.
(b) NO DESIGNATION OR DESIGNEE DEAD OR MISSING. In the event that:
------------------------------------------
(1) a Participant dies without designating a Beneficiary;
(2) the Beneficiary designated by a Participant is not surviving
when a payment is to be made to such person under the Plan, and no
contingent Beneficiary has been designated; or
(3) the Beneficiary designated by a Participant cannot be located
by the Administrative Committee within 1 year from the date benefits are to
be paid to such person;
then, in any of such events, the Beneficiary of such Participant with respect to
any benefits that remain payable under the Plan shall be the Participant's
Surviving Spouse, if any, and if not, the estate of the Participant.
5.6 TAXES.
-----
If the whole or any part of any Participant's or Beneficiary's benefit
hereunder shall become subject to any estate, inheritance, income or other tax
which the Participating Companies shall be required to pay or withhold, the
Participating Companies shall have the full power and authority to withhold and
pay such tax out of any monies or other property in its hand for the account of
the Participant or Beneficiary whose interests hereunder are so affected. Prior
to making any payment, the Participating Companies may require such releases or
other documents from any lawful taxing authority as it shall deem necessary.
Notwithstanding anything in the Plan to the contrary, the distribution of a
Participant?s benefit hereunder prior to his termination of employment with the
Company shall be limited to an amount that would not cause the Participant to
receive compensation that the Administrative Committee determines would not be
deductible under Code Section 162(m).
16
<PAGE>
ARTICLE VI
CLAIMS
------
6.1 CLAIMS.
------
(a) INITIAL CLAIM. Claims for benefits under the Plan may be filed
-------------
with the Administrative Committee on forms or in such other written documents,
as the Administrative Committee may prescribe. The Administrative Committee
shall furnish to the claimant written notice of the disposition of a claim
within 90 days after the application therefor is filed. In the event the claim
is denied, the notice of the disposition of the claim shall provide the specific
reasons for the denial, citations of the pertinent provisions of the Plan, and,
where appropriate, an explanation as to how the claimant can perfect the claim
and/or submit the claim for review.
(b) APPEAL. Any Participant or Beneficiary who has been denied a
------
benefit shall be entitled, upon request to the Administrative Committee, to
appeal the denial of his claim. The claimant (or his duly authorized
representative) may review pertinent documents related to the Plan and in the
Administrative Committee's possession in order to prepare the appeal. The
request for review, together with written statement of the claimant's position,
must be filed with the Administrative Committee no later than 60 days after
receipt of the written notification of denial of a claim provided for in
subsection (a). The Administrative Committee's decision shall be made within 60
days following the filing of the request for review. If unfavorable, the notice
of the decision shall explain the reasons for denial and indicate the provisions
of the Plan or other documents used to arrive at the decision.
(c) SATISFACTION OF CLAIMS. Any payment to a Participant or
----------------------
Beneficiary shall to the extent thereof be in full satisfaction of all claims
hereunder against the Administrative Committee and the Participating Companies,
any of whom may require such Participant or Beneficiary, as a condition to such
payment, to execute a receipt and release therefor in such form as shall be
determined by the Administrative Committee or the Participating Companies. If
receipt and release is required but the Participant or Beneficiary (as
applicable) does not provide such receipt and release in a timely enough manner
to permit a timely distribution in accordance with the general timing of
distribution provisions in the Plan, the payment of any affected distribution
may be delayed until the Administrative Committee or the Participating Companies
receive a proper receipt and release.
17
<PAGE>
ARTICLE VII
SOURCE OF FUNDS; TRUST
----------------------
7.1 SOURCE OF FUNDS.
---------------
Except as provided in this Section and Section 7.2 (relating to the
Trust), each Participating Company shall provide the benefits described in the
Plan from its general assets. However, to the extent that funds in such Trust
allocable to the benefits payable under the Plan are sufficient, the Trust
assets may be used to pay benefits under the Plan. If such Trust assets are not
sufficient to pay all benefits due under the Plan, then the appropriate
Participating Company shall have the obligation, and the Participant or
Beneficiary, who is due such benefits, shall look to the such Participating
Company to provide such benefits.
7.2 TRUST.
-----
(a) ESTABLISHMENT. To the extent determined by the Controlling
-------------
Company, the Participating Companies shall transfer the funds necessary to fund
benefits accrued hereunder to the Trustee to be held and administered by the
Trustee pursuant to the terms of the Trust Agreement. Except as otherwise
provided in the Trust Agreement, each transfer into the Trust Fund shall be
irrevocable as long as a Participating Company has any liability or obligations
under the Plan to pay benefits, such that the Trust property is in no way
subject to use by the Participating Company; provided, it is the intent of the
Controlling Company that the assets held by the Trust are and shall remain at
all times subject to the claims of the general creditors of the Participating
Companies.
(b) DISTRIBUTIONS. Pursuant to the Trust Agreement, the Trustee shall
-------------
make payments to Plan Participants and Beneficiaries in accordance with the
terms of the Plan. The Participating Company shall make provisions for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plan and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by the Participating Company.
(c) STATUS OF THE TRUST. No Participant or Beneficiary shall have any
-------------------
interest in the assets held by the Trust or in the general assets of the
Participating Companies other than as a general, unsecured creditor.
Accordingly, a Participating Company shall not grant a security interest in the
assets held by the Trust in favor of the Participants, Beneficiaries or any
creditor.
18
<PAGE>
ARTICLE VIII
ADMINISTRATIVE COMMITTEE
------------------------
8.1 ACTION.
------
Action of the Administrative Committee may be taken with or without a
meeting of committee members; provided, action shall be taken only upon the vote
or other affirmative expression of a majority of the committee members qualified
to vote with respect to such action. If a member of the committee is a
Participant or Beneficiary, he shall not participate in any decision which
solely affects his own benefit under the Plan. For purposes of administering
the Plan, the Administrative Committee shall choose a secretary who shall keep
minutes of the committee's proceedings and all records and documents pertaining
to the administration of the Plan. The secretary may execute any certificate or
any other written direction on behalf of the Administrative Committee.
8.2 RIGHTS AND DUTIES.
-----------------
The Administrative Committee shall administer the Plan and shall have
all powers necessary to accomplish that purpose, including (but not limited to)
the following:
(a) To construe, interpret and administer the Plan;
(b) To make determinations required by the Plan, and to maintain
records regarding Participants' and Beneficiaries' benefits hereunder;
(c) To compute and certify to the Participating Companies the amount
and kinds of benefits payable to Participants and Beneficiaries, and to
determine the time and manner in which such benefits are to be paid;
(d) To authorize all disbursements by the Participating Companies
pursuant to the Plan;
(e) To maintain all the necessary records of the administration of the
Plan;
(f) To make and publish such rules for the regulation of the Plan as
are not inconsistent with the terms hereof;
(g) To delegate to other individuals or entities from time to time the
performance of any of its duties or responsibilities hereunder;
(h) To hire agents, accountants, actuaries, consultants and legal
counsel to assist in operating and administering the Plan.
19
<PAGE>
The Administrative Committee shall have the exclusive right to construe and
interpret the Plan, to decide all questions of eligibility for benefits and to
determine the amount of such benefits, and its decisions on such matters shall
be final and conclusive on all parties.
8.3 COMPENSATION, INDEMNITY AND LIABILITY.
-------------------------------------
The Administrative Committee and its members shall serve as such
without bond and without compensation for services hereunder. All expenses of
the Administrative Committee shall be paid by the Participating Companies. No
member of the committee shall be liable for any act or omission of any other
member of the committee, nor for any act or omission on his own part, excepting
his own willful misconduct. The Participating Companies shall indemnify and
hold harmless the Administrative Committee and each member thereof against any
and all expenses and liabilities, including reasonable legal fees and expenses,
arising out of his membership on the committee, excepting only expenses and
liabilities arising out of his own willful misconduct.
20
<PAGE>
ARTICLE IX
AMENDMENT AND TERMINATION
-------------------------
9.1 AMENDMENTS.
----------
The Administrative Committee shall have the right, in its sole
discretion, to amend the Plan in whole or in part at any time and from time to
time. Any amendment shall be in writing and executed by a duly authorized
officer of the Controlling Company. An amendment to the Plan may modify its
terms in any respect whatsoever, and may include, without limitation, a
permanent or temporary freezing of the Plan such that the Plan shall remain in
effect with respect to existing Account balances without permitting any new
contributions; provided, no such action may reduce the amount already credited
to a Participant's Account without the affected Participant's written consent.
All Participants and Beneficiaries shall be bound by such amendment.
9.2 TERMINATION OF PLAN.
-------------------
The Controlling Company reserves the right to discontinue and
terminate the Plan at any time, for any reason. Any action to terminate the
Plan shall be taken by the Board in the form of a written Plan amendment
executed by a duly authorized officer of the Controlling Company. If the Plan
is terminated, each Participant shall become 100 percent vested in his Account
which shall be distributed in a single-sum payment in cash as soon as
practicable after the date the Plan is terminated. The amount of any such
distribution shall be determined as of the Valuation Date such termination
distribution is to be processed. Such termination shall be binding on all
Participants and Beneficiaries.
21
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
10.1 TAXATION.
--------
It is the intention of the Controlling Companies that the benefits
payable hereunder shall not be deductible by the Participating Companies nor
taxable for federal income tax purposes to Participants or Beneficiaries until
such benefits are paid by the Participating Companies, or the Trust, as the case
may be, to such Participants or Beneficiaries. When such benefits are so paid,
it is the intention of the Participating Companies that they shall be deductible
by the Participating Companies under Code Section 162.
10.2 NO EMPLOYMENT CONTRACT.
----------------------
Nothing herein contained is intended to be nor shall be construed as
constituting a contract or other arrangement between a Participating Company and
any Participant to the effect that the Participant will be employed by the
Participating Company for any specific period of time.
10.3 HEADINGS.
--------
The headings of the various articles and sections in the Plan are
solely for convenience and shall not be relied upon in construing any provisions
hereof. Any reference to a section shall refer to a section of the Plan unless
specified otherwise.
10.4 GENDER AND NUMBER.
-----------------
Use of any gender in the Plan will be deemed to include all genders
when appropriate, and use of the singular number will be deemed to include the
plural when appropriate, and vice versa in each instance.
10.5 ASSIGNMENT OF BENEFITS
----------------------
The right of a Participant or his Beneficiary to receive payments
under the Plan may not be anticipated, alienated, sold, assigned, transferred,
pledged, encumbered, attached or garnished by creditors of such Participant or
Beneficiary, except by will or by the laws of descent and distribution and then
only to the extent permitted under the terms of the Plan.
10.6 LEGALLY INCOMPETENT.
-------------------
The Administrative Committee, in its sole discretion, may direct that
payment be made to an incompetent or disabled person, whether because of
minority or mental or physical disability, to the guardian of such person or to
the person having custody of such person, without further liability on the part
of a Participating Company for the amount of such payment to the person on whose
account such payment is made.
10.7 GOVERNING LAW.
-------------
22
<PAGE>
The Plan shall be construed, administered and governed in all respects
in accordance with applicable federal law (including ERISA) and, to the extent
not preempted by federal law, in accordance with the laws of the State of
Georgia. If any provisions of this instrument shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
IN WITNESS WHEREOF, the Controlling Company has caused the Plan to be
executed by its duly authorized officer as of this _________ day of December,
1997.
AFC ENTERPRISES, INC.
By:________________________________
Title:__________________________
23
<PAGE>
EXHIBIT A
PARTICIPATING COMPANIES
-----------------------
(See [_] 1.22)
COMPANY NAMES EFFECTIVE DATE
- ------------- --------------
AFC Enterprises, Inc. January 1, 1998
A-1
<PAGE>
EXHIBIT 10.86
FIRST AMENDMENT TO THE
AFC ENTERPRISES, INC. DEFERRED COMPENSATION PLAN
THIS FIRST AMENDMENT to the AFC Enterprises, Inc. Deferred Compensation
Plan (the "Plan") is made as of the ___ day of ___________, 1998, by AFC
Enterprises, Inc. (the "Company".)
W I T N E S S E T H :
WHEREAS, the Company maintains the Plan for the benefit of the Company's
key management and highly compensated employees and the key management and
highly compensated employees of its affiliates; and
WHEREAS, pursuant to Section 9.1 of the Plan, the Company has the right to
amend the Plan at any time; and
WHEREAS, the Company desires to make certain changes to the Plan as
embodied herein;
NOW, THEREFORE, the Plan hereby is amended as follows:
1. The text of Section 1.2 in Article I is hereby amended by deleting
said text in its entirety and by substituting in lieu thereof the following:
1.2 ADMINISTRATIVE COMMITTEE shall mean the committee approved by the
------------------------
Board to administer the Plan, as provided in Article VIII; provided if
for any period of time the Board has not specifically appointed any
individuals to serve as members of the Administrative Committee under
the Plan, the members of the Administrative Committee of the AFC
Enterprises, Inc. 401(k) Savings Plan shall serve as the
Administrative Committee of the Plan during such period.
2. The changes made in Paragraph 1 shall be effective as of January 1,
1998.
3. Except as otherwise specified herein, the Plan shall remain in full
force and effect.
-1-
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this First Amendment on the date first above written.
AFC ENTERPRISES, INC.
By: _________________________________
Title:_______________________________
-2-
<PAGE>
EXHIBIT 21.1
List of Subsidiaries
1. AFC Properties, a Georgia corporation
2. Seattle Coffee Company, a Washington corporation
3. Cinnabon International, Inc., a Delaware corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMSRY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF THE COMPANY FOR THE YEAR ENDED DECEMBER 27, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 17,049
<SECURITIES> 0
<RECEIVABLES> 25,709
<ALLOWANCES> 4,901
<INVENTORY> 13,160
<CURRENT-ASSETS> 57,224
<PP&E> 378,988
<DEPRECIATION> 115,847
<TOTAL-ASSETS> 556,465
<CURRENT-LIABILITIES> 91,280
<BONDS> 345,150
0
0
<COMMON> 392
<OTHER-SE> 87,525
<TOTAL-LIABILITY-AND-EQUITY> 556,465
<SALES> 488,574
<TOTAL-REVENUES> 609,091
<CGS> 155,627
<TOTAL-COSTS> 591,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,063
<INTEREST-EXPENSE> 30,786
<INCOME-PRETAX> 12,869
<INCOME-TAX> 4,223
<INCOME-CONTINUING> 8,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,646
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
