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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 0-3930
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FRIENDLY ICE CREAM CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
MASSACHUSETTS 5812 04-2053130
(State of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code Number) Identification No.)
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1855 BOSTON ROAD
WILBRAHAM, MASSACHUSETTS 01095
(413) 543-2400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value Nasdaq National Market
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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 and 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 (Section 229.405 of this chapter) 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 /X/.
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based upon the closing sales price of the registrant's common stock
on March 11, 1998 on the National Market tier of the Nasdaq Stock Market, Inc.,
was $120,190,627. For purpose of the foregoing calculation only, all members of
the Board of Directors and executive officers of the registrant have been deemed
affiliates. The number of shares of common stock outstanding is 7,441,290 as of
March 11, 1998.
Documents incorporated by reference:
Part III of this 10-K incorporates information by reference from the
registrant's definitive proxy statement which will be filed no later than 120
days after December 28, 1997.
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Statements contained herein that are not historical facts, constitute
"forward looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. All forward looking statements are subject to
risks and uncertainties which could cause results to differ materially from
those anticipated. These factors include the Company's highly competitive
business environment, weather impact on the Company's businesses, exposure to
commodity prices, risks associated with the food service industry, the ability
to retain and attract new employees, government regulations, the Company's high
geographic concentration in the Northeast and conditions needed to meet
re-imaging and new opening targets. Other factors that may cause actual results
to differ from the forward looking statements contained herein and that may
affect the Company's prospects in general are included in the Company's other
filings with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
ORGANIZATION
Friendly's, founded in 1935, was publicly held from 1968 until January 1979,
at which time it was acquired by Hershey Foods Corporation ("Hershey"). In 1988,
The Restaurant Company ("TRC"), an investor group led by Donald Smith, the
Company's current Chairman, Chief Executive Officer and President, acquired
Friendly's from Hershey (the "TRC Acquisition"). In November 1997, the Company
completed a public offering of 5,000,000 shares (approximately 70%) of its
common stock for gross proceeds of $90 million and a public offering of $200
million of Senior Notes (collectively, "the Offerings"). Concurrent with the
Offerings, the Company entered into a new senior secured credit facility
consisting of (i) a $90 million term loan, (ii) a $55 million revolving credit
facility and (iii) a $15 million letter of credit facility (collectively, the
"New Credit Facility"). Proceeds from the Offerings and New Credit Facility
(collectively, the "Recapitalization") were primarily used to repay amounts
outstanding under the Company's existing credit facilities and thereby lengthen
the average maturity of the Company's indebtedness, reduce interest expense and
increase the Company's liquidity and operating and financial flexibility.
Unless the context indicates otherwise, (i) references herein to
"Friendly's" or the "Company" refer to Friendly Ice Cream Corporation, its
predecessors and its consolidated subsidiaries, (ii) references herein to "FICC"
refer to Friendly Ice Cream Corporation and not its subsidiaries and (iii) as
used herein, "Northeast" refers to the Company's core markets which include
Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island and Vermont. The Company's fiscal years ended January
2, 1994, January 1, 1995, December 31, 1995, December 29, 1996 and December 28,
1997 are referred to herein as 1993, 1994, 1995, 1996 and 1997, respectively.
GENERAL
Friendly's is the leading full-service restaurant operator and has a leading
position in premium frozen dessert sales in the Northeast. The Company owns and
operates 662 and franchises 34 full-service restaurants and manufactures a
complete line of packaged frozen desserts distributed through more than 5,000
supermarkets and other retail locations in 15 states. Friendly's offers its
customers a unique dining experience by serving a variety of high-quality,
reasonably-priced breakfast, lunch and dinner items, as well as its signature
frozen desserts, in a fun and casual neighborhood setting. For the year ended
December 28, 1997, Friendly's generated $667.5 million in total revenues and
$72.4 million in EBITDA (as defined herein) and incurred $39.3 million of
interest expense. During the same period, management estimates that over $223
million of total revenues were from the sale of approximately 21 million gallons
of frozen desserts.
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Friendly's restaurants target families with children and adults who desire a
reasonably-priced meal in a full-service setting. The Company's menu offers a
broad selection of freshly-prepared foods which appeal to customers throughout
all day-parts. The menu currently features over 100 items comprised of a broad
selection of breakfast, lunch, dinner and afternoon and evening snack items.
Breakfast items include specialty omelettes and breakfast combinations featuring
eggs, pancakes and bacon or sausage. Breakfasts generally range from $2.00 to
$6.00 and account for approximately 12% of average restaurant revenues. Lunch
and dinner items include a line of wrap sandwiches, entree salads, soups,
super-melts, specialty burgers, appetizers including quesadillas, mozzarella
cheese sticks and "Fronions", and stir-fry, chicken, pot pie, tenderloin steak
and seafood entrees. These lunch and dinner items generally range from $4.00 to
$9.00, and these day-parts account for approximately 53% of average restaurant
revenues. Entree selections are complemented by Friendly's premium frozen
desserts, including the Fribble-Registered Trademark-, the Company's signature
thick shake, Happy Ending-Registered Trademark- Sundaes, Candy
Shoppe-Registered Trademark- Sundaes, the Wattamelon Roll-Registered Trademark-
and fat-free Sorbet Smoothies. The Company's frozen desserts are an important
component of the Company's snack day-part which accounts for 35% of average
restaurant revenues.
Despite the Company's capital constraints, management implemented a number
of initiatives to restore and improve operational and financial efficiencies.
From the date of the TRC Acquisition through 1994, the Company (i) implemented a
major revitalization of its restaurants, (ii) repositioned the Friendly's
concept from a sandwich and ice cream shoppe to a full-service, family-oriented
restaurant with broader menu and day-part appeal, (iii) elevated customer
service levels by recruiting more qualified managers and expanding the Company's
training program, (iv) disposed of 123 under-performing restaurants and (v)
capitalized upon the Company's strong brand name recognition by initiating the
sale of Friendly's unique line of packaged frozen desserts through retail
locations.
Beginning in 1994, the Company began implementing several growth initiatives
including (i) testing and implementing a program to expand the Company's
domestic distribution network by selling frozen desserts and other menu items
through non-traditional locations, (ii) distributing frozen desserts
internationally by introducing dipping stores in South Korea and the United
Kingdom and (iii) implementing a franchising strategy to extend profitably the
Friendly's brand without the substantial capital required to build new
restaurants.
CAPITAL INVESTMENT PROGRAM
A significant component of the Company's capital investment program is the
FOCUS 2000 initiative which is designed to establish a consistent, enhanced
Friendly's brand image across the Company's entire restaurant operations. The
Company's capital spending strategy seeks to increase comparable restaurant
revenues and restaurant cash flow through the on-going revitalizing and
re-imaging of existing restaurants and to increase total restaurant revenues
through the addition of new restaurants. The following illustrates the key
components of the Company's capital spending program.
RESTAURANT RE-IMAGING. The Company completed the re-imaging of 43
restaurants in 1997 at an estimated cost of $153,000 per restaurant (not
including costs related to development of the prototype). This cost typically
includes interior and exterior redecoration and a new exterior lighting package.
The Company believes that efficiencies and economics associated with remodeling
a large number of restaurants will reduce the average cost of the re-imaging in
1998 and beyond. The Company expects to complete the re-imaging of approximately
138 restaurants during 1998.
NEW RESTAURANT CONVERSION AND CONSTRUCTION. The Company converted one
restaurant in 1997 at a cost of approximately $500,000. The Company constructed
two new restaurants in 1997 at a cost of approximately $900,000 per restaurant,
excluding land and pre-opening expenses. The Company expects to complete the
conversion or construction of approximately 11 restaurants during 1998.
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SEATING CAPACITY EXPANSION PROGRAM. Since the TRC Acquisition and through
December 28, 1997, the Company has expanded seating capacity by an average of 50
seats at 28 restaurants at an average cost of $290,000 per restaurant. The
Company completed the expansion of seven restaurants in 1997 at an average cost
of $244,000 per restaurant. This cost typically includes adding 50 seats per
restaurant, relocating certain equipment and increasing parking capacity where
necessary. The Company expects to complete the expansion of approximately four
restaurants during 1998.
INSTALLATION OF RESTAURANT AUTOMATION SYSTEMS. Since the TRC Acquisition
and through December 28, 1997, the Company has installed touch-screen point of
sale ("POS") register systems in approximately 340 restaurants at an average
cost of $34,000 per restaurant. These POS register systems are designed to
improve revenue realization, food cost management and labor scheduling while
increasing the speed and accuracy of processing customer orders. The Company
expects to install POS register systems in approximately 50 restaurants during
1998.
FRANCHISING PROGRAM
The Company recently initiated a franchising strategy to expand its
restaurant presence in under-penetrated markets, accelerate restaurant growth in
new markets, increase marketing and distribution efficiencies and preempt
competition by acquiring restaurant locations in the Company's targeted markets.
With the substantial completion of the Company's restaurant revitalization
program, the development and initial deployment of its two new freestanding
restaurant prototypes and the successful introduction of its new dinner line,
the Company believes it is in a position to maximize the value of its brand
appeal to prospective franchisees. The Company's wholly owned subsidiary,
Friendly's Restaurants Franchise, Inc. ("FRFI") commenced operations in 1996 for
the purpose of franchising various restaurant concepts. Since it began
operations, FRFI has developed and now offers a franchise program for both
Friendly's restaurants and Friendly's Cafes. The Company seeks franchisees who
have related business experience, capital adequacy to build-out the Friendly's
concept and no operations which have directly competitive restaurant or food
concepts.
On July 14, 1997, the Company entered into a long-term agreement granting
DavCo Restaurants, Inc. ("DavCo"), a franchisor of more than 230 Wendy's
restaurants, exclusive rights to operate, manage and develop Friendly's
full-service restaurants in the franchising region of Maryland, Delaware, the
District of Columbia and northern Virginia (the "DavCo Agreement"). Pursuant to
the DavCo Agreement, DavCo has purchased certain assets and rights in 34
existing Friendly's restaurants in this franchising region, has committed to
open an additional 74 restaurants over the next six years and, subject to the
fulfillment of certain conditions, has further agreed to open 26 additional
restaurants, for a total of 100 new restaurants in this franchising region over
the next ten years. DavCo will also manage under contract 13 other Friendly's
locations in this franchising region with an option to acquire these restaurants
in the future. Friendly's receives (i) a royalty based on franchised restaurant
revenues and (ii) revenues and earnings from the sale to DavCo of Friendly's
frozen desserts and other products. DavCo is required to purchase from
Friendly's all of the frozen desserts to be sold in these restaurants.
The Company does not have significant experience in franchising restaurants
and there can be no assurance that the Company will continue to successfully
locate and attract suitable franchisees or that such franchisees will have the
business abilities or sufficient access to capital to open restaurants or will
operate restaurants in a manner consistent with the Company's concept and
standards or in compliance with franchise agreements. The success of the
Company's franchising program will also be dependent upon certain other factors,
certain of which are not within the control of the Company or its franchisees,
including the availability of suitable sites on acceptable lease or purchase
terms, permitting and regulatory compliance and general economic and business
conditions.
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CARRYOUT OPERATIONS
Through dedicated carryout areas, Friendly's restaurants offer the Company's
full line of frozen desserts and certain of its food menu items. Reserved
parking is available at many of the Company's free-standing restaurants to
facilitate quick carryout service. Approximately 15% of the Company's average
freestanding restaurant revenues are derived from its carryout business with a
significant portion of these sales occurring during the afternoon and evening
snack periods. Of this 15%, approximately 5% comes from sales of packaged frozen
desserts in display cases within its restaurants.
RETAIL OPERATIONS
In 1989, the Company extended its premium packaged frozen dessert line from
its restaurants into retail locations. The Company offers a branded product line
that includes approximately 60 half gallon varieties featuring premium ice cream
shoppe flavors and unique sundae combinations, low and no fat frozen yogurt, low
fat ice cream and sherbet. Specialty flavors include Royal Banana Split,
Cappuccino Dream-TM- and Caramel Fudge Nut Blast-TM-, and proprietary products
include the Jubilee Roll-Registered Trademark-, Wattamelon
Roll-Registered Trademark- and Friendly's branded ice cream cakes and pies. The
Company also licenses from Hershey the right to feature certain candy brands
including Almond Joy-Registered Trademark-, Mr. Goodbar-Registered Trademark-,
Reese's Pieces-Registered Trademark-, Reese's-Registered Trademark- Peanut
Butter Cups and York-Registered Trademark- Peppermint Patties on packaged sundae
cups and pints.
The Company focuses its marketing and distribution efforts in areas where it
has higher restaurant penetration and consumer awareness. During the initial
expansion of its retail business in 1989 and 1990, Albany, Boston and
Hartford/Springfield were primary markets of opportunity. The Company added the
New York and Philadelphia markets to its retail distribution efforts in 1992 and
1993.
The Company expects to continue building its retail distribution business in
its current retail markets. In these markets, the Company intends to increase
shelf space with existing accounts and add new accounts by (i) capitalizing on
its integrated restaurant and retail consumer advertising and promotion
programs, (ii) continuing new product introductions and (iii) improving trade
merchandising initiatives. Additionally, the Company expects to continue to
selectively enter new markets where its brand awareness is high according to
market surveys.
The Company has developed a broker/distributor network designed to protect
product quality through proper product handling and to enhance the merchandising
of the Company's frozen desserts. The Company's experienced sales force manages
this network to serve specific retailer needs on a market-by-market basis. In
addition, the Company's retail marketing and sales departments coordinate market
development plans and key account management programs.
NON-TRADITIONAL LOCATIONS
In order to capitalize on both planned and impulse purchases, the Company is
leveraging the Friendly's brand name and enhancing consumer awareness by
introducing modified formats of the Friendly's concept into non-traditional
locations. These modified formats include (i) Friendly's Cafe, a quick service
concept offering frozen desserts and a limited menu, (ii) Friendly's branded ice
cream shoppes offering freshly-scooped and packaged frozen desserts and (iii)
Friendly's branded display cases and novelty carts with packaged single-serve
frozen desserts. The first Friendly's Cafe opened in October 1997. The Company
supplies frozen desserts to non-traditional locations such as colleges and
universities, sports facilities, amusement parks, secondary school systems and
business cafeterias directly or through selected vendors pursuant to multi-year
license agreements.
INTERNATIONAL OPERATIONS
The Company, through its FII subsidiary, has a master license agreement with
a South Korean enterprise to develop Friendly's "Great American" ice cream
shoppes offering freshly-scooped and
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packaged frozen desserts. As of December 28, 1997, the licensee and its
sublicensees were operating 23 ice cream shoppes. FII also has various licensing
arrangements with several companies in the United Kingdom under which certain of
the Company's frozen desserts are distributed in the United Kingdom. The
Company's strategy in the United Kingdom is to sell Friendly's branded frozen
deserts in full and quick-service restaurants, movie theaters, railway and bus
stations, shopping malls and airport locations pursuant to license agreements.
Non-restaurant locations will vary from full dipping stations to sundae station
kiosks or sundae carts. In addition, the Company's products will be distributed
to selected retailers for resale. In addition, the Company is a 50% partner in a
joint venture in Shanghai, China which has manufactured and distributed frozen
desserts on a limited basis. The joint venture is currently seeking additional
distribution for its products in China. In markets where a capital investment by
the Company is required to introduce its brand, the Company seeks to monetize
such investment by entering into franchising or licensing arrangements, and
subsequently to redeploy its capital, if necessary, into new international
markets.
The Company's international operations are subject to various risks,
including changing political and economic conditions, currency fluctuations,
trade barriers, trademark rights, adverse tax consequences, import tariffs,
customs and duties and government regulations. Government regulations, relating
to, among other things, the preparation and sale of food, building and zoning
requirements, wages, working conditions and the Company's relationship with its
employees, may vary widely from those in the United States. There can be no
assurance that the Company will be successful in maintaining or expanding its
international operations.
MARKETING
The Company's marketing strategy is to continue to strengthen Friendly's
brand equity and further capitalize on its strong customer awareness to
profitably build revenues across all businesses. The primary advertising
message, built around its "Leave room for the ice cream-TM-" slogan, focuses on
introducing new lunch and dinner products or line extensions in combination with
unique frozen desserts. Management utilizes this strategy to encourage consumer
trial of new products and increase the average guest check while reinforcing
Friendly's unique food-with-ice-cream experience. The Company's
food-with-ice-cream promotions also build sales of packaged frozen desserts in
its restaurants and in retail locations.
The Company's media plan is designed to build awareness and increase trial
among key target audiences while optimizing spending by market based on media
cost efficiencies. The Company classifies markets based upon restaurant
penetration and the resulting advertising and promotion costs per restaurant.
The Company's 19 most highly-penetrated markets are supported with regular spot
television advertisements from March through December. The Company augments its
marketing efforts in these markets with radio advertising to target the
breakfast day-part or to increase the frequency of the promotional message. In
addition, the Company supports certain of these highly-penetrated markets
(Albany, Boston, Hartford-Springfield and Providence) during the peak summer
season with additional television media focusing on freshly-scooped and packaged
frozen desserts. In its secondary markets, the Company utilizes more
cost-effective local store marketing initiatives such as radio, direct mail and
newspaper advertising. All of the Company's markets are supported with an
extensive promotional coupon program.
The Company believes that its integrated restaurant and retail marketing
efforts provide significant support for the development of its retail business.
Specifically, the retail business benefits from the awareness and trial of
Friendly's product offerings generated by 32 weeks of food-with-ice-cream
advertising and couponing efforts. The Company believes that this approach
delivers a significantly higher level of consumer exposure and usage compared to
the Company's packaged frozen dessert competitors which have only retail
distribution. In turn, sales of the Company's products through more than 5,000
retail locations, supported by trade merchandising efforts, build incremental
awareness and usage of Friendly's which management believes benefits the
restaurants. Advertising and promotion expenditures were approximately $21
million for 1997.
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CERTAIN RISKS ASSOCIATED WITH THE FOOD SERVICE INDUSTRY
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns, the cost and availability of labor, purchasing power, availability of
products and the type, number and location of competing restaurants. The Company
could also be substantially adversely affected by publicity resulting from food
quality, illness, injury or other health concerns or alleged discrimination or
other operating issues stemming from one location or a limited number of
locations, whether or not the Company is liable. In addition, factors such as
increased cost of goods, regional weather conditions and the potential scarcity
of experienced management and hourly employees may also adversely affect the
food service industry in general and the results of operations and financial
condition of the Company.
MANUFACTURING
The Company produces substantially all of its frozen desserts in two
Company-owned manufacturing plants which employ a total of approximately 300
people. The Wilbraham, Massachusetts plant occupies approximately 41,000 square
feet of manufacturing space while the Troy, Ohio plant utilizes approximately
18,000 square feet. During 1997, the combined plants operated at an average
capacity of 67.0% and produced (i) over 17.0 million gallons of ice cream,
sherbets and yogurt in bulk, half-gallons and pints, (ii) nine million sundae
cups, (iii) 1.4 million frozen dessert rolls, pies and cakes and (iv) more than
1.2 million gallons of fountain syrups and toppings. The Company, through its
Shanghai, China joint venture, also owns a 13,000 square foot ice cream
manufacturing facility. The quality of the Company's products is important, both
to sustain Friendly's image and to enable the Company to satisfy customer
expectations. Wherever possible, the Company "engineers in" quality by
installing modern processes such as computerized mix-making equipment and
monitoring devices to ensure all storage tanks and rooms are kept at proper
temperatures for maximum quality.
PURCHASING AND DISTRIBUTION
The basic raw materials for the Company's frozen desserts are dairy products
and sugar. The Company's purchasing department purchases other food products,
such as coffee, in large quantities. Although the Company generally does not
hedge its positions in any of these commodities, it may opportunistically
purchase some of these items in advance of a specific need. As a result, the
Company is subject to the risk of substantial and sudden price increases,
shortages or interruptions in supply of such items, which could have a material
adverse effect on the Company.
In conjunction with the Company's product development department, the
Company's purchasing department evaluates the cost and quality of all major food
items on a quarterly basis and purchases these items through numerous vendors
with which it has long-term relationships. The Company contracts with vendors on
an annual, semiannual, or monthly basis depending on the item and the
opportunities within the marketplace. In order to promote competitive pricing
and uniform vendor specifications, the Company contracts directly for such
products as produce, milk and bread and other commodities and services. The
Company also minimizes the cost of all restaurant capital equipment by
purchasing directly from manufacturers or pooling volumes with master
distributors.
The Company owns two distribution centers and leases a third which allow the
Company to control quality, costs and inventory from the point of purchase
through restaurant delivery. The Company distributes most product lines to its
restaurants, and its packaged frozen desserts to its retail customers, from
warehouses in Chicopee and Wilbraham, Massachusetts and Troy, Ohio with a
combined non-union workforce of approximately 250 employees. The Company's truck
fleet delivers all but locally-sourced produce, milk and selected bakery
products to its restaurants at least weekly, and during the highest-sales
periods, delivers to over 50% of Friendly's restaurants twice-per-week. The
Chicopee, Wilbraham and Troy warehouses encompass 54,000 square feet, 109,000
square feet and 42,000 square feet, respectively. The
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Company believes that these distribution facilities operate at or above industry
standards with respect to timeliness and accuracy of deliveries.
The Company has distributed its products since its inception to protect the
product integrity of its frozen desserts. The Company delivers products to its
restaurants on its own fleet of tractors and trailers which display large-scale
images of the Company's featured products. The entire fleet is specially built
to be compatible with storage access doors, thus protecting frozen desserts from
"temperature shock." Recently acquired trailers have an innovative design which
provides individual temperature control for three distinct compartments. To
provide additional economies to the Company, the truck fleet backhauls on over
50% of its delivery trips, bringing the Company's purchased raw materials and
finished products back to the distribution centers.
HUMAN RESOURCES AND TRAINING
The average Friendly's restaurant employs between two and four salaried team
members, which may include one General Manager, one Assistant Manager, one Guest
Service Supervisor and one Manager-in-Training. The General Manager is directly
responsible for day-to-day operations. General Managers report to a District
Manager who typically has responsibility for an average of seven restaurants.
District Managers report to a Division Manager who typically has responsibility
for approximately 50 restaurants. Division Managers report to a Regional Vice
President who typically has responsibility for six or seven Division Managers
covering approximately 350 restaurants.
The average Friendly's restaurant is staffed with four to ten employees per
shift, including the salaried restaurant management. Shift staffing levels vary
by sales volume level, building configuration and time of day. The average
restaurant typically utilized approximately 38,500 hourly-wage labor hours in
1997 in addition to salaried management.
EMPLOYEES
The total number of employees at the Company varies between 24,000 and
28,000 depending on the season of the year. As of December 28, 1997, the Company
employed approximately 24,000 employees, of which approximately 23,000 were
employed in Friendly's restaurants (including approximately 110 in field
management), approximately 550 were employed at the Company's two manufacturing
and three distribution facilities and approximately 450 were employed at the
Company's corporate headquarters and other offices. None of the Company's
employees is a party to a collective bargaining agreement.
LICENSES AND TRADEMARKS
The Company is the owner or licensee of the trademarks and service marks
(the "Marks") used in its business. The Marks "Friendly-Registered Trademark-"
and "Friendly's-Registered Trademark-" are owned by the Company pursuant to
registrations with the U.S. Patent and Trademark office.
Upon the sale of the Company by Hershey in 1988, all of the Marks used in
the Company's business at that time which did not contain the word "Friendly" as
a component of such Marks (the "1988 Non-Friendly Marks"), such as
Fribble-Registered Trademark-, Fishamajig-Registered Trademark- and
Clamboat-Registered Trademark- were licensed by Hershey to the Company. The 1988
Non-Friendly Marks license has a term of 40 years expiring on September 2, 2028.
Such license included a prepaid license fee for the term of the license which is
renewable at the Company's option for an additional term of 40 years and has a
license renewal fee of $20.0 million.
Hershey also entered into non-exclusive licenses with the Company for
certain candy trademarks used by the Company in its frozen dessert sundae cups
(the "Cup License") and pints (the "Pint License"). The Cup License and Pint
License automatically renew for unlimited one-year terms subject to certain
nonrenewal rights held by both parties. Hershey is subject to a noncompete
provision in the sundae cup business for a period of two years if the Cup
License is terminated by Hershey without cause, provided that
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the Company maintains its current level of market penetration in the sundae cup
business. However, Hershey is not subject to a noncompete provision if it
terminates the Pint License without cause.
The Company also has a non-exclusive license agreement with Leaf, Inc.
("Leaf") for use of the Heath-Registered Trademark- Bar candy trademark. The
term of the royalty-free Leaf license continues indefinitely subject to
termination by Leaf upon 60 days notice. Excluding the Marks subject to the
licenses with Hershey and Leaf, the Company is the owner of its Marks.
COMPETITION
The restaurant business is highly competitive and is affected by changes in
the public's eating habits and preferences, population trends and traffic
patterns, as well as by local and national economic conditions affecting
consumer spending habits, many of which are beyond the Company's control. Key
competitive factors in the industry are the quality and value of the food
products offered, quality and speed of service, attractiveness of facilities,
advertising, name brand awareness and image and restaurant location. Each of the
Company's restaurants competes directly or indirectly with locally-owned
restaurants as well as restaurants with national or regional images, and to a
limited extent, restaurants operated by its franchisees. A number of the
Company's significant competitors are larger or more diversified and have
substantially greater resources than the Company. The Company's retail
operations compete with national and regional manufacturers of frozen desserts,
many of which have greater financial resources and more established channels of
distribution than the Company. Key competitive factors in the retail food
business include brand awareness, access to retail locations, price and quality.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws affecting
its business. Each Friendly's restaurant is subject to licensing and regulation
by a number of governmental authorities, which include health, safety,
sanitation, building and fire agencies in the state or municipality in which the
restaurant is located. Difficulties in obtaining or failures to obtain required
licenses or approvals, or the loss of such licenses and approvals once obtained,
can delay, prevent the opening of, or close, a restaurant in a particular area.
The Company is also subject to Federal and state environmental regulations, but
these have not had a material adverse effect on the Company's operations.
The Company's relationships with its current and potential franchisees is
governed by the laws of its several states which regulate substantive aspects of
the franchisor-franchisee relationship. Substantive state laws that regulate the
franchisor-franchisee relationship presently exist or are being considered in a
substantial number of states, and bills have been introduced in Congress (one of
which is now pending) which would provide for Federal regulation of substantive
aspects of the franchisor-franchisee relationship. These current and proposed
franchise relationship laws limit, among other things, the duration and scope of
non-competition provisions, the ability of a franchisor to terminate or refuse
to renew a franchise and the ability of a franchisor to designate sources of
supply.
The Company's restaurant operations are also subject to Federal and state
laws governing such matters as wages, hours, working conditions, civil rights
and eligibility to work. Some states have set minimum wage requirements higher
than the Federal level, and the Federal government recently increased the
Federal minimum wage. In September 1997, the second phase of an increase in the
minimum wage was implemented in accordance with the Federal Fair Labor Standards
Act of 1996. Significant numbers of hourly personnel at the Company's
restaurants are paid at rates related to the Federal minimum wage and,
accordingly, increases in the minimum wage will increase labor costs at the
Company's restaurants. Other governmental initiatives such as mandated health
insurance, if implemented, could adversely affect the Company as well as the
restaurant industry in general. The Company is also subject to the Americans
with Disabilities Act of 1990, which, among other things, may require certain
minor renovations to its restaurants to meet federally-mandated requirements.
The cost of these renovations is not expected to be material to the Company.
8
<PAGE>
ITEM 2. PROPERTIES
The table below identifies the location of the 696 restaurants operating as
of December 28, 1997.
<TABLE>
<CAPTION>
COMPANY-OWNED/LEASED
------------------------------------
FREESTANDING OTHER FRANCHISED TOTAL
STATE RESTAURANTS RESTAURANTS (A) RESTAURANTS (B) RESTAURANTS
- ----------------------------------------------------- --------------- ------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Connecticut.......................................... 49 20 -- 69
Delaware............................................. -- 1 6 7
Florida.............................................. 13 2 -- 15
Maine................................................ 10 -- -- 10
Maryland............................................. 3 7 22 32
Massachusetts........................................ 116 37 -- 153
Michigan............................................. 1 -- -- 1
New Hampshire........................................ 14 6 -- 20
New Jersey........................................... 47 18 -- 65
New York............................................. 130 33 -- 163
Ohio................................................. 57 3 -- 60
Pennsylvania......................................... 52 13 -- 65
Rhode Island......................................... 8 -- -- 8
Vermont.............................................. 8 2 -- 10
Virginia............................................. 10 2 6 18
--
--- --- ---
Total................................................ 518 144 34 696
--
--
--- --- ---
--- --- ---
</TABLE>
- ------------------------
(a) Includes primarily malls and strip centers.
(b) The franchised restaurants (representing 30 freestanding and four other
restaurants have been leased or subleased to DavCo pursuant to the DavCo
Agreement.
The 548 freestanding restaurants, including 30 franchised to DavCo, range in
size from approximately 2,600 square feet to approximately 5,000 square feet.
The 148 mall and strip center restaurants, including four franchised to DavCo,
average approximately 3,000 square feet. Of the 662 restaurants operated by the
Company at December 28, 1997, the Company owned the buildings and the land for
279 restaurants, owned the buildings and leased the land for 146 restaurants,
and leased both the buildings and the land for 237 restaurants. The Company's
leases generally provide for the payment of fixed monthly rentals and related
occupancy costs (e.g., property taxes, common area maintenance and insurance).
Additionally, most mall and strip center leases require the payment of common
area maintenance charges and incremental rent of between 3.0% and 6.0% of the
restaurant's sales.
In addition to the Company's restaurants, the Company owns (i) an
approximately 260,000 square foot facility on 46 acres in Wilbraham,
Massachusetts which houses the corporate headquarters, a manufacturing facility
and a warehouse, (ii) an approximately 77,000 square foot office, manufacturing
and warehouse facility on 13 acres in Troy, Ohio and (iii) an approximately
18,000 square foot restaurant construction and maintenance service facility
located in Wilbraham, Massachusetts. The Company leases (i) an approximately
60,000 square foot distribution facility in Chicopee, Massachusetts, (ii) an
approximately 38,000 square foot restaurant construction and maintenance support
facility in Ludlow, Massachusetts and (iii) on a short-term basis, space for its
division and regional offices, its training and development center and other
support facilities.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is named as a defendant in legal actions
arising in the ordinary course of its business. The Company is not party to any
pending legal proceedings other than routine litigation
9
<PAGE>
incidental to its business. The Company does not believe that the resolutions of
these claims should have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
A special meeting of the shareholders of FICC was held on October 24, 1997
at FICC's offices at which the following actions were taken:
Item 1. Approval of Restated Articles of Organization of FICC which (a)
authorizes 50,000,000 shares of Common Stock and 1,000,000 shares of "blank
check" Preferred Stock; (b) provides for a classified Board of Directors;
(c) provides for the removal of directors only for cause upon the
affirmative vote of (i) the holders of at least a majority of the shares
entitled to vote or (ii) a majority of the directors then in office; and (d)
provides for the Board of Directors to fix the exact number of directors and
to fill any vacancies by a vote of a majority of the directors then in
office. Such Restated Articles of Organization became effective on November
14, 1997.
Item 2. Approval of Restated By-laws of FICC which (a) provides that a
shareholder seeking to have any business conducted at a meeting of
shareholders give notice to the Company prior to the scheduled meeting; (b)
provides that a special shareholders meeting may be called only by the Board
of Directors, Chairman or President of FICC; (c) provides for a classified
Board of Directors; (d) provides for the removal of directors only for cause
upon the affirmative vote of (i) the holders of at least a majority of the
shares entitled to vote or (ii) a majority of the directors then in office;
(e) provides for the Board of Directors to fix the exact number of directors
and to fill any vacancies by a vote of a majority of the directors then in
office; and (f) provides that the anti-takeover provisions contained in the
Restated By-laws may not be amended by the shareholders except upon the
affirmative vote of two-thirds of the shares entitled to vote on any matter.
Such Restated By-laws became effective on November 14, 1997.
Item 3. Approval of FICC's Stock Option Plan.
Item 4. Approval of FICC's Restricted Stock Plan.
Item 5. The election of Michael J. Daly and Burton J. Manning as Class I
Directors, each for a term commencing on November 14, 1997 to serve until
the 1998 Annual Meeting and until his successor is duly elected and
qualified, Steven L. Ezzes and Charles A. Ledsinger, Jr. as Class II
Directors, each for a term commencing on November 14, 1997 to serve until
the 1999 Annual Meeting and Donald N. Smith as the Class III Director, for a
term commencing on November 14, 1997 to serve until the 2000 Annual Meeting
and until his successor is duly elected and qualified.
Shareholders of record at the close of business on October 15, 1997 were
entitled to vote at such special meeting. Only Class A Common Shareholders were
entitled to vote on all 5 items described above. The Class B Common Shareholders
were entitled to vote on items 1, 2 and 5.
Of the 1,391.647 Class A Common Stock shares issued and outstanding as of
the record date, 1,035.917 were entitled to vote by being present in person or
by proxy. All 1,285.67 shares of Class B Common Stock issued and outstanding as
of the record date were present by proxy and entitled to vote. Items 1, 2 and 5
were approved by the Class A and Class B shareholders by collectively voting
2,321.59 shares in favor of such proposals. Items 3 and 4 were approved by Class
A shareholders voting 1,035.917 shares in favor of such proposals. There were no
abstentions, votes against, votes withheld or broker non-votes with respect to
any of the proposals or nominees.
10
<PAGE>
EXECUTIVE OFFICERS
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of FICC and their respective ages and positions with
the Company are as follows:
DONALD N. SMITH, 57, has been Chairman, Chief Executive Officer and
President since September 1988. Mr. Smith has also been Chairman of the Board
and Chief Executive Officer of TRC and Perkins Management Company, Inc. ("PMC"),
a subsidiary of TRC, since November 1985. Prior to joining TRC, Mr. Smith was
President and Chief Executive Officer for Diversifoods, Inc. from 1983 to
October 1985. From 1980 to 1983, Mr. Smith was Senior Vice President, PepsiCo.,
Inc. and was President of its Food Service Division. He was responsible for the
operations of Pizza Hut Inc. and Taco Bell Corp., as well as North American Van
Lines, Lee Way Motor Freight, Inc., PepsiCo. Foods International and LaPetite
Boulangerie. Prior to 1980, Mr. Smith was President and Chief Executive Officer
of Burger King Corporation and Senior Executive Vice President and Chief
Operations Officer for McDonald's Corporation.
PAUL MCDONALD, 54, has been Senior Executive Vice President, Chief
Administrative Officer and Assistant Clerk since January 1996. Mr. McDonald has
been employed in various capacities with the Company since 1976. Mr. McDonald
has held the positions of Director of Management Information Systems, Vice
President/Controller, Vice President Corporate Development and Vice President,
Finance and Chief Financial Officer. Mr. McDonald is a certified public
accountant.
JOSEPH A. O'SHAUGHNESSY, 62, has been Senior Executive Vice President since
October 1988. Mr. O'Shaughnessy has been employed in various capacities with the
Company since 1957. Mr. O'Shaughnessy's duties have included District and
Division Manager, Director and Vice President of Operations and Executive Vice
President.
GERALD E. SINSIGALLI, 59, has been President, FoodService Division of the
Company since January 1989. Mr. Sinsigalli has been employed in various
capacities with the Company since 1965. Mr. Sinsigalli's duties have included
District and Division Manager, Director and Vice President of Operations and
Senior Vice President.
DENNIS J. ROBERTS, 49, has been Senior Vice President, Restaurant
Operations of the Company since January 1996. Mr. Roberts has been employed in
various capacities with the Company since 1969. Mr. Roberts' duties have
included Restaurant, District and Division Manager, Regional Training Manager,
Director and Vice President of Restaurant Operations.
SCOTT D. COLWELL, 40, has been Vice President, Marketing of the Company
since January 1996. Mr. Colwell has been employed in various capacities with the
Company since 1982 including Director, New Business Development; Senior
Director, Marketing and Sales and Senior Director, Retail Business.
HENRY V. PETTIS III, 52, has been employed by the Company since 1990 and
became Vice President, Franchising and Operations Services in 1996. Mr. Pettis
was President and Chief Executive Officer of Florida Food Industries from 1988
to 1990.
GEORGE G. ROLLER, 50, has been Vice President, Finance and Chief Financial
Officer and Treasurer of the Company since January 1996. Mr. Roller was Vice
President and Treasurer of the Company from 1989 until January 1996. Mr. Roller
is a certified public accountant.
GARRETT J. ULRICH, 47, has been Vice President, Human Resources since
September 1991. Mr. Ulrich held the position of Vice President, Human Resources
for Dun & Bradstreet Information Services, North America from 1988 to 1991. From
1978 to 1988, Mr. Ulrich held various Human Resource executive and managerial
positions at Pepsi Cola Company, a division of PepsiCo.
11
<PAGE>
AARON B. PARKER, 40, has been Associate General Counsel and Clerk of the
Company since August, 1997. He served as Associate General Counsel and Assistant
Clerk of the Company since 1989. He also served as the Company's Managing
Director of International Business from 1994 to 1996. Mr. Parker served as
Special Counsel to TRC from 1986 to 1996. Mr. Parker served as Associate General
Counsel of PMC from 1986 through 1988. Prior to joining TRC and PMC, Mr. Parker
was in private practice with the law firm of Wildman, Harrold, Allen, Dixon &
McDonnell.
ALLAN J. OKSCIN, 46, has been Corporate Controller since 1989. Mr. Okscin
has been employed in various capacities with the Company since 1977. Mr.
Okscin's duties have included Assistant Controller and several managerial
positions in Financial Reporting, Financial Services, and Internal Auditing, as
well as Supervisor of Corporate Accounting. Prior to joining the Company, Mr.
Okscin worked for Coopers & Lybrand. Mr. Okscin is a certified public
accountant.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
FICC's common stock trades under the symbol FRND and is listed on the Nasdaq
National Market. The following table sets forth the closing high and low sale
price per share of the Company's common stock for the period from the Company's
initial public offering (November 14, 1997) to December 28, 1997. Prior to
November 14, 1997, no established public trading market existed for the Common
Stock.
MARKET PRICE OF COMMON STOCK
<TABLE>
<CAPTION>
1997 HIGH LOW
- --------------------------------------------------------- --------- ---------
<S> <C> <C>
Fourth Quarter........................................... $ 17 3/8 $ 11 3/8
</TABLE>
The number of shareholders of record of FICC's common stock as of March 10,
1998 was 267.
The Company currently intends to retain its earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Any determination as to the payment of
dividends will depend upon the future results of operations, capital
requirements and financial condition of the Company and its subsidiaries and
such other facts as the Board of Directors of the Company may consider,
including any contractual or statutory restrictions on the Company's ability to
pay dividends. The Company's New Credit Facility and the Indenture relating to
its Senior Notes each limit the Company's ability to pay dividends on its Common
Stock.
In conjunction with the Recapitalization in November 1997, certain of the
Company's lenders under its previous credit facility received 706,655 shares of
Common Stock in exchange for the shares of Class B common stock previously held
by them. Such shares of Common Stock were issued pursuant to an exemption under
Section 3(a)(9) of the Securities Act of 1933.
The following information is reported pursuant to Item 701(f) of Regulation
S-K:
FICC filed registration statements (the "Registration Statements") on Form
S-1 with the Securities and Exchange Commission which became effective on
November 14, 1997 (Registration Nos. 333-34633 and 333-34635).
The public offering of five million shares of FICC's Common Stock, par value
$.01 per share, and the public offering of $200 million of FICC's 10.5% Senior
Notes due 2007 (collectively, the "Offerings") pursuant to these Registration
Statements commenced on November 14, 1997 and terminated after the sale of all
securities registered.
The Offerings were for the account of FICC, as follows:
<TABLE>
<S> <C>
Number of Shares Registered and Sold.......................... 5,000,000
Number of Senior Notes Registered and Sold.................... 200,000
Aggregate Price of Common Stock Registered and Sold........... $90,000,000
Aggregate Price of Senior Notes Registered and Sold........... $200,000,000
</TABLE>
The managing underwriters for the Offerings were NationsBanc Montgomery
Securities, Inc., Piper Jaffray Inc. and Tucker Anthony Incorporated for the
Common Stock offering and Societe Generale Securities Corporation, Donaldson,
Lufkin & Jenrette Securities Corporation and NationsBanc Montgomery Securities,
Inc. for the Senior Note offering.
13
<PAGE>
The following amounts of expenses were incurred for FICC's account in
connection with the issuance and distribution of the securities registered for
each category listed below:
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENT TO
DIRECTORS, OFFICERS, GENERAL
PARTNERS OF THE ISSUER OR THEIR
ASSOCIATES; TO PERSONS OWNING TEN
PERCENT OR MORE OF ANY CLASS OF DIRECT OR
EQUITY SECURITIES OF THE ISSUER; INDIRECT PAYMENT
AND TO AFFILIATES TO THE ISSUER TO OTHERS
----------------------------------- ----------------
<S> <C> <C>
Underwriting discounts and commissions......................... $ 0 $ 12,300,000
Finders' Fees.................................................. 0 0
Expenses paid to or for underwriters........................... 0 0
Other Expenses................................................. 0 2,225,000
--
----------------
Total Expenses................................................. $ 0 $ 14,525,000
--
--
----------------
----------------
</TABLE>
Net offering proceeds to FICC from the Offerings after total expenses were
$275,475,000. All $275,475,000 of this amount was used for the refinancing of
FICC's previous credit facility and to repay certain capital lease obligations.
Prior to the Offerings, the bank lenders under such credit facility were the
holders of 48% of the then outstanding equity securities of FICC and nominated
two members of FICC's Board of Directors. Upon completion of the Offerings, such
lenders owned 9.9% of the outstanding Common Stock and such two directors were
replaced. The use of proceeds reported herein does not represent a material
change from the use of proceeds described in the prospectuses for the Offerings.
14
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated historical financial
information of FICC and its consolidated subsidiaries which has been derived
from the Company's audited Consolidated Financial Statements for the five most
recent fiscal years ended December 28, 1997. This information should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein. See Note 3 of Notes to Consolidated
Financial Statements for a discussion of the basis of the presentation and
significant accounting policies of the consolidated historical financial
information set forth below. No stock dividends were declared or paid for any
period presented.
<TABLE>
<CAPTION>
FISCAL YEAR (A)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant......................................... $ 580,161 $ 589,383 $ 593,570 $ 596,675 $ 593,671
Retail, institutional and other.................... 30,472 41,631 55,579 54,132 67,236
Franchise.......................................... -- -- -- -- 6,640
---------- ---------- ---------- ---------- ----------
Total revenues....................................... 610,633 631,014 649,149 650,807 667,547
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales...................................... 170,431 179,793 192,600 191,956 197,627
Labor and benefits................................. 209,522 211,838 214,625 209,260 208,364
Operating expenses................................. 120,626 132,010 143,854 143,163 148,770
General and administrative expenses................ 40,851 38,434 40,705 42,721 42,387
Stock compensation expense (b)..................... -- -- -- -- 8,407
Other expenses associated with Recapitalization
(c).............................................. -- -- -- -- 718
Non-cash write-downs (d)........................... 25,552 -- 7,352 227 770
Depreciation and amortization...................... 35,535 32,069 33,343 32,979 31,692
Gain on sale of restaurant operations................ -- -- -- -- 2,283
---------- ---------- ---------- ---------- ----------
Operating income..................................... 8,116 36,870 16,670 30,501 31,095
Interest expense, net (e)............................ 38,786 45,467 41,904 44,141 39,303
Equity in net loss of joint venture.................. -- -- -- -- 1,530
---------- ---------- ---------- ---------- ----------
Loss before benefit from (provision for) income taxes
and cumulative effect of changes in accounting
principles......................................... (30,670) (8,597) (25,234) (13,640) (9,738)
Benefit from (provision for) income taxes............ 11,470 4,661 (33,419) 5,868 3,993
Cumulative effect of changes in accounting
principles, net of income taxes (f)................ (42,248) -- -- -- 2,236
---------- ---------- ---------- ---------- ----------
Net loss............................................. $ (61,448) $ (3,936) $ (58,653) $ (7,772) $ (3,509)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Basic Net Loss Per Share:
Loss before cumulative effect of change in
accounting principle............................. $ (56.68) $ (3.52) $ (52.46) $ (3.60) $ (1.85)
Cumulative effect of change in accounting
principle, net of income tax expense............. -- -- -- -- 0.72
---------- ---------- ---------- ---------- ----------
Net Loss........................................... $ (56.68) $ (3.52) $ (52.46) $ (3.60) $ (1.13)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR (A)
----------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (g)........................................... $ 69,203 $ 68,939 $ 57,365 $ 63,707 $ 72,363
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities............ $ 42,877 $ 38,381 $ 27,790 $ 26,163 $ 22,118
---------- ---------- ---------- ---------- ----------
Capital expenditures:
Cash............................................... $ 37,361 $ 29,507 $ 19,092 $ 24,217 $ 31,638
Non-cash (h)....................................... 7,129 7,767 3,305 5,951 2,227
---------- ---------- ---------- ---------- ----------
Total capital expenditures........................... $ 44,490 $ 37,274 $ 22,397 $ 30,168 $ 33,865
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1994 1995 1995 1996 1997
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................. $ (27,919) $ (35,856) $ (14,678) $ (20,700) $ (15,791)
Total assets............................... 365,330 374,669 370,292 360,126 371,871
Total long-term debt and capital lease
obligations, excluding current
maturities............................... 363,028 369,549 389,144 385,977 310,425
Total stockholders' deficit................ $ (102,965) $ (106,901) $ (165,534) $ (173,156) $ (86,361)
</TABLE>
- ------------------------
(a) All fiscal years presented include 52 weeks of operations except 1993 which
includes 53 weeks of operations.
(b) Represents stock compensation expense arising out of the issuance of certain
shares of common stock to management and the vesting of certain shares of
restricted stock previously issued to management (see Note 13 of Notes to
Consolidated Financial Statements).
(c) Includes payroll taxes associated with the Stock compensation discussed
above and the write-off of deferred financing costs related to the Old
Credit Facility (see Note 5 of Notes to Consolidated Financial Statements).
(d) Includes non-cash write-downs of approximately $16,337 in 1993 related to a
trademark license agreement as a result of new product development and the
replacement of certain trademarked menu items and $3,346 in 1995 related to
a postponed debt restructuring. All other non-cash write-downs relate to
property and equipment disposed of in the normal course of the Company's
operations (see Notes 3, 5 and 6 of Notes to Consolidated Financial
Statements).
(e) Interest expense, net is net of capitalized interest of $156, $176, $62,
$49, and $250 and interest income of $240, $187, $390, $318, and $338 for
1993, 1994, 1995, 1996 and 1997, respectively.
(f) Includes non-cash items, net of related income taxes, as a result of
adoption of accounting pronouncements related to income taxes of $30,968,
post-retirement benefits other than pensions of $4,140 and post-employment
benefits of $7,140 in 1993 and $2,236 in 1997 related to a change in
accounting principle for pensions (see Note 10 of Notes to Consolidated
Financial Statements).
(g) EBITDA represents consolidated net income (loss) before (i) cumulative
effect of changes in accounting principles, net of income taxes, (ii)
(provision for) benefit from income taxes, (iii) equity in net loss of joint
venture, (iv) interest expense, net, (v) depreciation and amortization and
(vi) non-cash write-downs and all other non-cash items, plus cash
distributions from unconsolidated subsidiaries, each determined in
accordance with GAAP. The Company has included information concerning EBITDA
in this Form 10-K because it believes that such information is used by
certain investors as one measure of an issuer's historical ability to
service debt. EBITDA should not be considered as an alternative to, or more
meaningful than, earnings from operations or other traditional indications
of an issuer's operating performance.
(h) Non-cash capital expenditures represent the cost of assets acquired through
the incurrence of capital lease obligations.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED ELSEWHERE
HEREIN.
OVERVIEW
Friendly's owns and operates 662 restaurants, franchises 34 restaurants and
distributes a full line of frozen desserts through more than 5,000 supermarkets
and other retail locations in 15 states. The Company was publicly held from 1968
until January 1979 at which time it was acquired by Hershey Foods Corporation
("Hershey"). Under Hershey's ownership, the number of Company restaurants
increased from 601 to 849. Hershey subsequently sold the Company in September
1988 to The Restaurant Company ("TRC") in a highly-leveraged transaction (the
"TRC Acquisition").
Beginning in 1989, the new management focused on improving operating
performance through revitalizing and renovating restaurants, upgrading and
expanding the menu and improving management hiring, training, development and
retention. Also in 1989, the Company introduced its signature frozen desserts
into retail locations in the Northeast. Since the beginning of 1989, 26 new
restaurants have been opened while 178 under-performing restaurants have been
closed.
The high leverage associated with the TRC Acquisition has severely impacted
the liquidity and profitability of the Company. As of December 28, 1997, the
Company had a stockholders' deficit of $86.4 million. Cumulative interest
expense of $390.0 million since the TRC Acquisition has significantly
contributed to the deficit. The Company's net loss in 1997 of $3.5 million
included $39.3 million of interest expense. The degree to which the Company is
leveraged could have important consequences, including the following: (i)
potential impairment of the Company's ability to obtain additional financing in
the future, (ii) because borrowings under the Company's New Credit Facility in
part bear interest at floating rates, the Company could be adversely affected by
any increase in prevailing rates, (iii) the Company is more leveraged than
certain of its principal competitors, which may place the Company at a
competitive disadvantage and (iv) the Company's substantial leverage may limit
its ability to respond to changing business and economic conditions and make it
more vulnerable to a downturn in general economic conditions.
The Company's revenue, EBITDA and operating income have improved
significantly since the TRC Acquisition. Despite the closing of 152 restaurants
(net of restaurants opened) since the beginning of 1989, restaurant revenues
have increased 6.5% from $557.3 million in 1989 to $593.7 million in 1997, while
average revenue per restaurant has increased 30.4% from $665,000 to $867,000
during the same period. Retail, institutional and other revenues and franchise
revenues have also increased from $1.4 million in 1989 to $73.8 million in 1997.
In addition, EBITDA has increased 52.7% from $47.4 million in 1989 to $72.4
million in 1997, while operating income has increased from $4.1 million to $31.1
million over the same period. As a result of the positive impact of the
Company's revitalization program, the closing of under-performing restaurants,
the growth of the retail, institutional and other businesses and the
commencement in July 1997 of the Company's franchising program, period to period
comparisons may not be meaningful. Despite these improvements in operating
performance, and primarily as a result of its high leverage and interest
expense, the Company has reported net losses of $61.4 million, $3.9 million,
$58.7 million, $7.8 million and $3.5 million for 1993, 1994, 1995, 1996 and
1997, respectively.
The Company's revenues are derived primarily from the operation of
full-service restaurants and from the distribution and sale of frozen desserts
through retail locations. In addition, the Company derives a small amount of
revenue from the sale of frozen desserts in South Korea and the United Kingdom
under various distribution and licensing arrangements. Furthermore, the Company
is a 50% partner in a joint venture in Shanghai, China which has manufactured
and distributed frozen desserts on a limited basis. The joint venture is
currently seeking to establish additional distribution for its products in
China.
17
<PAGE>
On July 14, 1997, the Company entered into a long-term agreement with DavCo
Restaurants, Inc. ("DavCo") pursuant to which the Company received $8.2 million
in cash for the sale of certain non-real property assets and in payment of
franchise and development fees, and receives (i) a royalty based on franchised
restaurant revenues and (ii) revenues and earnings from the sale to DavCo of
Friendly's frozen desserts and other products (the "DavCo Agreement"). The
Company anticipates receiving similar fees and royalty streams in connection
with future franchising arrangements.
Cost of sales includes direct food costs, the Company's costs to manufacture
frozen desserts and the Company's costs to distribute frozen desserts and other
food products to its restaurants, franchisees and its retail, institutional and
other customers. Retail, institutional and other revenues have higher food costs
as a percentage of sales than restaurant revenues. Labor and benefits include
labor and related payroll expenses for restaurant employees. Operating expenses
include all other restaurant-level expenses including supplies, utilities,
maintenance, insurance and occupancy-related expenses, the costs associated with
retail, institutional and other revenues and franchise revenues including
salaries for sales personnel and other selling expenses and advertising costs.
General and administrative expenses include costs associated with restaurant
field supervision and the Company's headquarters personnel. Non-cash write-downs
include the write-downs of long-lived assets and certain intangible assets when
circumstances indicate that the carrying amount of an asset may not be
recoverable (see Notes 3 and 6 of Notes to Consolidated Financial Statements).
Interest expense, net is net of capitalized interest and interest income.
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total
revenues are set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Restaurant.................................................................... 91.4% 91.7% 88.9%
Retail, institutional and other............................................... 8.6 8.3 10.1
Franchise..................................................................... 0.0 0.0 1.0
--------- --------- ---------
Total revenues.................................................................. 100.0 100.0 100.0
--------- --------- ---------
Costs and expenses:
Cost of sales................................................................. 29.7 29.5 29.6
Labor and benefits............................................................ 33.1 32.2 31.2
Operating expenses............................................................ 22.2 22.0 22.3
General and administrative expenses........................................... 6.2 6.5 6.4
Stock compensation expense.................................................... 0.0 0.0 1.3
Other expenses associated with recapitalization............................... 0.0 0.0 0.1
Non-cash write-downs.......................................................... 1.1 0.0 0.1
Depreciation and amortization................................................. 5.1 5.1 4.7
Gain on sale of restaurant operations........................................... 0.0 0.0 0.3
--------- --------- ---------
Operating income................................................................ 2.6 4.7 4.6
Interest expense, net........................................................... 6.5 6.8 5.9
Equity in net loss of joint venture............................................. 0.0 0.0 0.2
--------- --------- ---------
Loss before (provision for) benefit from income taxes and cumulative effect of
change in accounting principle................................................ (3.9) (2.1) (1.5)
(Provision for) benefit from income taxes....................................... (5.1) 0.9 0.6
Cumulative effect of change in accounting principle, net of income tax
expense....................................................................... 0.0 0.0 0.4
--------- --------- ---------
Net loss........................................................................ (9.0)% (1.2)% (0.5)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
18
<PAGE>
1997 COMPARED TO 1996
REVENUES--Total revenues increased $16.7 million, or 2.6%, to $667.5 million
in 1997 from $650.8 million in 1996. Restaurant revenues decreased $3.0 million,
or 0.5%, to $593.7 million in 1997 from $596.7 million in 1996. Comparable
restaurant revenues increased 2.9%. The increase in comparable restaurant
revenues was due to the introduction of higher-priced lunch and dinner entrees,
selected menu price increases, a shift in sales mix to higher-priced items, the
re-imaging of 43 restaurants under the Company's FOCUS 2000 program, the
revitalization of 12 restaurants, building expansions at seven restaurants and a
milder winter in the 1997 period, which allowed for favorable traffic
comparisons. The increase was partially offset by the sale of 34 restaurants to
DavCo, which resulted in a $14.5 million reduction in restaurant revenues, and
the closing of 15 under-performing restaurants. Retail, institutional and other
revenues increased by $13.1 million, or 24.2%, to $67.2 million in 1997 from
$54.1 million in 1996. The increase was primarily due to a more effective sales
promotion program. Franchise revenue was $6.6 million in 1997 compared to none
in 1996. The increase is a result of the consummation of the DavCo Agreement on
July 14, 1997 (see Note 15 of Notes to Consolidated Financial Statements).
COST OF SALES--Cost of sales increased $5.6 million, or 2.9%, to $197.6
million in 1997 from $192.0 million in 1996. Cost of sales as a percentage of
total revenues increased to 29.6% in 1997 from 29.5% in 1996. The increase was
due to an increase in food costs at the retail and institutional level. The
increase was partially offset by a 0.4% reduction in food costs at the
restaurant level despite higher guest check averages reflecting reduced
promotional discounts which results in lower food costs.
LABOR AND BENEFITS--Labor and benefits decreased $0.9 million, or 0.4%, to
$208.4 million in 1997 from $209.3 million in 1996. Labor and benefits as a
percentage of total revenues decreased to 31.2% in 1997 from 32.2% in 1996. The
decrease was due to an increase in retail, institutional and other revenues as a
percent of total revenues as these revenues have no associated labor and
benefits cost and lower workers' compensation insurance and pension costs (see
Note 10 of Notes to Consolidated Financial Statements).
OPERATING EXPENSES--Operating expenses increased $5.6 million, or 3.9%, to
$148.8 million in 1997 from $143.2 million in 1996. Operating expenses as a
percentage of total revenues increased to 22.3% in 1997 from 22.0% in 1996. The
increase was due to higher advertising expenditures in 1997 partially offset by
reduced costs for snow removal and the allocation of fixed costs over higher
total revenues in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses
decreased $0.3 million, or 0.7%, to $42.4 million in 1997 from $42.7 million in
1996. General and administrative expenses as a percentage of total revenues
decreased to 6.4% in 1997 from 6.5% in 1996. This decrease was due to reductions
in pension costs and the elimination of field management positions associated
with the closing of 15 restaurants since the end of 1996.
GAIN ON SALE OF RESTAURANT OPERATIONS--Gain on sale of restaurant operations
represents the income related to the sale of the equipment and operating rights
for the 34 existing locations franchised to DavCo (see Note 15 of Notes to
Consolidated Financial Statements).
EBITDA--As a result of the above, EBITDA increased $8.7 million, or 13.7%,
to $72.4 million in 1997 from $63.7 million in 1996. EBITDA as a percentage of
total revenues increased to 10.8% in 1997 from 9.8% in 1996.
STOCK COMPENSATION EXPENSE--Stock compensation expense represents stock
compensation arising out of the issuance of certain shares of common stock to
management and the vesting of certain shares of restricted stock previously
issued to management (see Note 13 of Notes to Consolidated Financial
Statements).
OTHER EXPENSES ASSOCIATED WITH RECAPITALIZATION--Other expenses associated
with recapitalization includes payroll taxes associated with the stock
compensation discussed above and the write-off of deferred
19
<PAGE>
financing costs related to the Company's previous credit facility (see Note 5 of
Notes to Consolidated Financial Statements).
NON-CASH WRITE-DOWNS--Non-cash write-downs increased $0.6 million to $0.8
million in 1997 from $0.2 million in 1996.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization decreased $1.3
million, or 3.9%, to $31.7 million in 1997 from $33.0 million in 1996.
Depreciation and amortization as a percentage of total revenues decreased to
4.7% in 1997 from 5.1% in 1996. The decrease was due to the closing of 15
restaurants since the end of 1996.
INTEREST EXPENSE, NET--Interest expense, net of capitalized interest and
interest income, decreased by $4.8 million, or 10.9%, to $39.3 million in 1997
from $44.1 million in 1996. The decrease in interest expense was due to the
write-off of interest no longer payable under the Company's previous credit
facility as well as a reduction in interest expense on capital lease obligations
as a result of lower amounts outstanding in 1997 (see Note 7 of Notes to
Consolidated Financial Statements).
EQUITY IN NET LOSS OF JOINT VENTURE--The equity in net loss of the China
joint venture of $1.5 million in 1997 reflected the Company's 50% share of the
China joint venture's net loss for such period. Sales for the joint venture were
minimal during the 1997 period.
BENEFIT FROM INCOME TAXES--The benefit from income taxes was $4.0 million,
or 41%, in 1997 compared to a benefit of $5.9 million, or 43%, in 1996 (see Note
9 of Notes to Consolidated Financial Statements).
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET--In 1997, the
Company revised the method used in determining the return-on-asset component of
annual pension expense as described in Note 10 of Notes to Consolidated
Financial Statements. The cumulative effect of this change was $2.2 million, net
of income tax expense of $1.6 million.
NET LOSS--Net loss was $3.5 million in 1997 compared to a net loss of $7.8
million in 1996 for the reasons discussed above.
1996 COMPARED TO 1995
REVENUES--Total revenues increased $1.7 million, or 0.3%, to $650.8 million
in 1996 from $649.1 million in 1995. Restaurant revenues increased $3.1 million,
or 0.5%, to $596.7 million in 1996 from $593.6 million in 1995. Comparable
restaurant revenues increased by 1.8%. The increase in restaurant revenues and
comparable restaurant revenues was due to the introduction of higher-priced
lunch and dinner entrees in the fourth quarter of 1996, selected menu price
increases, a shift in sales mix to higher priced items, the opening of three new
restaurants, the revitalization of 16 restaurants and building expansions at
four existing locations. The increase was partially offset by the closing of 31
restaurants in 1996. Retail, institutional and other revenues declined by $1.5
million, or 2.7%, to $54.1 million in 1996 from $55.6 million in 1995. The
decrease was primarily attributable to the effects of a reduction in promotional
activities.
COST OF SALES--Cost of sales decreased $0.6 million, or 0.3%, to $192.0
million in 1996 from $192.6 million in 1995. Cost of sales as a percentage of
total revenues decreased to 29.5% in 1996 from 29.7% in 1995. The decrease was
due to a 0.2% reduction in food costs at the restaurant level as a result of
reduced waste in food preparation.
LABOR AND BENEFITS--Labor and benefits decreased $5.3 million, or 2.5%, to
$209.3 million in 1996 from $214.6 million in 1995. Labor and benefits as a
percentage of total revenues decreased to 32.2% in 1996 from 33.1% in 1995. The
decrease was due to a 1.1% reduction in labor and benefits as a percentage of
restaurant revenues as a result of an improvement in labor utilization and lower
group and workers' compensation insurance costs. The decrease was offset by a
0.3% reduction in retail, institutional and other revenues as a percentage of
total revenues as these revenues have no associated labor and benefits.
20
<PAGE>
OPERATING EXPENSES--Operating expenses decreased $0.7 million, or 0.5%, to
$143.2 million in 1996 from $143.9 million in 1995. Operating expenses as a
percentage of total revenues decreased in 1996 to 22.0% from 22.2% in 1995. The
decrease was due to the allocation of fixed costs over higher total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses
increased $2.0 million, or 4.9%, to $42.7 million in 1996 from $40.7 million in
1995. General and administrative expenses as a percentage of total revenues
increased to 6.5% in 1996 from 6.2% in 1995. This increase was due to an
increase in management bonuses and the annual merit-based salary increases,
partially offset by reductions in group medical insurance claims and the
elimination of field management positions associated with the closing of 31
restaurants in 1996. General and administrative expenses, exclusive of
management bonuses, increased $0.3 million in 1996.
EBITDA--As a result of the above, EBITDA increased by $6.3 million, or
11.0%, to $63.7 million in 1996 from $57.4 million in 1995. EBITDA as a
percentage of total revenues increased to 9.8% in 1996 from 8.8% in 1995.
NON-CASH WRITE-DOWNS--Non-cash write-downs decreased $7.2 million to $0.2
million in 1996 from $7.4 million in 1995. The decrease was due to a reduction
in the carrying value of properties held for disposition of $0.2 million in 1996
and $4.0 million in 1995. In 1995, the Company also incurred a non-cash
write-down of $3.3 million relating to costs resulting from a postponed debt
refinancing. (see Notes 3, 5 and 6 of Notes to Consolidated Financial
Statements).
DEPRECIATION AND AMORTIZATION--Depreciation and amortization decreased $0.3
million, or 0.9%, to $33.0 million in 1996 from $33.3 million in 1995. The
decrease was due to lower amortization of debt restructuring costs, partially
offset by an increase in depreciation due to the addition of three restaurants
and the ongoing implementation of the Company's revitalization program.
Depreciation and amortization as a percentage of total revenues was 5.1% for
both periods.
INTEREST EXPENSE, NET--Interest expense, net of capitalized interest and
interest income, increased by $2.2 million, or 5.3%, to $44.1 million in 1996
from $41.9 million in 1995. The increase was due to an increase in the interest
rate on the Company's bank debt as a result of the debt restructuring effective
January 1, 1996.
(PROVISION FOR) BENEFIT FROM INCOME TAXES--The benefit from income taxes was
$5.9 million in 1996 as compared to a provision for income taxes of $33.4
million in 1995. The benefit from income taxes of $5.9 million in 1996
represented the statutory federal and state tax benefit of the Company's loss
partially offset by the impact of the federal and state tax valuation
allowances. The income tax provision of $33.4 million in 1995 resulted primarily
from the anticipated deconsolidation from TRC. As a result, the deferred tax
asset of approximately $19 million related to the net operating losses ("NOLs")
utilized by TRC as of December 31, 1995 was written off in 1995. Additionally,
as a result of the anticipated change in ownership and Section 382 limitation, a
valuation allowance in 1995 was placed on all Federal NOL carryforwards
generated through December 31, 1995 (see Note 9 of Notes to Consolidated
Financial Statements).
NET LOSS--As a result of the above, net loss decreased by $50.9 million, or
86.7%, to a net loss of $7.8 million in 1996 from a net loss of $58.7 million in
1995.
LIQUIDITY AND CAPITAL RESOURCES
In November 1997, FICC completed a common stock offering (the "Common Stock
Offering"). The Common Stock Offering included the sale of five million shares
of common stock by FICC to the public and provided the Company with net proceeds
of $81.9 million. Concurrently with the Common Stock Offering, FICC issued $200
million of 10.5% Senior Notes to the public and the Company entered into a new
senior secured credit facility consisting of (i) a $90 million term loan, (ii) a
$55 million revolving credit facility and (iii) a $15 million letter of credit
facility (collectively, the "New Credit Facility"). Proceeds from
21
<PAGE>
the Common Stock Offering, Senior Notes and New Credit Facility were primarily
used to repay $353.7 million outstanding under the Company's previous credit
facility (the "Old Credit Facility"). These transactions are referred to herein,
collectively, as the "Recapitalization". The Company currently intends to retain
its earnings to finance future growth and, therefore, does not anticipate paying
any cash dividends on its Common Stock in the foreseeable future. In addition,
the New Credit Facility and the Indenture relating to the Senior Notes each
limit the Company's ability to pay dividends on its Common Stock.
The Company's primary sources of liquidity and capital resources are cash
generated from operations and borrowings under its revolving credit facility.
Net cash provided by operating activities was $22.1 million in 1997, $26.2
million in 1996 and $27.8 million in 1995. Available borrowings under the
revolving credit facility were $46 million as of December 28, 1997.
Additional sources of liquidity consist of capital and operating leases for
financing leased restaurant locations (in malls and shopping centers and land or
building leases), restaurant equipment, manufacturing equipment, distribution
vehicles and computer equipment. Additionally, sales of under-performing
existing restaurant properties and other assets (to the extent the Company's and
its subsidiaries' debt instruments, if any, permit) are sources of cash. The
amounts of debt financing that the Company will be able to incur under capital
leases and for property and casualty insurance financing and the amount of asset
sales by the Company are limited by the terms of the New Credit Facility and the
Senior Notes (see Note 7 of Notes to Consolidated Financial Statements).
The Company requires capital principally to maintain existing restaurant and
plant facilities, to continue to renovate and re-image existing restaurants, to
convert restaurants, to construct new restaurants and for general corporate
purposes. Since the TRC Acquisition and through December 28, 1997, the Company
has spent $287.3 million on capital expenditures, including $87.2 million on the
renovation of restaurants under its revitalization and re-imaging programs.
Net cash used in investing activities was $23.4 million in 1997, $20.3
million in 1996 and $18.2 million in 1995. Capital expenditures for restaurant
operations, including capitalized leases, were approximately $27.2 million in
1997, $22.6 million in 1996 and $14.5 million in 1995. Capital expenditures were
offset by proceeds from the sale of property and equipment of $5.0 million, $8.4
million and $0.9 million in 1997, 1996 and 1995, respectively.
The Company also uses capital to repay borrowings when cash is sufficient to
allow for net repayments. Net cash used in financing activities to repay
borrowings was $14.6 million in 1997, excluding the effect of the
Recapitalization, which resulted in proceeds of $200 million from the issuance
of Senior Notes, $90 million from a term loan and $90 million from the Common
Stock Offering which were used to pay the balances outstanding on the Old Credit
Facility, certain capital lease obligations and fees and expenses related to the
Recapitalization. Net cash used in financing activities to repay borrowings was
$11.0 million in 1996 as compared to net cash provided by financing activities
of $0.2 million in 1995.
The Company had a working capital deficit of $15.8 million as of December
28, 1997. The Company is able to operate with a substantial working capital
deficit because (i) restaurant operations are conducted primarily on a cash (and
cash equivalent) basis with a low level of accounts receivable, (ii) rapid
turnover allows a limited investment in inventories and (iii) cash from sales is
usually received before related accounts for food, supplies and payroll become
due.
The $200 million Senior Notes issued in connection with the Company's
November 1997 Recapitalization are unsecured, senior obligations of FICC,
guaranteed on an unsecured, senior basis by FICC's Friendly's Restaurant
Franchise, Inc. subsidiary, but are effectively subordinated to all secured
indebtedness of FICC, including the indebtedness incurred under the New Credit
Facility. The Senior Notes mature on December 1, 2007. Interest on the Senior
Notes is payable at 10.5% per annum semi-annually on June 1 and December 1 of
each year commencing on June 1, 1998. The Senior Notes are redeemable, in whole
or in part, at FICC's option any time on or after December 1, 2002 at redemption
prices from 105.25% to
22
<PAGE>
100.00%. The redemption price is based on the redemption date. Prior to December
1, 2000, FICC may redeem up to $70 million of the Senior Notes at 110.50% with
the proceeds of one or more equity offerings, as defined.
The Company entered into the New Credit Facility in November 1997 in
connection with its Recapitalization. The New Credit Facility includes a $90
million term loan (the "Term Loan"), a $55 million revolving credit facility
(the "Revolving Credit Facility") and a $15 million letter of credit facility
(the "Letter of Credit Facility"). The New Credit Facility is collateralized by
substantially all of FICC's assets and by a pledge of FICC's shares of certain
of its subsidiaries' stock.
Borrowings under the New Credit Facility bear interest, at the Company's
option, at either (i) the Eurodollar Rate plus 2.25% or (ii) the ABR rate (the
greater of (a) a specified prime rate or (b) the federal funds rate plus 0.50%)
plus 0.75% per annum for drawings under the Revolving Credit Facility and the
Letter of Credit Facility, 0.50% per annum for amounts undrawn under the
Revolving Credit Facility and 2.25% per annum for amounts issued but undrawn
under the Letter of Credit Facility. Borrowings under the Term Loan bear
interest at the Company's option, at either the Eurodollar Rate plus 2.25%,
2.50% and 2.75% or the ABR plus 0.75%, 1.00% and 1.25% for Tranche A, B and C,
respectively. The Company entered into a three year interest rate swap agreement
to hedge the impact of interest rate changes on the Term Loan. The interest rate
swap agreement has a notional amount of $90 million and effectively fixes the
interest rate on Tranches A, B and C of the Term Loan at 8.25%, 8.50% and 8.75%,
respectively.
The Term Loan requires quarterly amortization payments beginning on April
15, 1999 through 2005. Annual amortization amounts will total $4.0 million, $9.1
million, $10.8 million, $12.6 million, $16.0 million, $17.4 million and $20.1
million in 1999 through 2005, respectively. In addition to the scheduled
amortization, the Term Loan would be permanently reduced by (i) specified
percentages of each year's Excess Cash Flow (as defined in the New Credit
Facility), (ii) specified percentages of the aggregate net cash proceeds from
certain issuances of indebtedness and (iii) 100% of the aggregate net cash
proceeds from asset sales not in the ordinary course of business and certain
insurance claim proceeds, in each case in this clause (iii), not re-employed
within 180 days in the Company's business, exclusive of up to $7.5 million of
aggregate net proceeds received from asset sales subsequent to the closing
relating to the New Credit Facility. Any such applicable proceeds and Excess
Cash Flow shall be applied to the Term Loan in inverse order of maturity. The
Revolving Credit Facility matures on November 15, 2002.
The New Credit Facility imposes significant operating and financial
restrictions on the Company's ability to, among other things, incur
indebtedness, create liens, sell assets, engage in mergers or consolidations,
pay dividends and engage in certain transactions with affiliates. The New Credit
Facility limits the amount which the Company may spend on capital expenditures
and requires the Company to comply with certain financial covenants (see Note 7
of Notes to Consolidated Financial Statements).
The Company anticipates requiring capital in the future principally to
maintain existing restaurant and plant facilities, to continue to renovate and
re-image existing restaurants, to convert restaurants and to construct new
restaurants. Capital expenditures for 1998 are anticipated to be $49.8 million
in the aggregate, of which $41.2 million will be spent on restaurant operations.
The Company's actual 1998 capital expenditures may vary from the estimated
amounts set forth herein.
In addition, the Company may need capital in connection with commitments as
of December 28, 1997 to purchase $52 million of raw materials, food products and
supplies used in the normal course of business and its self-insurance through
retentions or deductibles of the majority of its workers' compensation,
automobile, general liability and group health insurance programs. The Company's
self-insurance obligations may exceed its reserves (see Notes 12 and 15 of Notes
to Consolidated Financial Statements).
The Company has developed a plan to ensure its systems are compliant with
the requirements to process transactions in the year 2000. The majority of the
Company's internal information systems are in
23
<PAGE>
the process of being replaced with fully-compliant new systems. The total cost
of the software and implementation is estimated to be $2-$3 million which will
be capitalized as incurred. The new system implementation is expected to be
completed by December 1999. The costs of the Year 2000 project and the date on
which the Company plans to complete Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans.
The Company believes that the combination of the funds anticipated to be
generated from operating activities and borrowing availability under the New
Credit Facility will be sufficient to meet the Company's anticipated operating
and capital requirements for the foreseeable future.
NET OPERATING LOSS CARRYFORWARDS
As of December 28, 1997, the Company has a federal net operating loss
("NOL") carryforward of $39.4 million. Because of a change of ownership of the
Company under Section 382 of the Internal Revenue Code on March 26, 1996 (see
Note 9 of Notes to Consolidated Financial Statements), $34.3 million of the NOL
carryforward can be used only to offset current or future taxable income to the
extent that net unrealized built-in gains which existed at March 26, 1996 are
recognized by March 26, 2001. The Common Stock Offering resulted in the Company
having another change of ownership under Section 382 of the Internal Revenue
Code. Accordingly, in tax years ending after the Common Stock Offering, the
Company is limited in how much of its NOLs it can utilize. The amount of NOL's
which may be used each year prior to any built in gains being triggered is
approximately $2.4 million. The NOLs expire, if unused, between 2001 and 2012.
In addition, the NOL carryforwards are subject to adjustment upon review by the
Internal Revenue Service (see Note 9 of Notes to Consolidated Financial
Statements).
INFLATION
The inflationary factors which have historically affected the Company's
results of operations include increases in cost of milk, sweeteners, purchased
food, labor and other operating expenses. Approximately 16% of wages paid in the
Company's restaurants are impacted by changes in the federal or state minimum
hourly wage rate. Accordingly, changes in the federal or states minimum hourly
wage rate directly affect the Company's labor cost. The Company is able to
minimize the impact of inflation on occupancy costs by owning the underlying
real estate for approximately 42% of its restaurants. The Company and the
restaurant industry typically attempt to offset the effect of inflation, at
least in part, through periodic menu price increases and various cost reduction
programs. However, no assurance can be given that the Company will be able to
offset such inflationary cost increases in the future.
SEASONALITY
Due to the seasonality of frozen dessert consumption, and the effect from
time to time of weather on patronage in its restaurants, the Company's revenues
and EBITDA are typically higher in its second and third quarters.
GEOGRAPHIC CONCENTRATION
Approximately 85% of the Company-owned restaurants are located, and
substantially all of its retail sales are generated, in the Northeast. As a
result, a severe or prolonged economic recession or changes in demographic mix,
employment levels, population density, weather, real estate market conditions or
other factors specific to this geographic region may adversely affect the
Company more than certain of its competitors which are more geographically
diverse.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For a listing of consolidated financial statements which are included in
this document, see page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
Information regarding directors is incorporated herein by reference from the
Section entitled "Proposal 1--Election of Directors" of FICC's definitive proxy
statement which will be filed no later than 120 days after December 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Section entitled "Executive
Compensation" of FICC's definitive proxy statement which will be filed no later
than 120 days after December 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Section entitled "Stock Ownership"
of FICC's definitive proxy statement which will be filed no later than 120 days
after December 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Section entitled "Executive
Compensation--Certain Relationships and Related Transactions" of FICC's
definitive proxy statement which will be filed no later than 120 days after
December 28, 1997.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) 1. Financial statements:
For a listing of consolidated financial statements which are included in this
document, see page F-1.
2. Financial statement schedules:
No schedules are required because either the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or the notes thereto.
(b) Exhibits:
The exhibits listed in the accompanying index are filed as part of this report.
</TABLE>
EXHIBITS
<TABLE>
<C> <S>
3.1 Restated Articles of Organization of Friendly Ice Cream Corporation (the "Company").
(Incorporated by reference from Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (Reg. No. 333-34633) filed with the Securities and Exchange Commission
(the "Commission") on August 29, 1997).
3.2 Amended and Restated By-laws of the Company.
4.1 Stockholder and Registration Rights Agreement of the Company, as amended.
(Incorporated by reference from Exhibit 4.1 to the Company's Registration Statement
on Form S-1 (Reg. No. 333-34633) filed with the Commission on August 29, 1997).
4.2 Registration Rights Agreement between the Company and Donald N. Smith. (Incorporated
by reference from Exhibit 4.2 to the Company's Registration Statement on Form S-1
(Reg. No. 333-34633) filed with the Commission on August 29, 1997).
4.3 Rights Agreement between the Company and The Bank of New York, a Rights Agent.
(Incorporated by reference from Exhibit 4.3 to the Company's Registration Statement
on Form S-1 (Reg. No. 333-34633) filed with the Commission on August 29, 1997).
4.4 Form of Common Stock Certificate. (Incorporated by reference from Exhibit 4.3 to the
Company's Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the
Commission on August 29, 1997).
10.1 Credit Agreement among the Company, Societe Generale, New York Branch and certain
other banks and financial institutions.
10.2 Senior Note Indenture between Friendly Ice Cream Corporation, Friendly's Restaurants
Franchise, Inc. and The Bank of New York, as Trustee.
10.3 The Company's Stock Option Plan. (Incorporated by reference from Exhibit 10.3 to the
Company's Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the
Commission on August 29, 1997).
10.4 The Company's Restricted Stock Plan. (Incorporated by reference from Exhibit 10.4 to
the Company's Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the
Commission on August 29, 1997).
10.5 Agreement relating to the Company's Limited Stock Compensation Program.
</TABLE>
26
<PAGE>
<TABLE>
<C> <S>
10.6 Development Agreement between Friendly Ice Cream Corporation and FriendCo
Restaurants, Inc. (Incorporated by reference from Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the Commission on
August 29, 1997).
10.7 Franchise Agreement between Friendly's Restaurants Franchise, Inc. and FriendCo
Restaurants, Inc. (Incorporated by reference from Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the Commission on
August 29, 1997).
10.8 Management Agreement between Friendly Ice Cream Corporation and FriendCo Restaurants,
Inc. (Incorporated by reference from Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-34633) filed with the Commission on August 29,
1997).
10.9 Purchase and Sale Agreement between Friendly Ice Cream Corporation and FriendCo
Restaurants, Inc. (Incorporated by reference from Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the Commission on
August 29, 1997).
10.10 Software License Agreement between Friendly's Restaurants Franchise, Inc. and
FriendCo Restaurants, Inc. (Exhibits 10.6 through 10.10, collectively, the "DavCo
Agreement") (Incorporated by reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the Commission on
August 29, 1997).
10.11 Sublease between SSP Company, Inc. and the Company, as amended, for the Chicopee,
Massachusetts Distribution Center. (Incorporated by reference from Exhibit 10.11 to
the Company's Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the
Commission on August 29, 1997).
10.12 Master License and Distribution Agreement for the Territory of Korea between
Friendly's International, Inc. and Hansung Enterprise Co., Ltd. (Incorporated by
reference from Exhibit 10.12 to the Company's Registration Statement on Form S-1
(Reg. No. 333-34633) filed with the Commission on August 29, 1997).
10.13 TRC Management Contract between the Company and The Restaurant Company. (Incorporated
by reference from Exhibit 10.13 to the Company's Registration Statement on Form S-1
(Reg. No. 333-34633) filed with the Commission on August 29, 1997).
10.14 License Agreement between the Company and Hershey Foods Corporation for 1988
Non-Friendly Marks. (Incorporated by reference from Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the Commission on
August 29, 1997).
21.1 Subsidiaries of the Company. (Incorporated by reference from Exhibit 21.1 to the
Company's Registration Statement on Form S-1 (Reg. No. 333-34633) filed with the
Commission on August 29, 1997).
23.1 Consent of Arthur Andersen LLP
24.1 Power of attorney. Included on Form 10-K Signature Page.
27.1 Financial Data Schedule
</TABLE>
<TABLE>
<S> <C> <C>
(c) Reports on Form 8-K
None.
</TABLE>
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FRIENDLY ICE CREAM CORPORATION
BY: /S/ GEORGE G. ROLLER
-----------------------------------------
Name: George G. Roller
Title: VICE PRESIDENT, FINANCE,
CHIEF FINANCIAL OFFICER AND TREASURER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
George G. Roller and Aaron B. Parker, and each of them, the true and lawful
attorneys-in-fact and agents of the undersigned, with full power of substitution
and resubstitution, for and in the name, place and stead of the undersigned, in
any and all capacities, to sign any and all amendments to this annual report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute, or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
NAME TITLE (CAPACITY) DATE
- ------------------------------ -------------------------- -------------------
/s/ DONALD N. SMITH Chairman of the Board, March 25, 1998
- ------------------------------ Chief
Donald N. Smith Executive Officer and
President
(Principal Executive
Officer and
Director)
/s/ GEORGE G. ROLLER Vice President, Finance, March 25, 1998
- ------------------------------ Chief
George G. Roller Financial Officer and
Treasurer
(Principal Financial and
Accounting Officer)
/s/ CHARLES A. LEDSINGER, Director March 25, 1998
JR.
- ------------------------------
Charles A. Ledsinger, Jr.
/s/ STEVEN L. EZZES Director March 25, 1998
- ------------------------------
Steven L. Ezzes
/s/ BURTON J. MANNING Director March 25, 1998
- ------------------------------
Burton J. Manning
/s/ MICHAEL J. DALY Director March 25, 1998
- ------------------------------
Michael J. Daly
28
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 29, 1996 and December 28, 1997................................ F-3
Consolidated Statements of Operations for the Years ended December 31, 1995, December 29, 1996 and
December 28, 1997...................................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended December 31,
1995, December 29, 1996 and December 28, 1997.......................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, December 29, 1996 and
December 28, 1997...................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Friendly Ice Cream Corporation:
We have audited the accompanying consolidated balance sheets of Friendly Ice
Cream Corporation and subsidiaries as of December 29, 1996 and December 28,
1997, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Friendly Ice Cream
Corporation and subsidiaries as of December 29, 1996 and December 28, 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 28, 1997 in conformity with generally accepted
accounting principles.
As explained in Note 10 of Notes to Consolidated Financial Statements,
effective December 30, 1996, the Company changed its method of calculating the
market-related value of pension plan assets used in determining the
return-on-asset component of annual pension expense and the cumulative net
unrecognized gain or loss subject to amortization.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 5, 1998
F-2
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 18,626 $ 15,132
Restricted cash.................................................................... -- 1,333
Trade accounts receivable.......................................................... 4,992 8,922
Inventories........................................................................ 15,145 15,671
Deferred income taxes.............................................................. 12,375 8,831
Prepaid expenses and other current assets.......................................... 1,658 6,400
------------ ------------
TOTAL CURRENT ASSETS................................................................. 52,796 56,289
INVESTMENT IN JOINT VENTURE.......................................................... 4,500 2,970
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization............. 286,161 283,944
INTANGIBLES AND DEFERRED COSTS, net of accumulated amortization of $4,790 and $4,519
at December 29, 1996 and December 28, 1997, respectively........................... 16,019 25,994
OTHER ASSETS......................................................................... 650 2,674
------------ ------------
TOTAL ASSETS......................................................................... $ 360,126 $ 371,871
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt............................................... $ 1,289 $ 2,875
Current maturities of capital lease obligations.................................... 6,353 1,577
Accounts payable................................................................... 20,773 23,951
Accrued salaries and benefits...................................................... 13,855 13,804
Accrued interest payable........................................................... 9,838 2,607
Insurance reserves................................................................. 3,973 7,248
Other accrued expenses............................................................. 17,415 20,018
------------ ------------
TOTAL CURRENT LIABILITIES............................................................ 73,496 72,080
------------ ------------
DEFERRED INCOME TAXES................................................................ 48,472 42,393
CAPITAL LEASE OBLIGATIONS, less current maturities................................... 14,182 11,341
LONG-TERM DEBT, less current maturities.............................................. 371,795 299,084
OTHER LONG-TERM LIABILITIES.......................................................... 25,337 33,334
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 6, 7, 8, 10, 11, 12 and 15)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value -
Common Stock, authorized -0- and 50,000,000 shares at December 29, 1996 and
December 28, 1997, respectively; -0- and 7,441,290 shares issued and outstanding
at December 29, 1996 and December 28, 1997, respectively........................ -- 74
Class A Common Stock, 1,285,384 and -0- shares issued and outstanding at December
29, 1996 and December 28, 1997, respectively.................................... 13 --
Class B Common Stock, 1,187,503 and -0- shares issued and outstanding at December
29, 1996 and December 28, 1997, respectively.................................... 12 --
Class C Common Stock, -0- shares issued and outstanding at December 29, 1996 and
December 28, 1997............................................................... -- --
Preferred Stock, $.01 par value; authorized -0- and 1,000,000 shares at December
29, 1996 and December 28, 1997, respectively; -0- shares issued and outstanding
at December 29, 1996 and December 28, 1997....................................... -- --
Additional paid-in capital......................................................... 46,905 137,175
Accumulated deficit................................................................ (220,159) (223,668)
Cumulative translation adjustment.................................................. 73 58
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)................................................. (173,156) (86,361)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)................................. $ 360,126 $ 371,871
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
REVENUES.............................................................. $ 649,149 $ 650,807 $ 667,547
COSTS AND EXPENSES:
Cost of sales....................................................... 192,600 191,956 197,627
Labor and benefits.................................................. 214,625 209,260 208,364
Operating expenses.................................................. 143,854 143,163 148,770
General and administrative expenses................................. 40,705 42,721 42,387
Stock compensation expense (Note 13)................................ -- -- 8,407
Expenses associated with Recapitalization (Note 5).................. -- -- 718
Debt restructuring expenses (Note 5)................................ 3,346 -- --
Write-down of property and equipment (Note 6)....................... 4,006 227 770
Depreciation and amortization....................................... 33,343 32,979 31,692
Gain on sale of restaurant operations (Note 15)....................... -- -- 2,283
------------ ------------ ------------
OPERATING INCOME...................................................... 16,670 30,501 31,095
Interest expense, net of capitalized interest of $62, $49 and $250 and
interest income of $390, $318 and $338 for the years ended December
31, 1995, December 29, 1996 and December 28, 1997, respectively
(Note 7)............................................................ 41,904 44,141 39,303
Equity in net loss of joint venture................................... -- -- 1,530
------------ ------------ ------------
LOSS BEFORE (PROVISION FOR) BENEFIT FROM INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE............................ (25,234) (13,640) (9,738)
(Provision for) benefit from income taxes............................. (33,419) 5,868 3,993
------------ ------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE....... (58,653) (7,772) (5,745)
Cumulative effect of change in accounting principle, net of income tax
expense of $1,554 (Note 10)......................................... -- -- 2,236
------------ ------------ ------------
NET LOSS.............................................................. $ (58,653) $ (7,772) $ (3,509)
------------ ------------ ------------
------------ ------------ ------------
BASIC NET LOSS PER SHARE:
Loss before cumulative effect of change in accounting principle..... $ (52.46) $ (3.60) $ (1.85)
Cumulative effect of change in accounting principle, net of income
tax expense....................................................... -- -- 0.72
------------ ------------ ------------
Net loss............................................................ $ (52.46) $ (3.60) $ (1.13)
------------ ------------ ------------
------------ ------------ ------------
PRO FORMA AMOUNTS ASSUMING NEW PENSION METHOD IS RETROACTIVELY APPLIED
(Note 10):..........................................................
Net loss............................................................ $ (58,134) $ (7,214) $ (5,745)
------------ ------------ ------------
------------ ------------ ------------
Basic net loss per share............................................ $ (52.00) $ (3.34) $ (1.85)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------------------
COMMON STOCK CLASS A CLASS B ADDITIONAL
---------------------- ---------------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ----------- --------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995......... -- $ -- 1,090,969 $ 11 -- $ -- $ 46,822 $ (153,734)
Net loss....................... -- -- -- -- -- -- -- (58,653)
Contribution of capital........ -- -- -- -- -- -- 20 --
--------- ----- --------- --- --------- ----- ----------- ------------
BALANCE, DECEMBER 31, 1995....... -- -- 1,090,969 11 -- -- 46,842 (212,387)
Net loss....................... -- -- -- -- -- -- -- (7,772)
Issuance of common stock to
lenders...................... -- -- -- -- 1,187,503 12 38 --
Proceeds from exercise of
warrants..................... -- -- 71,527 1 -- -- 21 --
Compensation expense associated
with management stock plan... -- -- 122,888 1 -- -- 4 --
Translation adjustment......... -- -- -- -- -- -- -- --
--------- ----- --------- --- --------- ----- ----------- ------------
BALANCE, DECEMBER 29, 1996....... -- -- 1,285,384 13 1,187,503 12 46,905 (220,159)
Net loss....................... -- -- -- -- -- -- -- (3,509)
Shares returned to FICC at no
cost in connection with the
Offerings (Note 13).......... -- -- (766,782) (8) -- -- -- --
Conversion of Class A Common
Stock and Class B Common
Stock to Common Stock........ 1,706,105 17 (518,602) (5) (1,187,503) (12) -- --
Proceeds from common stock
offering, net of expenses of
$8,087....................... 5,000,000 50 -- -- -- -- 81,870 --
Stock compensation expense..... 735,185 7 -- -- -- -- 8,400 --
Translation adjustment......... -- -- -- -- -- -- -- --
--------- ----- --------- --- --------- ----- ----------- ------------
BALANCE, DECEMBER 28, 1997....... 7,441,290 $ 74 -- $ -- -- $ -- $ 137,175 $ (223,668)
--------- ----- --------- --- --------- ----- ----------- ------------
--------- ----- --------- --- --------- ----- ----------- ------------
<CAPTION>
CUMULATIVE
TRANSLATION
ADJUSTMENT TOTAL
--------------- ---------
<S> <C> <C>
BALANCE, JANUARY 1, 1995......... $ -- $(106,901)
Net loss....................... -- (58,653)
Contribution of capital........ -- 20
----- ---------
BALANCE, DECEMBER 31, 1995....... -- (165,534)
Net loss....................... -- (7,772)
Issuance of common stock to
lenders...................... -- 50
Proceeds from exercise of
warrants..................... -- 22
Compensation expense associated
with management stock plan... -- 5
Translation adjustment......... 73 73
----- ---------
BALANCE, DECEMBER 29, 1996....... 73 (173,156)
Net loss....................... -- (3,509)
Shares returned to FICC at no
cost in connection with the
Offerings (Note 13).......... -- (8)
Conversion of Class A Common
Stock and Class B Common
Stock to Common Stock........ -- --
Proceeds from common stock
offering, net of expenses of
$8,087....................... -- 81,920
Stock compensation expense..... -- 8,407
Translation adjustment......... (15) (15)
----- ---------
BALANCE, DECEMBER 28, 1997....... $ 58 $ (86,361)
----- ---------
----- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $ (58,653) $ (7,772) $ (3,509)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Cumulative effect of change in accounting principle............... -- -- (2,236)
Stock compensation expense........................................ -- -- 8,407
Non-cash expenses associated with Recapitalization................ -- -- 399
Depreciation and amortization..................................... 33,343 32,979 31,692
Write-down of property and equipment.............................. 4,006 227 770
Deferred income tax expense (benefit)............................. 33,419 (5,926) (4,083)
Loss (gain) on asset retirements.................................. 595 (916) 1,939
Equity in net loss of joint venture............................... -- -- 1,530
Changes in operating assets and liabilities:
Trade accounts receivable....................................... 679 241 (3,930)
Inventories..................................................... (1,044) (66) (526)
Other assets.................................................... 587 1,309 (7,998)
Accounts payable................................................ (1,714) (199) 3,178
Accrued expenses and other long-term liabilities................ 16,572 6,286 (3,515)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................... 27,790 26,163 22,118
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................. (19,092) (24,217) (31,638)
Proceeds from sales of property and equipment....................... 926 8,409 5,043
Purchases of investment securities.................................. -- -- (8,194)
Proceeds from sales and maturities of investment securities......... -- -- 12,787
Acquisition of Restaurant Insurance Corporation, net of cash
acquired.......................................................... -- -- (35)
Advances to and investments in joint venture........................ -- (4,500) (1,400)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES............................... (18,166) (20,308) (23,437)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution of capital............................................. 20 -- --
Proceeds from exercise of stock purchase warrants................... -- 22 --
Proceeds from issuance of common stock.............................. -- -- 81,920
Proceeds from issuance of senior notes.............................. -- -- 200,000
Proceeds from other borrowings...................................... 80,162 48,196 167,548
Repayments of debt.................................................. (72,713) (52,084) (438,673)
Repayments of capital lease and finance obligations................. (7,293) (7,131) (12,955)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................. 176 (10,997) (2,160)
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... -- 78 (15)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 9,800 (5,064) (3,494)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.......................... 13,890 23,690 18,626
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR................................ $ 23,690 $ 18,626 $ 15,132
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES
Interest paid....................................................... $ 25,881 $ 36,000 $ 46,040
Income taxes paid................................................... -- -- 168
Capital lease obligations incurred.................................. 3,305 5,951 2,227
Capital lease obligations terminated................................ 288 128 1,587
Conversion of accrued interest payable to debt...................... 14,503 -- --
Issuance of common stock to lenders................................. -- 50 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996 AND DECEMBER 28, 1997
1. ORGANIZATION
In September 1988, The Restaurant Company ("TRC") and another investor
acquired Friendly Ice Cream Corporation ("FICC"). Subsequent to the acquisition,
Friendly Holding Corporation ("FHC") was organized to hold the outstanding
common stock of FICC and in March 1996, FHC was merged into FICC. Additionally,
in March 1996, TRC distributed its shares of FICC's voting common stock to TRC's
shareholders and FICC deconsolidated from TRC.
In November 1997, FICC completed a public offering of five million shares of
its common stock for net proceeds of $81.9 million and a public offering of $200
million of Senior Notes (collectively, the "Offerings"). Concurrent with the
Offerings, the Company entered into a new senior secured credit facility
consisting of (i) a $90 million term loan, (ii) a $55 million revolving credit
facility and (iii) a $15 million letter of credit facility (collectively, the
"New Credit Facility"). Proceeds from the Offerings and New Credit Facility were
primarily used to repay the $353.7 million outstanding under the Company's
previous credit facility (collectively, the "Recapitalization").
References herein to "Friendly's" or the "Company" refer to Friendly Ice
Cream Corporation, its predecessor and its consolidated subsidiaries.
2. NATURE OF OPERATIONS
Friendly's owns and operates full-service restaurants in fifteen states. The
restaurants offer a wide variety of reasonably priced breakfast, lunch and
dinner menu items as well as frozen dessert products. The Company manufactures
substantially all of the frozen dessert products it sells, which are also
distributed through supermarkets and other retail locations. The Company also
franchises restaurants. For the years ended December 31, 1995, December 29, 1996
and December 28, 1997, restaurant sales were approximately 91%, 92% and 89%,
respectively, of the Company's revenues. As of December 31, 1995, December 29,
1996 and December 28, 1997, approximately 80%, 80% and 85%, respectively, of the
Company-owned restaurants were located in the Northeast United States. As a
result, a severe or prolonged economic recession in this geographic area may
adversely affect the Company more than certain of its competitors which are more
geographically diverse.
3. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION --
The consolidated financial statements include the accounts of FICC and its
subsidiaries after elimination of intercompany accounts and transactions.
FISCAL YEAR --
Friendly's fiscal year ends on the last Sunday in December, unless that day
is earlier than December 27 in which case the fiscal year ends on the following
Sunday.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-7
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Future facts and circumstances could alter management's estimates with respect
to the carrying value of long-lived assets and the adequacy of insurance
reserves.
REVENUE RECOGNITION --
The Company recognizes restaurant revenue upon receipt of payment from the
customer and retail revenue upon shipment of product. Franchise royalty income,
based on gross sales of franchisees, is payable monthly and is recorded on the
accrual method as earned. Initial franchise fees are recorded upon completion of
all significant services, generally upon opening of the restaurant.
CASH AND CASH EQUIVALENTS --
The Company considers all investments with an original maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES -
Inventories are stated at the lower of first-in, first-out cost or market.
Inventories at December 29, 1996 and December 28, 1997 were (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
----------------- -----------------
<S> <C> <C>
Raw Materials.......................................... $ 1,436 $ 2,011
Goods in Process....................................... 58 136
Finished Goods......................................... 13,651 13,524
------- -------
Total.................................................. $ 15,145 $ 15,671
------- -------
------- -------
</TABLE>
INVESTMENT IN JOINT VENTURE --
In February 1996, the Company and another entity entered into a joint
venture, Shanghai Friendly Food Co., Ltd., a Chinese corporation. The Company
has a 50% ownership interest in the venture. The joint venture commenced
operations in April 1997. The Company accounts for its investment in the joint
venture using the equity method. As of December 28, 1997, the Company had a note
receivable for $1.4 million from the joint venture. The note bears interest at
11% per annum and matures on January 15, 1999. As of December 28, 1997, the
Company also had net receivables of $1,323,442 from the joint venture related to
transactions with the joint venture, which amount includes accrued interest of
$109,083 on the note receivable.
RESTRICTED CASH --
Restaurant Insurance Corporation ("RIC"), an insurance subsidiary (see Note
4), is required by the reinsurer of RIC to hold assets in trust whose value is
at least equal to certain of RIC's outstanding estimated insurance claim
liabilities. Accordingly, as of December 28, 1997, cash of $1,333,000 was
restricted.
F-8
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT --
Property and equipment are carried at cost except for impaired assets which
are carried at fair value less cost to sell (see Note 6). Depreciation of
property and equipment is computed using the straight-line method over the
following estimated useful lives:
Buildings--30 years
Building improvements and leasehold improvements--20 years
Equipment--3 to 10 years
At December 29, 1996 and December 28, 1997, property and equipment included
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
----------------- -----------------
<S> <C> <C>
Land................................................... $ 75,004 $ 76,160
Buildings and Improvements............................. 112,359 119,121
Leasehold Improvements................................. 39,120 40,300
Assets Under Capital Leases............................ 42,893 12,709
Equipment.............................................. 216,536 247,052
Construction In Progress............................... 6,424 12,551
----------------- -----------------
Property and Equipment................................. 492,336 507,893
Less: Accumulated Depreciation and Amortization........ (206,175) (223,949)
----------------- -----------------
Property and Equipment, net............................ $ 286,161 $ 283,944
----------------- -----------------
----------------- -----------------
</TABLE>
Major renewals and betterments are capitalized. Replacements and maintenance
and repairs which do not extend the lives of the assets are charged to
operations as incurred.
LONG-LIVED ASSETS --
Effective January 2, 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" which had no impact.
The Company reviews the license agreement for the right to use various
trademarks and tradenames (see Note 5) for impairment on a quarterly basis. The
Company recognizes an impairment has occurred when the carrying value of the
license agreement exceeds the estimated future cash flows of the trademarked
products.
The Company reviews each restaurant property quarterly to determine which
properties should be disposed of. This determination is made based on poor
operating results, deteriorating property values and other factors. The Company
recognizes an impairment has occurred when the carrying value of property
exceeds its estimated fair value, which is estimated based on the Company's
experience selling similar properties and local market conditions, less costs to
sell (see Note 6).
F-9
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RESTAURANT PREOPENING COSTS --
In April 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued an exposure draft
entitled "Reporting on the Costs of Start-Up Activities". The proposed
accounting standard contained in this draft would require entities to expense as
incurred all start-up and preopening costs that are not otherwise capitalizable
as long-lived assets. If adopted by the AICPA, this new accounting standard
would be effective for fiscal years beginning after December 15, 1998 with
earlier application encouraged. The comment period for the exposure draft ended
in July 1997, and the AICPA is expected to issue a final pronouncement on this
standard during the first quarter of 1998.
Consistent with the practice of many restaurant entities, the Company defers
its restaurant preopening costs and amortizes them over the twelve month period
following the opening of each respective restaurant beginning in the first full
month of operation. At December 29, 1996 and December 28, 1997, deferred
preopening costs were approximately $184,000 and $363,000, respectively. If the
new accounting principle is adopted by the AICPA, the Company will implement the
new policy as of the beginning of 1999. The implementation will involve the
recognition of the cumulative effect of the change in accounting principle
required by the new standard as a one-time charge against earnings, net of any
related income tax effect, as of the beginning of 1999.
RESTAURANT CLOSURE COSTS --
Restaurant closure costs are recognized when a decision is made to close a
restaurant. Restaurant closure costs include writing down the carrying amount of
a restaurant's assets to estimate fair market value, less costs of disposal, and
the net present value of any remaining operating lease payments after the
expected closure date.
INSURANCE RESERVES --
The Company is self-insured through retentions or deductibles for the
majority of its workers' compensation, automobile, general liability, product
liability and group health insurance programs. Self-insurance amounts vary up to
$500,000 per occurrence. Insurance with third parties, some of which is then
reinsured through RIC (see Note 4), is in place for claims in excess of these
self-insured amounts. RIC assumes 100% of the risk from $500,000 to $1,000,000
per occurrence for the Company's worker's compensation, general liability and
product liability insurance. The Company's and RIC's liability for estimated
incurred losses are actuarially determined and recorded in the accompanying
consolidated financial statements on an undiscounted basis.
INCOME TAXES --
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. A valuation allowance is recorded for deferred tax
assets whose realization is not likely.
F-10
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ADVERTISING --
The Company expenses production and other advertising costs the first time
the advertising takes place. For the years ended December 31, 1995, December 29,
1996 and December 28, 1997, advertising expense was approximately $17,459,000,
$18,231,000 and $20,990,000, respectively.
INTEREST RATE SWAP AGREEMENT --
In connection with the Recapitalization, the Company entered into an
interest rate swap agreement. The interest differential to be paid or received
is accrued and recorded as an adjustment to interest expense (see Note 7).
EARNINGS PER SHARE --
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share", which established new standards for
computing and presenting earnings per share. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997.
Accordingly, all period earnings per share data presented is in accordance with
SFAS No. 128.
Pursuant to the requirements of the Securities and Exchange Commission,
common stock issued at prices below the public offering price during the twelve
months immediately preceding the initial public offering in November 1997 (see
Note 13) are included in the calculation of weighted average common shares
outstanding. Weighted average common shares outstanding were 1,118,082,
2,161,124 and 3,110,874 for the years ended December 31, 1995, December 29, 1996
and December 28, 1997, respectively.
STOCK-BASED COMPENSATION --
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation" which was adopted by FICC effective January 1, 1996.
SFAS No. 123 requires the measurement of the fair value of stock options or
warrants granted to be included in the statement of operations or that pro forma
information related to the fair value be disclosed in the notes to financial
statements. The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS --
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income (net income (loss) together with other non-owner changes in equity) and
its components in a full set of general purpose financial statements. SFAS No.
130 is effective for financial statements issued for periods beginning after
December 15, 1997 and earlier application is permitted. The Company's
comprehensive income is not materially different than the Company's net loss for
all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which requires disclosures for each
segment of an enterprise that are similar to those required under current
standards with the addition of quarterly disclosure requirements and a finer
partitioning of geographic disclosures. SFAS No. 131 is effective for financial
statements issued for periods
F-11
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
beginning after December 15, 1997 and earlier application is encouraged. Under
the terms of the new standard, the Company will report segment information for
restaurant, retail and franchise operations when material.
4. ACQUISITION OF RESTAURANT INSURANCE CORPORATION
On March 19, 1997, FICC acquired all of the outstanding shares of common
stock of Restaurant Insurance Corporation ("RIC"), a Vermont corporation, from
TRC for cash of $1,300,000 and a $1,000,000 promissory note payable to TRC
bearing interest at an annual rate of 8.25%. The promissory note and accrued
interest of approximately $1,024,000 was paid on June 30, 1997. RIC, which was
formed in 1993, reinsures certain Company risks (i.e. workers' compensation,
employer's liability, general liability and product liability) from a third
party insurer (see Note 12).
The acquisition was accounted for as a purchase. Accordingly, the results of
operations for RIC for the period subsequent to March 20, 1997 are included in
the accompanying consolidated financial statements. No pro forma information is
included since the effect of the acquisition is not material. The purchase price
was allocated to net assets acquired based on the estimated fair market values
at the date of acquisition. The purchase price was allocated as follows (in
thousands):
<TABLE>
<S> <C>
Cash and Cash Equivalents.......................................... $ 2,265
Restricted Cash and Investments.................................... 12,061
Receivables and Other Assets....................................... 3,101
Loss Reserves...................................................... (13,231)
Deferred Income Taxes.............................................. (11)
Other Liabilities.................................................. (1,885)
---------
$ 2,300
---------
---------
</TABLE>
F-12
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS AND DEFERRED COSTS
Intangible assets and deferred costs net of accumulated amortization as of
December 29, 1996 and December 28, 1997 were (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
License agreement for the right to use various trademarks and tradenames amortized
over a 40 year life on a straight line basis....................................... $ 14,764 $ 14,298
Deferred financing costs amortized over the terms of the related loans on an
effective yield basis.............................................................. 1,255 11,696
------------ ------------
$ 16,019 $ 25,994
------------ ------------
------------ ------------
</TABLE>
As a result of the Recapitalization in November 1997, previously deferred
financing costs of $399,000 were written-off and are included in expenses
associated with the Recapitalization in the accompanying consolidated statement
of operations for the year ended December 28, 1997.
In November 1994, FHC filed a Form S-1 Registration Statement and in 1995
elected not to proceed with the registration. Accordingly, previously deferred
costs totaling $3,346,000 related to this registration were expensed during the
year ended December 31, 1995.
6. WRITE-DOWN OF PROPERTY AND EQUIPMENT
At December 31, 1995, December 29, 1996 and December 28, 1997, there were
81, 50 and 40 restaurant properties held for disposition, respectively. The
restaurants held for disposition generally have poor operating results,
deteriorating property values or other adverse factors. The Company determined
that the carrying values of certain of these properties exceeded their estimated
fair values less costs to sell. Accordingly, during the year ended December 31,
1995, the carrying values of 51 properties were reduced by an aggregate of
$4,006,000; during the year ended December 29, 1996, the carrying values of 6
properties were reduced by an aggregate of $227,000 and during the year ended
December 28, 1997, the carrying values of 12 properties were reduced by an
aggregate of $770,000. The Company plans to dispose of the 40 properties by
December 31, 1998. The operating loss, prior to depreciation expense which is
not reported at the restaurant level, for the properties held for disposition
was $1,972,000, $1,129,000 and $1,351,000 for the years ended December 31, 1995,
December 29, 1996 and December 28, 1997, respectively. The carrying value of the
properties held for disposition at December 31, 1995, December 29, 1996 and
December 28, 1997 was approximately $7,491,000, $4,642,000 and $3,050,000,
respectively which is included in property and equipment in the accompanying
consolidated balance sheets.
F-13
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT
Debt at December 29, 1996 and December 28, 1997 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Senior Notes, 10.5%, due December 1, 2007........................ $ -- $ 200,000
New Credit Facility:
Revolving Credit Facility, due November 15, 2002............... -- 9,000
Term Loan:
Tranche A, due November 15, 2002............................. -- 34,286
Tranche B, due November 15, 2004............................. -- 34,286
Tranche C, due November 15, 2005............................. -- 21,428
Old Credit Facility:
Revolving Credit Loans, 11%.................................... 36,605 --
Term Loans, 11%................................................ 335,073 --
Insurance Premium Finance Loans, 8.34%-8.35% as of December 29,
1996 and 8.34%-8.75% as of December 28, 1997; due July 10,
1998-November 2, 1998 1,259 2,842
Other............................................................ 147 117
------------ ------------
373,084 301,959
Less: Current Portion............................................ 1,289 2,875
------------ ------------
Total Long-Term Debt............................................. $ 371,795 $ 299,084
------------ ------------
------------ ------------
</TABLE>
Principal payments due under long-term debt as of December 28, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 2,875
1999.............................................................................. 37
2000.............................................................................. 47
2001.............................................................................. --
2002.............................................................................. 43,286
2003 and Thereafter............................................................... 255,714
----------
Total............................................................................. $ 301,959
----------
----------
</TABLE>
Effective January 1, 1991, the Company and its lenders entered into an
Amended and Restated Revolving Credit and Term Loan Agreement (the "Agreement")
and effective January 1, 1996, the Agreement was again amended and restated (the
"Amendment"). In connection with the Amendment, revolving credit loans and term
loans totaling $373,622,000 at December 31, 1995 were converted to revolving
credit loans of $38,549,000 and term loans of $335,073,000. In connection with
the Amendment, the lenders received an aggregate of 1,187,503 shares of FICC's
Class B Common Stock. The estimated fair market value of the shares issued of
$50,000 was recorded as a deferred financing cost during the year ended December
29, 1996. Commencing January 1, 1996, interest accrued on the revolving credit
and term loans (collectively, the "Old Credit Facility") at an annual rate of
11% with .5% of the accrued interest, which was not currently payable,
classified in other long-term liabilities. The deferred interest payable was
F-14
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
waived by the lenders since the Old Credit Facility was repaid in full in
connection with the Recapitalization in November 1997. Accordingly,
approximately $3.6 million of deferred interest was recorded as a reduction in
interest expense in November 1997.
The $200 million Senior Notes issued in connection with the November 1997
Recapitalization (the "Notes") are unsecured, senior obligations of FICC,
guaranteed on an unsecured, senior basis by FICC's Friendly's Restaurants
Franchise, Inc. subsidiary, but are effectively subordinated to all secured
indebtedness of FICC, including the indebtedness incurred under the New Credit
Facility. The Notes mature on December 1, 2007. Interest on the Notes is payable
at 10.5% per annum semi-annually on June 1 and December 1 of each year
commencing on June 1, 1998. The Notes are redeemable, in whole or in part, at
FICC's option any time on or after December 1, 2002 at redemption prices from
105.25% to 100.00%. The redemption price is based on the redemption date. Prior
to December 1, 2000, FICC may redeem up to $70 million of the Notes at 110.50%
with the proceeds of one or more equity offerings, as defined.
The Company entered into the New Credit Facility in November 1997 in
connection with the Recapitalization. The New Credit Facility includes a $90
million term loan (the "Term Loan"), a $55 million revolving credit facility
(the "Revolving Credit Facility") and a $15 million letter of credit facility
(the "Letter of Credit Facility"). The New Credit Facility is collateralized by
substantially all of FICC's assets and by a pledge of FICC's shares of certain
of its subsidiaries' stock.
Borrowings under the New Credit Facility bear interest, at the Company's
option, at either (i) the Eurodollar Rate plus 2.25% or (ii) the ABR rate (the
greater of (a) a specified prime rate or (b) the federal funds rate plus 0.50%)
plus 0.75% per annum for drawings under the Revolving Credit Facility and the
Letter of Credit Facility, 0.50% per annum for amounts undrawn under the
Revolving Credit Facility and 2.25% per annum for amounts issued but undrawn
under the Letter of Credit Facility. Borrowings under the Term Loan bear
interest at the Company's option, at either the Eurodollar Rate plus 2.25%,
2.50% and 2.75% or the ABR plus 0.75%, 1.00% and 1.25% for Tranche A, B and C,
respectively. The Company entered into a three year interest rate swap agreement
to hedge the impact of interest rate changes on the Term Loan. The interest rate
swap agreement has a notional amount of $90 million and effectively fixes the
interest rate on Tranches A, B and C of the Term Loan at 8.25%, 8.50% and 8.75%,
respectively (see Note 3).
Annual amortization amounts under the Term Loan will total $4.0 million,
$9.1 million, $10.8 million, $12.6 million, $16.0 million, $17.4 million and
$20.1 million in 1999 through 2005, respectively. In addition to the scheduled
amortization, the Term Loan would be permanently reduced by (i) specified
percentages of each year's Excess Cash Flow (as defined in the New Credit
Facility), (ii) specified percentages of the aggregate net cash proceeds from
certain issuances of indebtedness and (iii) 100% of the aggregate net cash
proceeds from asset sales not in the ordinary course of business and certain
insurance claim proceeds, in each case in this clause (iii), not re-employed
within 180 days in the Company's business, exclusive of up to $7.5 million of
aggregate net proceeds received from asset sales subsequent to the closing
relating to the New Credit Facility. Any such applicable proceeds and Excess
Cash Flow shall be applied to the Term Loan in inverse order of maturity. The
Revolving Credit Facility matures on November 15, 2002.
Prior to the Recapitalization, under the terms of the Amendment, FICC had a
commitment from a bank to issue letters of credit totaling $5,815,000 through
May 1, 1998. As of December 29, 1996 and December 28, 1997, total letters of
credit issued were $4,390,000 and $14,404,000 under the Old Credit
F-15
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
Facility and the New Credit Facility, respectively. During the years ended
December 31, 1995, December 29, 1996 and December 28, 1997, there were no
drawings against the letters of credit.
At December 29, 1996 and December 28, 1997, the unused portion of the
revolver was $13,395,000 (Old Credit Facility) and $46,000,000 (New Credit
Facility), respectively. The total average unused portions of the revolver and
letters of credit commitments was $10,685,000, $12,796,000 and $13,955,000 for
the years ended December 31, 1995 and December 29, 1996 and the period from
December 30, 1996 through November 18, 1997, respectively. The average unused
portions of the revolver and letters of credit commitments for the period from
November 19, 1997 through December 28, 1997 was $50,046,000.
The Senior Notes and New Credit Facility include certain restrictive
covenants including limitations on indebtedness, limitations on restricted
payments such as dividends and stock repurchases and limitations on sales of
assets and of subsidiary stock. Additionally, the New Credit Facility also
includes certain financial covenants. The financial covenant requirements, as
defined under the New Credit Facility, and actual ratios/amounts as of and for
the twelve months ended December 28, 1997 were:
<TABLE>
<CAPTION>
REQUIREMENT ACTUAL
--------------- ---------------
<S> <C> <C>
Consolidated Leverage Ratio................................. 4.75 to 1 4.33 to 1
Consolidated Interest Coverage Ratio........................ 1.50 to 1 1.91 to 1
Consolidated Fixed Charge Coverage Ratio.................... 1.40 to 1 1.65 to 1
Consolidated Net Worth (Deficit)............................ $(95,000,000) $(86,361,000)
</TABLE>
The fair value of the Company's financial instruments at December 28, 1997
was as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
---------------- ----------
<S> <C> <C>
Senior Notes.................................................... $ 200,000 $ 203,000
Term Loan....................................................... 90,000 90,000
Revolving Credit Facility....................................... 9,000 9,000
Other Debt...................................................... 2,959 2,959
Interest Rate Swap Agreement.................................... -- --
-------- ----------
Total........................................................... $ 301,959 $ 304,959
-------- ----------
-------- ----------
</TABLE>
The fair value of the Senior Notes was determined based on the actual trade
price for a trade that occurred on December 28, 1997. The Company believes that
the carrying value of the Revolving Credit Facility and Term Loan as of December
28, 1997 approximated fair value since the obligations have a variable interest
rate and the obligations were issued in November 1997. The Company believes that
the carrying value of the other debt as of December 28, 1997 approximates the
fair value based on the terms of the obligations and the rates currently
available to the Company for similar obligations. Additionally, the Company
believes that the fair value of the interest rate swap agreement (see Note 3) is
not material as of December 28, 1997, since the agreement was entered into in
November 1997 and interest rates were not significantly different at December
28, 1997.
FICC's revolving credit and term loans under the Old Credit Facility were
not publicly traded and prices and terms of the few transactions which were
completed were not available to FICC. Since no information was available on
prices of completed transactions, the terms of the loans were complex and the
F-16
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
relative risk involved was difficult to evaluate, management believes it is not
practical to estimate the fair value of the loans under the Old Credit Facility
as of December 29, 1996.
8. LEASES
As of December 31, 1995, December 29, 1996 and December 28, 1997, the
Company operated 735, 707 and 662 restaurants, respectively. These operations
were conducted in premises owned or leased as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Land and Building Owned........................... 313 296 279
Land Leased and Building Owned.................... 164 161 146
Land Leased and Building Leased................... 258 250 237
--- --- ---
735 707 662
--- --- ---
--- --- ---
</TABLE>
Restaurants in shopping centers are generally leased for a term of 10 to 20
years. Leases of freestanding restaurants generally are for a 15 or 20 year
lease term and provide for renewal options for three or four five-year renewals.
Most leases provide for minimum payments plus a percentage of sales in excess of
stipulated amounts. Additionally, the Company leases certain restaurant
equipment over lease terms from three to seven years.
Future minimum lease payments under noncancelable leases with an original
term in excess of one year as of December 28, 1997 were (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
- ------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
1998.................................................................... $ 12,767 $ 3,131
1999.................................................................... 11,796 2,963
2000.................................................................... 10,428 2,588
2001.................................................................... 8,511 2,138
2002.................................................................... 5,920 1,522
2003 and Thereafter..................................................... 16,853 11,206
----------- ---------
Total Minimum Lease Payments............................................ $ 66,275 23,548
-----------
-----------
Less: Amount Representing Interest 10,630
---------
Present Value of Minimum Lease Payments $ 12,918
---------
---------
</TABLE>
F-17
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LEASES (CONTINUED)
Capital lease obligations reflected in the accompanying consolidated balance
sheets have effective rates ranging from 8% to 12% and are payable in monthly
installments through 2016. Maturities of such obligations at December 28, 1997
were (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 1,577
1999............................................................................... 1,632
2000............................................................................... 1,470
2001............................................................................... 1,205
2002............................................................................... 724
2003 and Thereafter................................................................ 6,310
---------
Total.............................................................................. $ 12,918
---------
---------
</TABLE>
Rent expense included in the accompanying consolidated financial statements
for operating leases was (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Minimum Rentals................................... $ 15,175 $ 16,051 $ 16,007
Contingent Rentals................................ 2,012 1,918 1,762
------------ ------------ ------------
Total............................................. $ 17,187 $ 17,969 $ 17,769
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
9. INCOME TAXES
Prior to March 23, 1996, FICC and its subsidiaries were included in the
consolidated Federal income tax return of TRC. Under a tax sharing agreement
between TRC and FICC (formerly FHC) (the "TRC/ FICC Agreement"), FICC and its
subsidiaries (the "FICC Group") were obligated to pay TRC its allocable share of
the TRC group tax liability, determined as if the FICC Group were filing a
separate consolidated income tax return.
On March 23, 1996, TRC distributed its shares of FICC's voting common stock
to TRC's shareholders (see Note 1), the FICC Group deconsolidated from the TRC
group and the TRC/FICC Agreement expired. In addition, on March 26, 1996, shares
of Class B Common Stock were issued to FICC's lenders (See Note 7) which
resulted in an ownership change pursuant to Internal Revenue Code Section 382.
Under the TRC/FICC Agreement, NOLs generated by the FICC Group and utilized
or allocated to TRC were available to the FICC Group on a separate company basis
to carryforward. Pursuant to the TRC/FICC Agreement, as of March 23, 1996,
$99,321,000 of carryforwards would have been available to the FICC Group to
offset future taxable income of the FICC Group. However, as a result of the
deconsolidation from TRC, the deferred tax asset related to the $65,034,000 of
NOLs utilized by TRC was written off. As of December 29, 1996, as a result of
the change in ownership and limitations under Section 382 of the Internal
Revenue Code, a valuation allowance was placed on $29,686,000 of the $34,287,000
remaining Federal NOL carryforwards generated for the period prior to March 23,
1996. The amount of pre-change NOLs ("Old NOLs") not reserved for as of December
29, 1996 represented the amount of NOLs which had become available as of
December 29, 1996 as a result of FICC realizing gains which were
F-18
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
unrealized as of the date of the ownership change. Due to restrictions similar
to Section 382 in most of the states FICC operates in and short carryforward
periods, FICC has fully reserved for all state NOL carryforwards generated
through March 26, 1996 as of December 29, 1996. For the period from March 23,
1996 to December 29, 1996, FICC generated a net operating loss carryforward of
$5,765,000 for which no valuation allowance was provided.
During the year ended December 28, 1997, the Company realized gains of
$861,000 which were unrealized as of the date of the first ownership change.
Accordingly, the valuation allowance was reduced by approximately $300,000 as of
December 28, 1997. During the year ended December 28, 1997, the Company used
approximately $615,000 of Old NOLs to offset current year taxable income. As a
result, as of December 28, 1997, the Company has aggregate NOL carryforwards of
approximately $39.4 million which expire between 2001 and 2012.
The Common Stock Offering resulted in the Company having another change of
ownership under Section 382 of the Internal Revenue Code in November 1997. As a
result, usage of the NOLs generated between the last ownership change and the
Common Stock Offering ("New NOLs") is also limited. The amount of NOLs which may
be used each year prior to any built in gains being triggered is approximately
$2.4 million. While the limitation on the use of the New NOLs will delay when
the New NOLs are utilized, the Company expects all of the New NOLs to be
utilized before they expire. Accordingly, no valuation allowance is required
related to any New NOLs as of December 28, 1997. The Company does not believe
that it is more likely than not that all Old NOLs will become available through
realization of unrealized gains as of the date of the March 1996 ownership
change. Accordingly, a valuation allowance has been provided against Old NOLs
which have not been made available as of December 28, 1997. As of December 28,
1997, a valuation allowance has been provided against an aggregate of $28.8
million of Old NOLs.
The (provision for) benefit from income taxes for the years ended December
31, 1995, December 29, 1996 and December 28, 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Current Provision
Federal........................................... $ -- $ -- $ --
State............................................. -- -- (86)
Foreign........................................... -- (58) (21)
------------ ------ ------
Total Current Provision........................... -- (58) (107)
------------ ------ ------
Deferred (Provision) Benefit
Federal........................................... (27,465) 5,126 2,291
State............................................. (5,954) 800 255
Foreign........................................... -- -- --
------------ ------ ------
Total Deferred (Provision) Benefit................ (33,419) 5,926 2,546
------------ ------ ------
Total (Provision For) Benefit From Income Taxes... $ (33,419) $ 5,868 $ 2,439
------------ ------ ------
------------ ------ ------
</TABLE>
F-19
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
A reconciliation of the difference between the statutory Federal income tax
rate and the effective income tax rate follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
--------------- ----------------- -----------------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate................. 35% 35% 35%
State Income Taxes Net of Federal Benefit......... 11 14 6
Write-off of Intercompany NOL Carryforwards and
Tax Credits..................................... (85) (13) --
(Decrease) Increase in Federal NOL Valuation
Allowance....................................... (57) 10 (4)
Increase in State NOL Valuation Allowance......... (30) (8) --
Tax Credits....................................... 3 3 12
Nondeductible Expenses............................ (1) (1) (10)
Other............................................. (8) 3 2
-- --
---
Effective Tax Rate................................ (132)% 43% 41%
-- --
-- --
---
---
</TABLE>
Deferred tax assets and liabilities are determined as the difference between
the financial statement and tax bases of the assets and liabilities multiplied
by the enacted tax rates in effect for the year in which the differences are
expected to reverse. Significant deferred tax assets (liabilities) at December
29, 1996 and December 28, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Property and Equipment........................................... $ (50,866) $ (47,483)
Federal and State NOL Carryforwards (net of valuation allowance
of $21,220 and $21,151 at December 29, 1996 and December 28,
1997, respectively)............................................ 4,355 4,604
Insurance Reserves............................................... 5,788 4,534
Inventories...................................................... 1,862 1,811
Accrued Pension.................................................. 4,388 3,138
Intangible Assets................................................ (6,037) (5,838)
Tax Credit Carryforwards......................................... 1,001 2,234
Other............................................................ 3,412 3,438
------------ ------------
Net Deferred Tax Liability....................................... $ (36,097) $ (33,562)
------------ ------------
------------ ------------
</TABLE>
F-20
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS
Substantially all of the employees of the Company are covered by a
non-contributory defined benefit pension plan. Effective January 1, 1992, the
plan was changed from a traditional defined benefit plan to a defined benefit
cash balance plan. Plan benefits are based on years of service and participant
compensation during their years of employment. The Company accrues the cost of
its pension plan over its employees' service lives.
Under the cash balance plan, a nominal account for each participant is
established. The Company makes an annual contribution to each participant's
account based on current wages and years of service. Each account earns a
specified rate of interest which is adjusted annually. The Company's policy is
to make contributions to the plan which provide for benefits. Plan expenses may
also be paid from the assets of the plan.
For the years ended December 31, 1995, December 29, 1996 and December 28,
1997, net pension expense was (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Service Cost...................................... $ 3,877 $ 4,202 $ 3,764
Interest Cost..................................... 5,420 5,781 5,922
Actual Gain on Plan Assets........................ (17,438) (9,428) (21,905)
Deferral of Asset Gain............................ 10,850 2,377 13,762
Net Amortization of Deferral of Asset Gain........ (770) (651) (1,020)
------------ ------------ ------------
Net Pension Expense............................... $ 1,939 $ 2,281 $ 523
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The funded status of the plan as of December 29, 1996 and December 28, 1997
was (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested......................................................... $ 56,752 $ 65,313
Non-vested..................................................... 1,316 1,515
------------ ------------
Accumulated Benefit Obligations.................................. $ 58,068 $ 66,828
------------ ------------
------------ ------------
Projected Benefit Obligations.................................... $ 76,768 $ 79,311
Plan Assets at Market Value...................................... 90,626 107,937
------------ ------------
Plan Assets in Excess of Projected Benefit Obligation............ 13,858 28,626
Unrecognized Prior Service Costs................................. (3,077) (8,700)
Unrecognized Net Gain............................................ (21,044) (26,922)
------------ ------------
Accrued Pension Liability........................................ $ (10,263) $ (6,996)
------------ ------------
------------ ------------
</TABLE>
For the years ended December 31, 1995, December 29, 1996 and December 28,
1997, the weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.00%, 7.75% and 7.25%,
respectively. The rate of annual increase in future compensation levels used
ranged from 4.5% to 6.0% for the year ended December 31, 1995, from 4.0% to 5.5%
for the year ended December 29, 1996 and 4.0% to 5.5% for the year ended
December 28, 1997, depending on the employee
F-21
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
group. The expected long-term rate of return on plan assets was 9.5% for the
years ended December 31, 1995 and December 29, 1996 and 10.5% for the year ended
December 28, 1997.
Effective December 30, 1996, FICC changed its method of calculating the
market-related value of plan assets used in determining the return-on-asset
component of annual pension expense and the cumulative net unrecognized gain or
loss subject to amortization. Under the previous accounting method, the
calculation of the market-related value of assets reflected amortization of the
actual realized and unrealized capital return on assets on a straight-line basis
over a five-year period. Under the new method, the calculation of the
market-related value of assets reflects the long-term rate of return expected by
the Company and amortization of the difference between the actual return
(including capital, dividends and interest) and the expected return over a
five-year period. The Company believes the new method is widely used in practice
and preferable because it results in calculated plan asset values that more
closely approximate fair value, while still mitigating the effect of annual
market-value fluctuations. Under both methods, only the cumulative net
unrecognized gain or loss which exceeds 10% of the greater of the projected
benefit obligation or the market-related value of plan assets is subject to
amortization. This change resulted in a noncash benefit for the year ended
December 28, 1997 of $2,236,000 (net of taxes of $1,554,000) which represents
the cumulative effect of the change related to years prior to fiscal 1997 and
$607,000 (net of taxes of $421,000) in lower pension expense related to the year
ended December 28, 1997 as compared to the previous accounting method. Had this
change been applied retroactively, pension expense would have been reduced by
$879,000 and $946,000 for the years ended December 31, 1995 and December 29,
1996, respectively.
The Company's Employee Savings and Investment Plan (the "Plan") covers all
eligible employees and is intended to be qualified under Sections 401(a) and
401(k) of the Internal Revenue Code. For the years ended December 31, 1995,
December 29, 1996 and December 28, 1997, the Company made discretionary matching
contributions at the rate of 75% of a participant's first 2% of his/her
contributions and 50% of a participant's next 2% of his/her contributions. All
employee contributions are fully vested. Employer contributions are vested at
the completion of five years of service or at retirement, death, disability or
termination at age 65 or over, as defined by the Plan. Contribution and
administrative expenses for the Plan were approximately $1,086,000, $1,002,000
and $1,089,000 for the years ended December 31, 1995, December 29, 1996 and
December 28, 1997, respectively.
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health care and life insurance benefits to certain
groups of employees upon retirement. Eligible employees may continue their
coverages if they are receiving a pension benefit, are 55 years of age, and have
completed 10 years of service. The plan requires contributions for health care
coverage from participants who retired after September 1, 1989. Life insurance
benefits are non-contributory. Benefits under the plan are provided through the
Company's general assets.
F-22
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The Company accrues the cost of postretirement benefits over the years
employees provide services to the date of their full eligibility for such
benefits. The components of the net postretirement benefit cost for the years
ended December 31, 1995, December 29, 1996 and December 28, 1997 were (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Service Cost of Benefits Earned................... $ 105 $ 125 $ 134
Interest Cost on Accumulated Postretirement
Benefit Obligation, net of Amortization......... 478 374 374
----- ----- -----
Net Postretirement Benefit Expense................ $ 583 $ 499 $ 508
----- ----- -----
----- ----- -----
</TABLE>
The postretirement benefit liability as of December 29, 1996 and December
28, 1997 included the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------- -------------
<S> <C> <C>
Actuarial Present Value of Postretirement Benefit Obligation:
Retirees......................................................... $ 3,837 $ 3,706
Other Fully Eligible Plan Participants........................... 358 403
Other Active Plan Participants................................... 1,514 1,932
------ ------
Accumulated Postretirement Benefit Obligation.................... 5,709 6,041
Plan Changes..................................................... 1,113 1,051
Unrecognized Net Gain............................................ 328 24
------ ------
Postretirement Benefit Liability................................. $ 7,150 $ 7,116
------ ------
------ ------
</TABLE>
The discount rate used to determine the accumulated postretirement benefit
obligation was 8.00%, 7.75% and 7.25% for the years ended December 31, 1995,
December 29, 1996 and December 28, 1997, respectively. The assumed health care
cost trend rate used to measure the accumulated postretirement benefit
obligation was 11.5% gradually declining to 5.5% in 2000 and thereafter for the
year ended December 31, 1995, 9.25% gradually declining to 5.25% in 2000 and
thereafter for the year ended December 29, 1996 and 8.25% gradually declining to
5.25% in 2000 and thereafter for the year ended December 28, 1997. A
one-percentage-point increase in the assumed health care cost trend rate would
have increased the postretirement benefit expense by approximately $55,000,
$49,000 and $51,000, and would have increased the accumulated postretirement
benefit obligation by approximately $478,000, $411,000 and $457,000 for the
years ended December 31, 1995, December 29, 1996 and December 28, 1997,
respectively.
The Company increased the required contributions from participants who
retired after July 31, 1994, for health coverage. This and other plan changes
are being amortized over the expected remaining employee service period of
active plan participants.
F-23
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INSURANCE RESERVES
At December 31, 1995, December 29, 1996 and December 28, 1997, insurance
reserves of approximately $20,847,000, $16,940,000 and $26,974,000,
respectively, had been recorded. Insurance reserves at December 28, 1997
included RIC's reserve for the Company's insurance liabilities of approximately
$13,793,000. Reserves at December 31, 1995, December 29, 1996 and December 28,
1997 also included accruals related to postemployment benefits and
postretirement benefits other than pensions. While management believes these
reserves are adequate, it is reasonably possible that the ultimate liabilities
will exceed such estimates.
Classification of the reserves was as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current........................................... $ 6,605 $ 3,973 $ 7,248
Long-term......................................... 14,242 12,967 19,726
------------ ------------ ------------
Total............................................. $ 20,847 $ 16,940 $ 26,974
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Following is a summary of the activity in the insurance reserves for the
years ended December 31, 1995, December 29, 1996 and December 28, 1997 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Beginning balance................................. $ 23,216 $ 20,847 $ 16,940
Provision......................................... 11,336 8,363 9,605
Payments.......................................... (13,705) (12,270) (12,802)
Acquisition of RIC................................ -- -- 13,231
------------ ------------ ------------
Ending balance.................................... $ 20,847 $ 16,940 $ 26,974
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
13. STOCKHOLDERS' EQUITY (DEFICIT)
As of December 29, 1996, three classes of common stock were authorized:
Class A (voting), Class B (limited voting) and Class C (non-voting). In
connection with the Recapitalization in November 1997, FICC amended its articles
of organization to give effect to a 923.6442-to-1 split of Class A Common Stock
and Class B Common Stock and authorize a new class of common stock. The
accompanying consolidated financial statements have been restated to reflect the
stock split.
A Stock Rights Plan ("SRP") was adopted by FICC in 1991. Under the SRP,
certain eligible individuals were granted rights to purchase shares of voting
common stock of FICC for $.01 per share, subject to certain vesting,
anti-dilution and exercise requirements. As of December 31, 1995, the aggregate
number of shares which could have been issued under the SRP was 88,801 of which
41,316 rights were issued and vested. The estimated fair value of the rights
vested was not material and no compensation expense was recorded during the year
ended December 31, 1995. On March 25, 1996, FICC established the Management
Stock Plan ("MSP"). The MSP provided for persons with rights granted under the
SRP to waive their rights under such plan and receive shares of FICC's Class A
Common Stock. Accordingly, in April 1996, all of the participants in the SRP
made this election and the SRP rights then outstanding were canceled and 122,888
shares of Class A Common Stock were issued, of which 61,650 were vested as of
December 29, 1996. In April 1996, the fair value of the 122,888 shares of Class
A Common Stock issued
F-24
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
was approximately $30,700, or $0.25 per share. The estimated fair value of the
20,334 additional shares vested in 1996 of $5,000 was recorded as compensation
expense in the year ended December 29, 1996.
In connection with the Recapitalization, 766,782 shares of Class A Common
Stock were returned to FICC from certain shareholders for no consideration. The
shares were returned in accordance with an agreement with the Company's existing
lenders as a condition to the Recapitalization. Of such shares, 99,951 shares
were issued to FICC's Chief Executive Officer and vested immediately, 371,285
shares were reserved for issuance under a restricted stock plan (the "Restricted
Stock Plan") which was adopted by FICC in connection with the Recapitalization,
as described below, and 295,546 shares were issued to certain employees under a
limited stock compensation program in which a one-time award of common stock was
made to certain employees of the Company. The 295,546 shares issued under the
limited stock compensation program vested immediately. Additionally, 27,113
shares were issued under the MSP and immediately vested and the remaining 61,238
nonvested shares under the MSP vested. The estimated fair value of $8,407,000 of
the (i) 27,113 shares issued and vested under the MSP, (ii) 61,238 shares
previously issued under the MSP which vested in connection with the
Recapitalization, (iii) 99,951 vested shares issued to FICC's Chief Executive
Officer in connection with the Recapitalization and (iv) 295,546 vested shares
issued to certain employees was recorded as compensation expense by the Company
upon consummation of the Recapitalization.
The Restricted Stock Plan, pursuant to which 371,285 shares are authorized
for issuance, provides for the award of common stock, the vesting of which is
subject to conditions and limitations established by the Board of Directors.
Such conditions may include continued employment with the Company or the
achievement of performance measures. Upon the award of common stock, the
participant has the rights of a stockholder, including but not limited to the
right to vote such stock and the right to receive all dividends paid on such
stock. The Board of Directors, in its sole discretion, may designate employees
and persons providing material services to the Company as eligible for
participation in the Restricted Stock Plan. In connection with the
Recapitalization, 312,575 shares of common stock were issued to directors and
employees under the Restricted Stock Plan. The shares vest at 12.5% per year
with accelerated vesting of an additional 12.5% per year if certain performance
criteria are met. No shares had vested as of December 28, 1997. Accordingly, no
compensation expense was recorded related to the Restricted Stock Plan during
the year ended December 28, 1997.
In connection with the Recapitalization, the Board of Directors adopted a
stock option plan (the "Stock Option Plan"), pursuant to which 395,000 shares of
common stock are authorized for issuance. The Stock Option Plan provides for the
issuance of nonqualified stock options and incentive stock options which are
intended to satisfy the requirements of section 422 of the Internal Revenue Code
and stock appreciation rights. The Board of Directors will determine the
employees who will receive awards under the Stock Option Plan and the terms of
such awards. The exercise price of a stock option or stock appreciation right
shall not be less than the fair market value of a share of common stock on the
date the stock option or stock appreciation right is granted. During the year
ended December 28, 1997, the Company granted options to purchase 161,550 shares
of FICC's common stock at an exercise price of $17.38, the fair value of FICC's
common stock on the grant date. The options expire 10 years from the date of
grant and vest over five years. The weighted average fair value as of the grant
date was $10.39 per option. Such fair value was determined using the
Black-Scholes option pricing model assuming a risk free interest rate of 5.96%,
expected dividend yield of 0%, expected life of 7 years and expected volatility
of
F-25
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
50%. During the year ended December 28, 1997, 1,400 options were canceled. As of
December 28, 1997, none of the outstanding options were exercisable.
Had compensation cost for the Company's stock plans been determined
consistent with SFAS No. 123, the Company's net loss and basic net loss per
share for the years ended December 29, 1996 and December 28, 1997 would have
been the following pro forma amounts:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------- -------------
<S> <C> <C>
Loss before cumulative effect of change in accounting
principle..................................................... $ (7,786,000) $ (5,149,000)
Cumulative effect of change in accounting principle............. -- 2,236,000
------------- -------------
Net loss........................................................ $ (7,786,000) $ (2,913,000)
------------- -------------
------------- -------------
Basic net loss per share:
Loss before cumulative effect of change in accounting
principle..................................................... $ (3.60) $ (1.66)
Cumulative effect of change in accounting principle............. -- 0.72
------------- -------------
Net loss per share.............................................. $ (3.60) $ (0.94)
------------- -------------
------------- -------------
</TABLE>
Pursuant to a stockholder rights plan (the "Stockholder Rights Plan") FICC
adopted in connection with the Recapitalization, the Board of Directors declared
a dividend distribution of one purchase right (a "Right") for each outstanding
share of common stock. The Stockholder Rights Plan provides, in substance, that
should any person or group (other than certain management and affiliates)
acquire 15% or more of FICC's common stock, each Right, other than Rights held
by the acquiring person or group, would entitle its holder to purchase a
specified number of shares of common stock for 50% of their then current market
value. Until a 15% acquisition has occurred, the Rights may be redeemed by FICC
at any time prior to the termination of the Stockholder Rights Plan.
In 1991, one of the Company's lenders was issued warrants for 13,836 shares
of FICC's Class A Common Stock at an exercise price of $32.16 per share. These
warrants expire on September 2, 1998. As of December 28, 1997, none of these
warrants had been exercised. In 1991, certain officers of FICC purchased 97,906
shares of Class A Common Stock and warrants convertible into an additional
71,527 shares of voting common stock for an aggregate purchase price of $55,550.
These warrants were exercised on April 19, 1996 at an aggregate exercise price
of $22,000.
F-26
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RELATED PARTY TRANSACTIONS
In March 1996, the Company's pension plan acquired three restaurant
properties from the Company. The land, buildings and improvements were purchased
by the plan at their appraised value of $2,043,000 and are located in
Connecticut, Vermont and Virginia. Simultaneous with the purchase, the pension
plan leased back the three properties to the Company at an aggregate annual base
rent of $214,000 for the first five years and $236,000 for the following five
years. The pension plan was represented by independent legal and financial
advisors. The transaction was recorded by the Company as a direct financing
lease since the Company has the right to repurchase the property at fair market
value.
FICC's Chairman and President is an officer of the general partner of a
subsidiary of TRC. The Company entered into subleases for certain land,
buildings, and equipment with the subsidiary of TRC. During the years ended
December 31, 1995, December 29, 1996 and December 28, 1997, rent expense related
to the subleases was approximately $266,000, $278,000, and $279,000,
respectively.
On March 19, 1997, FICC acquired all of the outstanding shares of common
stock of Restaurant Insurance Corporation ("RIC") from TRC (see Note 4). Prior
to the acquisition, RIC assumed, from a third party insurance company,
reinsurance premiums related to insurance liabilities of the Company of
approximately $6,409,000 and $4,198,000 during the years ended December 31, 1995
and December 29, 1996, respectively. In addition, RIC had reserves of
approximately $12,830,000 and 13,038,000 related to Company claims at December
31, 1995 and December 29, 1996, respectively.
TRC Realty Co. (a subsidiary of TRC) entered into a ten year operating lease
for an aircraft, for use by both the Company and Perkins Family Restaurants,
L.P. ("Perkins"), a subsidiary of TRC. The Company shares equally with Perkins
in reimbursing TRC Realty Co. for leasing, tax and insurance expenses. In
addition, the Company also incurs actual usage costs. Total expense for the
years ended December 31, 1995, December 29, 1996 and December 28, 1997 was
approximately $620,000, $590,000 and $610,000, respectively.
The Company purchased certain food products used in the normal course of
business from a division of Perkins. For the years ended December 31, 1995,
December 29, 1996 and December 28, 1997, purchases were approximately
$1,909,000, $1,425,000, and $975,000, respectively.
TRC provided FICC with certain management services for which TRC was
reimbursed approximately $785,000, $800,000 and $824,000 for the years ended
December 31, 1995, December 29, 1996 and December 28, 1997, respectively. The
1997 charges were reduced by a $350,000 refund from TRC for prior years.
Expenses were charged to FICC on a specific identification basis. FICC believes
the allocation method used was reasonable and approximates the amount that would
have been incurred on a stand alone basis had FICC been operated as an
unaffiliated entity.
During the years ended December 29, 1996 and December 28, 1997, FICC paid
approximately $69,000 and $187,000, respectively, for fees and other
reimbursements to certain FICC board of directors' members, two of whom, prior
to the Recapitalization, represented FICC's lenders.
For the years ended December 31, 1995, December 29, 1996 and December 28,
1997, FICC expensed approximately $763,000, $196,000, and $177,000,
respectively, for fees paid to the lenders' agent bank. The expense for the year
ended December 31, 1995 included approximately $563,000 related to the filing of
a Form S-1 Registration Statement (see Note 5).
F-27
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings arising in the ordinary
course of business which management believes, after consultation with legal
counsel, will not have a material adverse effect on the Company's financial
position or future operating results.
As of December 28, 1997, the Company had commitments to purchase
approximately $52,148,000 of raw materials, food products and supplies used in
the normal course of business that cover periods of one to twenty-four months.
Most of these commitments are noncancelable.
On July 14, 1997, the Company entered into an agreement which conditionally
granted a franchisee exclusive rights to operate, manage and develop Friendly's
full-service restaurants in the franchising region of Maryland, Delaware, the
District of Columbia and northern Virginia (the "Agreement"). Pursuant to the
Agreement, the franchisee purchased certain assets and rights in 34 existing
Friendly's restaurants in this franchising region, has committed to open an
additional 74 restaurants over the next six years and, subject to the
fulfillment of certain conditions, has further agreed to open 26 additional
restaurants, for a total of 100 new restaurants in this franchising region over
the next ten years. Gross proceeds from the sale were approximately $8,488,000,
$860,000 for initial franchise fees for the 34 initial restaurants, $500,000 for
development rights and $930,000 for franchise fees for certain of the additional
restaurants described above. The $860,000 was recorded as revenue in the year
ended December 28, 1997 and the development and franchise fees received will be
amortized into income over the initial ten-year term of the Agreement and as
additional restaurants are opened, respectively. The Company recognized income
of $2,283,000 related to the sale of the equipment and operating rights for the
34 existing franchised locations in the year ended December 28, 1997. The
proceeds were allocated between the assets sold and the development rights by
the Company and the franchisee based on the estimated fair market values. As
part of the Agreement, the franchisee will also manage 14 other Friendly's
restaurants located in the same area with an option to acquire these restaurants
in the future. The franchisee is required by the terms of the Agreement to
purchase from the Company all of the frozen dessert products it sells in the
franchised restaurants.
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
FICC's obligation related to the $200 million of Senior Notes are guaranteed
fully and unconditionally by one of FICC's wholly-owned subsidiaries. There are
no restrictions on FICC's ability to obtain dividends or other distributions of
funds from this subsidiary, except those imposed by applicable law. The
following supplemental financial information sets forth, on a condensed
consolidating basis, balance sheets, statements of operations and statements of
cash flows for Friendly Ice Cream Corporation (the "Parent Company"), Friendly's
Restaurants Franchise, Inc. (the "Guarantor Subsidiary") and Friendly's
International, Inc. ("FII"), Friendly Holding (UK) Limited, Friendly Ice Cream
(UK) Limited and Restaurant Insurance Corporation (collectively, the
"Non-guarantor Subsidiaries"). Since the investment in joint venture was
transferred to FII on December 10, 1997, the equity in net loss of joint venture
and investment in joint venture are included in Non-guarantor Subsidiaries in
the accompanying consolidating financial statements as of and for the years
ended December 28, 1997 and December 29, 1996. Stockholders' equity (deficit),
total assets and net income (loss) of the Non-guarantor Subsidiaries are
insignificant to consolidated amounts as of and for the year ended December 31,
1995. Accordingly, supplemental condensed consolidating financial information is
not presented for such period. Separate complete financial statements and other
disclosures of the Guarantor Subsidiary as of December 29, 1996 and
F-28
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
December 28, 1997 and for the years then ended are not presented because
management has determined that such information is not material to investors.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of the subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investments in subsidiaries and intercompany balances and
transactions.
F-29
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 12,239 $ 204 $ 2,757 $ (68) $ 15,132
Restricted cash............................ -- -- 1,333 -- 1,333
Trade accounts receivable.................. 8,054 130 738 -- 8,922
Inventories................................ 15,165 -- 506 -- 15,671
Deferred income taxes...................... 8,831 -- -- -- 8,831
Prepaid expenses and other current
assets................................... 7,096 2,326 7,428 (10,450) 6,400
---------- ----------- ------------- ------------ ------------
Total current assets......................... 51,385 2,660 12,762 (10,518) 56,289
Deferred income taxes........................ -- 479 352 (831) --
Investment in joint venture.................. -- -- 2,970 -- 2,970
Property and equipment, net.................. 283,749 -- 195 -- 283,944
Intangibles and deferred costs, net.......... 25,994 -- -- -- 25,994
Investments in subsidiaries.................. 3,769 -- -- (3,769) --
Other assets................................. 1,754 -- 8,528 (7,608) 2,674
---------- ----------- ------------- ------------ ------------
Total assets................................. $ 366,651 $ 3,139 $ 24,807 $ (22,726) $ 371,871
---------- ----------- ------------- ------------ ------------
---------- ----------- ------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term
obligations................................ $ 8,852 $ -- $ -- $ (4,400) $ 4,452
Accounts payable........................... 23,951 -- -- -- 23,951
Accrued expenses........................... 36,820 885 12,090 (6,118) 43,677
---------- ----------- ------------- ------------ ------------
Total current liabilities.................... 69,623 885 12,090 (10,518) 72,080
Deferred income taxes........................ 43,224 -- -- (831) 42,393
Long-term obligations, less current
maturities................................. 318,033 -- -- (7,608) 310,425
Other liabilities............................ 22,132 1,409 9,793 -- 33,334
Stockholders' equity (deficit)............... (86,361) 845 2,924 (3,769) (86,361)
---------- ----------- ------------- ------------ ------------
Total liabilities and stockholders' equity
(deficit).................................. $ 366,651 $ 3,139 $ 24,807 $ (22,726) $ 371,871
---------- ----------- ------------- ------------ ------------
---------- ----------- ------------- ------------ ------------
</TABLE>
F-30
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 665,380 $ 1,459 $ 708 $ -- $ 667,547
Costs and expenses:
Cost of sales.............................. 197,057 -- 570 -- 197,627
Labor and benefits......................... 208,364 -- -- -- 208,364
Operating expenses and write-down of
property and equipment................... 150,152 -- (612) -- 149,540
General and administrative expenses........ 40,894 607 886 -- 42,387
Stock compensation expense................. 8,407 -- -- -- 8,407
Expenses associated with
Recapitalization......................... 718 -- -- -- 718
Depreciation and amortization.............. 31,642 -- 50 -- 31,692
Interest expense........................... 39,489 -- (186) -- 39,303
Gain on sale of restaurant operations........ 2,283 -- -- -- 2,283
Equity in net loss of joint venture.......... -- -- 1,530 -- 1,530
---------- ----------- ------------- ------ ------------
(Loss) income before benefit from (provision
for) income taxes, cumulative effect of
change in accounting principle and equity
in net loss of consolidated subsidiaries... (9,060) 852 (1,530) -- (9,738)
Benefit from (provision for) income taxes.... 4,562 (349) (220) -- 3,993
---------- ----------- ------------- ------ ------------
(Loss) income before cumulative effect of
change in accounting principle and equity
in net loss of consolidated subsidiaries... (4,498) 503 (1,750) -- (5,745)
Cumulative effect of change in accounting
principle.................................. 2,236 -- -- -- 2,236
---------- ----------- ------------- ------ ------------
(Loss) income before equity in net loss of
consolidated subsidiaries.................. (2,262) 503 (1,750) -- (3,509)
Equity in net loss of consolidated
subsidiaries............................... (1,247) -- -- 1,247 --
---------- ----------- ------------- ------ ------------
Net (loss) income............................ $ (3,509) $ 503 $ (1,750) $ 1,247 $ (3,509)
---------- ----------- ------------- ------ ------------
---------- ----------- ------------- ------ ------------
</TABLE>
F-31
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................. $ 15,007 $ (206) $ 7,385 $ (68) $ 22,118
---------- ----- ------------- ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment......... (31,572) -- (66) -- (31,638)
Proceeds from sales of property and
equipment................................. 5,043 -- -- -- 5,043
Purchases of investment securities.......... -- -- (8,194) -- (8,194)
Proceeds from sales and maturities of
investment securities..................... -- -- 12,787 -- 12,787
Cash (paid) received in acquisition of
Restaurant Insurance Corporation.......... (2,300) -- 2,265 -- (35)
Advances to joint venture................... (1,400) -- -- -- (1,400)
Investments in consolidated subsidiaries.... (142) -- -- 142 --
---------- ----- ------------- ------------ ------------
Net cash (used in) provided by investing
activities.................................. (30,371) -- 6,792 142 (23,437)
---------- ----- ------------- ------------ ------------
Cash flows from financing activities:
Contribution of capital..................... -- 142 -- (142) --
Proceeds from issuance of common stock...... 81,920 -- -- -- 81,920
Proceeds from issuance of senior notes...... 200,000 -- -- -- 200,000
Proceeds from borrowings (advances to
parent)................................... 179,957 -- (12,409) -- 167,548
(Repayments of obligations) reimbursements
from parent............................... (452,028) -- 400 -- (451,628)
---------- ----- ------------- ------------ ------------
Net cash provided by (used in) financing
activities.................................. 9,849 142 (12,009) (142) (2,160)
---------- ----- ------------- ------------ ------------
Effect of exchange rate changes on cash....... -- -- (15) -- (15)
---------- ----- ------------- ------------ ------------
Net (decrease) increase in cash and cash
equivalents................................. (5,515) (64) 2,153 (68) (3,494)
Cash and cash equivalents, beginning of
period...................................... 17,754 268 604 -- 18,626
---------- ----- ------------- ------------ ------------
Cash and cash equivalents, end of period...... $ 12,239 $ 204 $ 2,757 $ (68) $ 15,132
---------- ----- ------------- ------------ ------------
---------- ----- ------------- ------------ ------------
Supplemental disclosures:
Interest paid............................... $ 46,040 $ -- $ -- $ -- $ 46,040
Income taxes paid........................... 147 -- 21 -- 168
Capital lease obligations incurred.......... 2,227 -- -- -- 2,227
Capital lease obligations terminated........ 1,587 -- -- -- 1,587
</TABLE>
F-32
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 17,754 $ 268 $ 604 $ -- $ 18,626
Trade accounts receivable................... 4,765 -- 227 -- 4,992
Inventories................................. 14,796 24 325 -- 15,145
Deferred income taxes....................... 12,366 9 -- -- 12,375
Prepaid expenses and other current assets... 4,805 -- 517 (3,664) 1,658
---------- ----- ------------- ------------ ------------
Total current assets.......................... 54,486 301 1,673 (3,664) 52,796
Investment in joint venture................... -- -- 4,500 -- 4,500
Property and equipment, net................... 285,460 522 179 -- 286,161
Intangibles and deferred costs, net........... 16,019 -- -- -- 16,019
Investments in subsidiaries................... 3,531 -- -- (3,531) --
Other assets.................................. 650 -- -- -- 650
---------- ----- ------------- ------------ ------------
Total assets.................................. $ 360,146 $ 823 $ 6,352 $ (7,195) $ 360,126
---------- ----- ------------- ------------ ------------
---------- ----- ------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obli-
gations................................... $ 7,642 $ -- $ -- $ -- $ 7,642
Accounts payable............................ 20,773 -- -- -- 20,773
Accrued expenses............................ 44,780 141 3,824 (3,664) 45,081
---------- ----- ------------- ------------ ------------
Total current liabilities..................... 73,195 141 3,824 (3,664) 73,496
Deferred income taxes......................... 48,793 11 (332) -- 48,472
Long-term obligations, less current
maturities.................................. 385,977 -- -- -- 385,977
Other liabilities............................. 25,337 -- -- -- 25,337
Stockholders' equity (deficit)................ (173,156) 671 2,860 (3,531) (173,156)
---------- ----- ------------- ------------ ------------
Total liabilities and stockholders' equity
(deficit)................................... $ 360,146 $ 823 $ 6,352 $ (7,195) $ 360,126
---------- ----- ------------- ------------ ------------
---------- ----- ------------- ------------ ------------
</TABLE>
F-33
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 650,024 $ 145 $ 638 $ -- $ 650,807
Costs and expenses:
Cost of sales.............................. 191,578 51 327 -- 191,956
Labor and benefits......................... 209,145 115 -- -- 209,260
Operating expenses and write-down of
property and equipment................... 143,046 -- 344 -- 143,390
General and administrative expenses........ 41,061 106 1,554 -- 42,721
Depreciation and amortization.............. 32,953 6 20 -- 32,979
Interest expense........................... 44,141 -- -- -- 44,141
---------- ----- ------------- ------ ------------
Loss before benefit from (provision for)
income taxes and equity in net loss of
consolidated subsidiaries.................. (11,900) (133) (1,607) -- (13,640)
Benefit from (provision for) income taxes.... 5,594 (2) 276 -- 5,868
---------- ----- ------------- ------ ------------
Loss before equity in net loss of
consolidated subsidiaries.................. (6,306) (135) (1,331) -- (7,772)
Equity in net loss of consolidated
subsidiaries............................... (1,466) -- -- 1,466 --
---------- ----- ------------- ------ ------------
Net loss..................................... $ (7,772) $ (135) $ (1,331) $ 1,466 $ (7,772)
---------- ----- ------------- ------ ------------
---------- ----- ------------- ------ ------------
</TABLE>
F-34
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities................................. $ 25,519 $ (38) $ 682 $ -- $ 26,163
---------- ----- ------------- ------ ------------
Cash flows from investing activities:
Purchases of property and equipment........ (24,043) -- (174) -- (24,217)
Proceeds from sales of property and
equipment................................ 8,409 -- -- -- 8,409
Investments in joint venture............... (4,500) -- -- -- (4,500)
Investments in consolidated subsidiaries... (306) -- -- 306 --
---------- ----- ------------- ------ ------------
Net cash used in investing activities........ (20,440) -- (174) 306 (20,308)
---------- ----- ------------- ------ ------------
Cash flows from financing activities:
Contribution of capital.................... -- 306 -- (306) --
Proceeds from exercise of stock purchase
warrants................................. 22 -- -- -- 22
Proceeds from borrowings................... 48,196 -- -- -- 48,196
Repayments of obligations.................. (59,215) -- -- -- (59,215)
---------- ----- ------------- ------ ------------
Net cash (used in) provided by financing
activities................................. (10,997) 306 -- (306) (10,997)
---------- ----- ------------- ------ ------------
Effect of exchange rate changes on cash...... 5 -- 73 -- 78
---------- ----- ------------- ------ ------------
Net (decrease) increase in cash and cash
equivalents................................ (5,913) 268 581 -- (5,064)
Cash and cash equivalents, beginning of
period..................................... 23,667 -- 23 -- 23,690
---------- ----- ------------- ------ ------------
Cash and cash equivalents, end of period..... $ 17,754 $ 268 $ 604 $ -- $ 18,626
---------- ----- ------------- ------ ------------
---------- ----- ------------- ------ ------------
Supplemental disclosures:
Interest paid.............................. $ 36,000 $ -- $ -- $ -- $ 36,000
Capital lease obligations incurred......... 5,923 28 -- -- 5,951
Capital lease obligations terminated....... 128 -- -- -- 128
Issuance of common stock to lenders........ 50 -- -- -- 50
</TABLE>
F-35
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
of
FRIENDLY ICE CREAM CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 OFFICES ........................................................ 1
Section 1.1 Registered Office ....................................... 1
Section 1.2 Other Offices ........................................... 1
SECTION 2 STOCKHOLDERS ................................................... 1
Section 2.1 Time and Place of Meetings .............................. 1
Section 2.2 Annual Meetings ......................................... 1
Section 2.3 Special Meetings ........................................ 1
Section 2.4 Notice of Meetings ...................................... 1
Section 2.5 Waiver of Notice ........................................ 2
Section 2.6 Fixing of Record Date ................................... 2
Section 2.7 Stockholders' List of Meeting ........................... 2
Section 2.8 Quorum; Adjournment ..................................... 3
Section 2.9 Voting Requirements ..................................... 3
Section 2.10 Proxies ................................................. 3
Section 2.11 Notice of Stockholder Business .......................... 4
Section 2.12 Conduct of Meetings ..................................... 4
Section 2.13 Inspectors of Election .................................. 5
Section 2.14 Informal Action by Stockholders ......................... 5
SECTION 3 DIRECTORS ...................................................... 6
Section 3.1 General Powers .......................................... 6
Section 3.2 Number, Qualification, Tenure and Removal ............... 6
Section 3.3 Vacancies; Resignations ................................. 6
Section 3.4 Place of Meetings ....................................... 6
Section 3.5 Regular Meetings ........................................ 6
Section 3.6 Special Meetings ........................................ 6
Section 3.7 Notice .................................................. 7
Section 3.8 Waiver of Notice ........................................ 7
Section 3.9 Quorum .................................................. 7
Section 3.10 Manner of Acting ........................................ 7
Section 3.11 Committees .............................................. 7
Section 3.12 Organization ............................................ 7
Section 3.13 Action without Meeting .................................. 8
Section 3.14 Attendance by Telephone ................................. 8
Section 3.15 Compensation ............................................ 8
Section 3.16 Presumption of Assent ................................... 8
Section 3.17 Notification of Nominations ............................. 8
<PAGE>
SECTION 4 OFFICERS ....................................................... 10
Section 4.1 Enumeration ............................................. 10
Section 4.2 Salaries ................................................ 10
Section 4.3 Term of Office .......................................... 10
Section 4.4 Chairman ................................................ 10
Section 4.5 President ............................................... 10
Section 4.6 Vice President .......................................... 10
Section 4.7 Clerk ................................................... 10
Section 4.8 Assistant Clerk ......................................... 11
Section 4.9 Treasurer ............................................... 11
Section 4.10 Assistant Treasurer ..................................... 11
Section 4.11 Other Duties ............................................ 11
SECTION 5 CERTIFICATES OF STOCK AND OTHER STOCKHOLDER MATTERS ............ 11
Section 5.1 Form .................................................... 11
Section 5.2 Replacement ............................................. 12
Section 5.3 Transfer ................................................ 12
Section 5.4 Stock Ledger Determinative of Dividend Distributions and
Voting Entitlement ...................................... 12
SECTION 6 INDEMNIFICATION ................................................ 12
Section 6.1 Right to Indemnification ................................ 12
Section 6.2 Settlements ............................................. 13
Section 6.3 Notification and Defense of Proceedings ................. 13
Section 6.4 Advance of Expenses ..................................... 14
Section 6.5 Certain Presumptions and Determinations ................. 14
Section 6.6 Remedies ................................................ 15
Section 6.7 Contract Right; Subsequent Amendment .................... 15
Section 6.8 Other Rights ............................................ 15
Section 6.9 Partial Indemnification ................................. 15
Section 6.10 Insurance ............................................... 16
Section 6.11 Merger or Consolidation ................................. 16
Section 6.12 Savings Clause .......................................... 16
Section 6.13 Subsequent Legislation .................................. 16
Section 6.14 Indemnification of Others ............................... 16
SECTION 7 DIVIDENDS ...................................................... 16
Section 7.1 Declaration of Dividends ................................ 16
Section 7.2 Reserves for Dividends .................................. 16
<PAGE>
SECTION 8 GENERAL PROVISIONS ............................................. 17
Section 8.1 Fiscal Year ............................................. 17
Section 8.2 Corporate Seal .......................................... 17
Section 8.3 Corporation Checks ...................................... 17
Section 8.4 Protection of Corporate Books ........................... 17
Section 8.5 Control Share Acquisitions .............................. 17
SECTION 9 AMENDMENTS ..................................................... 17
Section 9.1 Amendments of By-Laws ................................... 17
<PAGE>
AMENDED AND RESTATED
BY-LAWS
of
FRIENDLY ICE CREAM CORPORATION
SECTION 1
OFFICES
Section 1.1 Registered Office. The registered office of Friendly Ice Cream
Corporation (the "Corporation") shall be in the town of Wilbraham, County of
Hampden, Commonwealth of Massachusetts at 1855 Boston Road.
Section 1.2 Other Offices. The Corporation may also have offices at such
other places both within and without the Commonwealth of Massachusetts as the
Board of Directors of the Corporation (the "Board") may from time to time
determine or the business of the Corporation may require.
SECTION 2
STOCKHOLDERS
Section 2.1 Time and Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held within the
Commonwealth of Massachusetts or, to the extent permitted by the Corporation's
Restated Articles of Organization as in effect from time to time (the "Articles
of Organization"), elsewhere in the United States.
Section 2.2 Annual Meetings. An annual meeting of stockholders shall be
held, within six months after the end of the fiscal year of the Corporation, for
the purpose of electing directors to serve on the Board and transacting such
other business as may properly be brought before the meeting. The date of the
annual meeting shall be determined by the Board.
Section 2.3 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law, may be called only
by (i) the Board pursuant to a resolution approved by the affirmative vote of a
majority of the Directors then in office, (ii) the Chairman of the Board, if one
is elected or (iii) the President. Only those matters set forth in the notice of
the special meeting may be considered or acted upon at such special meeting,
except as otherwise provided by law.
Section 2.4 Notice of Meetings. Written or printed notice stating the
date, time and place of the meeting and, in the case of a special meeting or a
meeting for which special notice is
1
<PAGE>
required by law, the purposes for which the meeting is called shall be mailed by
the Corporation to each stockholder entitled to vote at the meeting and, if
required by law, to any other stockholders entitled to receive notice, at the
stockholder's address shown in the Corporation's record of stockholders, with
postage pre-paid, not less than ten (10) nor more than sixty (60) days before
the meeting date, either personally or by mail, by or at the direction of the
President, Clerk, or Assistant Clerk, or the officer or persons calling the
meeting, to each stockholder of record entitled to vote at such meeting. Notice
shall be effective when mailed if it is mailed postage pre-paid and is correctly
addressed to the stockholder's address as it appears on the stock transfer books
of the Corporation.
Section 2.5 Waiver of Notice. A stockholder may at any time waive any
notice required by law, these By-Laws or the Corporation's Articles of
Organization. The waiver shall be in writing, be signed by the stockholder
entitled to the notice and be delivered to the Corporation for inclusion in the
minutes for filing with the corporate records. A stockholder's attendance at a
meeting waives objection to (i) lack of notice or defective notice of the
meeting, unless the stockholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting, and (ii)
consideration of a particular matter at the meeting that is not within the
purposes described in the meeting notice, unless the stockholder objects to
considering the matter when it is presented.
Section 2.6 Fixing of Record Date. The Board may fix a future date as the
record date to determine the stockholders entitled to notice of a stockholders'
meeting, vote, take any other action or receive payment of any share or cash
dividend or other distribution. This date shall not be more than sixty (60) days
nor, in the case of a meeting, less than ten (10) days before the meeting or
action requiring a determination of stockholders. The record date for any
meeting, vote or other action of the stockholders shall be the same for all
classes of capital stock of the Corporation. If not otherwise fixed by the
Board, the record date to determine stockholders entitled to notice of and to
vote at an annual or special stockholders' meeting is the close of business on
the day before the first notice is first mailed or delivered to a stockholder.
If not otherwise fixed by the Board, the record date to determine stockholders
entitled to receive payment of any share or cash dividend or other distribution
is the close of business on the day the Board authorizes the share or cash
dividend or other distribution.
Section 2.7 Stockholders' List of Meeting. After a record date for a
meeting is fixed, the Corporation shall prepare an alphabetical list of all
stockholders entitled to notice of the stockholders' meeting. The list shall be
arranged by classes of capital stock of the Corporation and show the address of
and number of shares held by each stockholder. The stockholders' list shall be
available for inspection by any stockholder, upon proper demand as may be
required by law, beginning two business days after notice of the meeting is
given and continuing through the meeting, at the Corporation's principal office
or at a place identified in the meeting notice in the city where the meeting
will be held. The Corporation shall make the stockholders' list available at the
meeting, and any stockholder or the stockholder's agent or attorney shall be
entitled to inspect the list at any time during the meeting or any adjournment.
Refusal or failure to prepare or make available the stockholder's list does not
affect the validity of action taken at the meeting.
2
<PAGE>
Section 2.8 Quorum; Adjournment.
(a) Shares issued, outstanding and entitled to vote may take action
on a matter at a meeting only if a quorum of these shares exists with respect to
that matter. Shares issued, outstanding and entitled to vote as a separate class
may take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided by the Articles of
Organization, at any meeting of the stockholders a majority of all shares of
stock issued, outstanding and entitled to vote on the record date for such
meeting (including shares as to which an abstention has been recorded and shares
as to which a nominee has no voting authority as to certain matters brought
before the meeting) shall constitute a quorum for the transaction of business.
(b) A majority of votes represented at the meeting, although less
than a quorum, may adjourn the meeting from time to time to a different time and
place without further notice to any stockholder of any adjournment. At an
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting originally held.
(c) Once a share is represented for any purpose at a meeting, it
shall be present for quorum purposes for the remainder of the meeting and for
any adjournment of that meeting unless a new record date is or must be set for
the adjourned meeting. A new record date must be set if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
Section 2.9 Voting Requirements. At all meetings of stockholders, each
stockholder shall be entitled to vote, in person or by proxy, the shares of
voting stock owned by such stockholder of record on the record date for the
meeting. When a quorum is present or represented at any meeting, the affirmative
vote of a majority of the shares of stock voted on any matter, question or
proposal brought before such meeting shall decide such question, unless the
question is one upon which, by express provision of law, by the Articles of
Organization or by these By-Laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question;
provided, however, that any election by stockholders shall be determined by a
plurality of the votes cast by the stockholders present or represented and
entitled to vote in such election. Shares as to which an abstention has been
recorded and shares as to which a nominee has no voting authority as to a
particular question or questions brought before the meeting will not be deemed
to be voted or cast with respect to such question or questions.
Section 2.10 Proxies. A stockholder may vote shares in person or by proxy.
A stockholder may appoint a proxy by signing an appointment form either
personally or by the stockholder's attorney-in-fact. An appointment of a proxy
is effective when received by the Clerk or other officer of the Corporation
authorized to tabulate votes. Except as otherwise provided by law, a proxy dated
more than six months before the meeting named therein shall be valid and no
proxy shall be valid after the final adjournment of such meeting. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by any one of
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them unless at or prior to the exercise of the proxy the corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving its validity
shall rest on the challenger.
Section 2.11 Notice of Stockholder Business. At a meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting in accordance with the By-Laws. To be properly
brought before a meeting, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board,
(b) otherwise properly brought before the meeting by or at the direction of the
Board, or (c) otherwise (i) properly be requested to be brought before the
meeting by a stockholder of record entitled to vote in the election of directors
generally, and (ii) constitute a proper subject to be brought before such
meeting. For business to be properly brought before a meeting of stockholders,
any stockholder who intends to bring any matter (other than the election of
directors) before a meeting of stockholders and is entitled to vote on such
matter must deliver written notice of such stockholder's intent to bring such
matter before the meeting of stockholders, either by personal delivery or by
United States mail, postage pre-paid, to the Clerk of the Corporation. Such
notice must be received by the Clerk not later than the following dates: (i)
with respect to an annual meeting of stockholders, sixty (60) days in advance of
such meeting if such meeting is to be held on a day which is within thirty (30)
days preceding the anniversary of the previous year's meeting, or ninety (90)
days in advance of such meeting if such meeting is to be held on or after the
anniversary of the previous year's meeting; and (ii) with respect to any other
meeting of stockholders or a special meeting of stockholders, the close of
business on the tenth day following the date on which notice of such meeting is
first given to stockholders. For purposes of this Section 2.11, notice shall be
deemed to first be given to stockholders when disclosure of such date is first
made in a press release reported by the Dow Jones News Services, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended.
A stockholder's notice to the Clerk shall set forth as to each matter the
stockholder proposes to bring before the meeting of stockholders (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the Corporation's books, of the stockholder intending to
propose such business, (c) the class and number of shares of capital stock of
the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. No business shall be
conducted at a meeting of stockholders except in accordance with the procedures
set forth in Section 2.12 of this Article. The chairman of a meeting may, if the
facts warrant, determine and declare to the meeting that the business was not
properly brought before the meeting and in accordance with the provisions hereof
and, if the chairman should so determine, the chairman may so declare to the
meeting that any such business not properly brought before the meeting shall not
be transacted.
Section 2.12 Conduct of Meetings. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced
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at the meeting by the person presiding over the meeting. The Board may adopt by
resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the Board or prescribed by
the chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) rules
and procedures for maintaining order at the meeting and the safety of those
present; (iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with the rules of parliamentary procedure.
Section 2.13 Inspectors of Election. The Corporation may, and shall if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors of election, who may be employees of the Corporation, to act at the
meeting or any adjournment thereof and to make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability.
The inspector or inspectors so appointed or designated shall (i) ascertain
the number of shares of capital stock of the Corporation outstanding and the
voting power of each such share, (ii) determine the shares of capital stock of
the Corporation represented at the meeting and the validity of proxies and
ballots, (iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares of capital stock of the Corporation represented at the meeting
and such inspectors' count of all votes and ballots. Such certification and
report shall specify such other information as may be required by law. In
determining the validity and counting of proxies and ballots cast at any meeting
of stockholders of the Corporation, the inspectors may consider such information
as is permitted by applicable law. No person who is a candidate for an office at
an election may serve as an inspector at such election.
Section 2.14 Informal Action by Stockholders. Any action required to be
taken at a meeting of the stockholders or any other action which may be taken at
a meeting of the stockholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
stockholders entitled to vote with respect to the subject matter thereof and the
written consents are filed with the records of the meetings of the stockholders.
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SECTION 3
DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed and controlled by or under the direction of the Board, which
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by Articles of Organization or by these By-Laws
directed or required to be exercised or done by the stockholders.
Section 3.2 Number, Qualification, Tenure and Removal. The number of
Directors shall be fixed, from time to time, by the Board, in accordance with
Article VI of the Articles of Organization. A director shall hold office until
the annual meeting for the year in which his or her term expires and until his
or her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
Directors need not be residents of Massachusetts or stockholders of the
Corporation. At any meeting of the stockholders called for the purpose, any
Director may be removed from office only for cause by the affirmative vote of a
majority of the shares issued, outstanding and entitled to vote in the election
of Directors. At any meeting of the Board, any Director may be removed from
office only for cause by vote of a majority of the Directors then in office. A
Director may be removed for cause only after a reasonable notice and opportunity
to be heard before the body proposing to remove him or her.
Section 3.3 Vacancies; Resignations. Any vacancy on the Board that results
from an increase in the number of Directors shall be filled only by a majority
of the Directors then in office, provided that a quorum is present, and any
other vacancy occurring in the Board shall be filled by a majority of the
Directors then in office, even if less than a quorum, or by a sole remaining
Director. Any vacancy not filled by the Directors shall be filled by election at
an annual meeting or at a special meeting of stockholders called for that
purpose. A vacancy that will occur at a specified later date, by reason of a
resignation or otherwise, may be filled before the vacancy occurs, but the new
Director may not take office until the vacancy occurs.
Section 3.4 Place of Meetings. The Board may hold meetings, both regular
and special, either within or without the Commonwealth of Massachusetts.
Section 3.5 Regular Meetings. The Board shall hold a regular meeting, to
be known as the annual meeting, immediately following each annual meeting of the
stockholders. Other regular meetings of the Board shall be held at such time and
at such place as shall from time to time be determined by the Board. No notice
of regular meetings need be given.
Section 3.6 Special Meetings. Special meetings of the Board may be called
by the Chairman or the President. Special meetings shall also be called by the
Clerk on written request of any two Directors. The person or persons authorized
to call special meetings of the Board
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may fix any place in or out of Massachusetts as the place for holding any
special meeting of the Board called by them.
Section 3.7 Notice. Notice of the date, time and place of any special
meeting of the Board shall be given at least three days prior to the meeting by
notice communicated in person, by telephone, telegraph, teletype, other form of
wire or wireless communication, mail or private carrier. If written, notice
shall be effective at the earliest of (a) when received, (b) its deposit in the
United States mail, as evidenced by the postmark, if mailed postage pre-paid and
correctly addressed, or (c) on the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested and the receipt is signed
by or on behalf of the addressee. Notice by all other means shall be deemed
effective when received by or on behalf of the Director. Notice of any regular
or special meeting need not describe the purposes of the meeting unless required
by law or the Articles of Organization.
Section 3.8 Waiver of Notice. A Director may at any time waive any notice
required by law, these By-Laws or the Articles of Organization. Except as set
forth below, the waiver must be in writing, be signed by the Director entitled
to the notice, specify the meeting for which notice is waived and be filed with
the minutes or corporate records. A Director's attendance at or participation in
a meeting waives any required notice to the Director of the meeting unless the
Director at the beginning of the meeting, or promptly upon such Director's
arrival, objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
Section 3.9 Quorum. A majority of the number of Directors fixed in
accordance with Section 3.2 of this Article shall constitute a quorum for the
transaction of business at any meeting of the Board. If less than a quorum is
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
Section 3.10 Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board,
unless a different number is provided by law, the Articles of Organization or
these By-Laws.
Section 3.11 Committees. The Board may, by vote of a majority of the
Directors then in office appoint from their number one or more committees and
delegate to such committees some or all of their powers to the extent permitted
by law, the Articles of Organization or these By-Laws. Except as the Board may
otherwise determine, any such committee shall be governed in the conduct of its
business by the rules governing the conduct of the business of the Board
contained in these By-laws and may, by majority vote of the entire committee
make other rules for the conduct of its business. The Board shall have power at
any time to fill vacancies in any such committees, to change its membership or
to discharge the committee.
Section 3.12 Organization. The Chairman, if elected, shall act as chairman
at all meetings of the Board. If the Chairman is not elected or, if elected, is
not present, the President or, in the absence of the President, a Vice Chairman
(who is also a member of the Board and, if more than one, in order designated by
the Board or, in the absence of such designation, in order
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of their election), if any, or if no such Vice Chairman is present, a Director
chosen by a majority of the Directors present, shall act as chairman at meetings
of the Board.
Section 3.13 Action without Meeting. Unless otherwise restricted by the
Articles of Organization or these By-Laws, any action required or permitted to
be taken at any meeting of the Board may be taken without a meeting, if all
members of the Board consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board.
Section 3.14 Attendance by Telephone. Members of the Board, may
participate in a meeting of the Board by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 3.15 Compensation. The Board shall have the authority to fix the
compensation of Directors, which may include their expenses, if any, of
attendance at each meeting of the Board.
Section 3.16 Presumption of Assent. A Director who is present at a meeting
of the Board or a committee of the Board shall be deemed to have assented to the
action taken at the meeting unless (a) the Director's dissent or abstention from
the action is entered in the minutes of the meeting, (b) the Director delivers a
written notice of dissent or abstention to the action to the presiding officer
of the meeting before any adjournment of the meeting or to the Corporation
immediately after the adjournment of the meeting or (c) the Director objects at
the beginning of the meeting or promptly upon such Director's arrival to the
holding of the meeting or transacting business at the meeting. The right to
dissent or abstain is not available to a Director who voted in favor of the
action.
Section 3.17 Notification of Nominations. Except for Directors elected
pursuant to the provisions of Section 3.3 of this Article, only individuals
nominated for election to the Board pursuant to and in accordance with the
provision of this Section 3.17 may be elected to and may serve upon the Board of
the Corporation. Nominations for the election of Directors may be made by the
Board, a Committee thereof or by any stockholder entitled to vote in the
election of Directors generally. Subject to the foregoing, only a stockholder of
record entitled to vote in the election of Directors generally may nominate one
or more persons for election as Directors at a meeting of stockholders and only
if written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage pre-paid, to the Clerk of the Corporation and has been received by
the Clerk not later than the following dates: (i) with respect to an election to
be held at an annual meeting of stockholders, sixty (60) days in advance of such
meeting if such meeting is to be held on a day which is within thirty (30) days
preceding the anniversary of the previous year's annual meeting, or ninety (90)
days in advance of such meeting if such meeting is to be held on or after the
anniversary of the previous year's annual meeting; and (ii) with respect to an
election to be held at a special meeting of stockholders for the election of
Directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders. For purposes of this
Section 3.17, notice shall be deemed to first be given to stockholders when
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disclosure of such date is first made in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act
of 1934, as amended.
Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of stock
of the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice;
(c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; and
(d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board.
To be effective, each notice of intent to make a nomination given
hereunder shall be accompanied by the written consent of each nominee to serve
as a Director of the Corporation if elected.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not properly brought before the
meeting in accordance with the provisions hereof and, if the chairman should so
determine, declare to the meeting that such nomination was not properly brought
before the meeting and shall not be considered.
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SECTION 4
OFFICERS
Section 4.1 Enumeration. The officers of the Corporation shall be chosen
by the Board and shall be a Chairman, President, a Clerk, and a Treasurer. The
Board may also elect one or more Vice Chairmen, one or more Vice Presidents, one
or more Assistant Clerks and Assistant Treasurers and such other officers and
agents as it shall deem appropriate. Any number of offices may be held by the
same person.
Section 4.2 Salaries. The salaries of all officers of the Corporation
shall be fixed by the Board.
Section 4.3 Term of Office. The officers of the Corporation shall be
elected at the annual meeting of the Board and shall hold office until their
successors are elected and qualified or until their earlier resignation, removal
or death. Any officer elected or appointed by the Board may be removed at any
time by the Board with or without cause. Any vacancy occurring in any office of
the Corporation required by this section shall be filled by the Board, and any
vacancy in any other office may be filled by the Board.
Section 4.4 Chairman. The Chairman shall preside, when present, at each
meeting of the Board and shall perform such other duties and have such powers as
the Board may from time to time prescribe. The Chairman shall have general
supervision, direction and control of the business and affairs of the
Corporation, subject to the control of the Board, shall preside at meetings of
stockholders and shall have such other functions, authority and duties as
customarily appertain to the office of the chief executive of a business
Corporation or as may be prescribed by the Board.
Section 4.5 President. During any period when there shall be an office of
Chairman, the President shall have such functions, authority and duties as may
be prescribed by the Board or the Chairman. The President need not be a
Director. During any period when there shall not be an office of Chairman, the
President shall have the functions, authority and duties provided for the
Chairman.
Section 4.6 Vice President. The Vice President or if there be more than
one, the Vice Presidents, shall perform, such duties and have such other powers
as may from time to time be prescribed by the Board, the Chairman or the
President.
Section 4.7 Clerk. The Clerk shall keep a record of all proceedings of the
stockholders of the Corporation and of the Board, and shall perform like duties
for the standing committees when required. The Clerk shall give, or cause to be
given, notice, if any, of all meetings of the stockholders and shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President. The Clerk shall have custody of the corporate seal of the Corporation
and the Clerk or in the absence of the Clerk any Assistant Clerk, shall have the
authority to affix the same to any instrument requiring it, and when so affixed
it may be attested by the signature of
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the Clerk or an Assistant Clerk. The Board may give general authority to any
other officer to affix the seal of the Corporation and to attest such affixing
of the seal. The Clerk shall be a resident of the Commonwealth of Massachusetts
unless the Corporation has a resident agent in accordance with Massachusetts
law.
Section 4.8 Assistant Clerk. The Assistant Clerk or if there be more than
one, the Assistant Clerks in the order determined by the Board (or if there be
no such determination, then in order of their election), shall, in the absence
of the Clerk or in the event of the Clerk's inability or refusal to act, perform
the duties and exercise the powers of the Clerk and shall perform such other
duties as may from time to time be prescribed by the Board, the Chairman, or the
President.
Section 4.9 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable assets in the name and to the credit of
the Corporation in such depositories as may be designated by the Board. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall render to the
Chairman, the President and the Board, at its regular meetings or when the Board
so requires, an account of all transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall perform such other duties as
may from time to time be prescribed by the Board, the Chairman or the President.
Section 4.10 Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board (or if there be no such determination, then in order of their election),
shall, in absence of the Treasurer or in the event of the Treasurer's inability
or refusal to act, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as may from time
to time be prescribed by the Board, the Chairman, the President or the
Treasurer.
Section 4.11 Other Duties. Any officer who is elected or appointed from
time to time by the Board and whose duties are not specified in these By-Laws
shall perform such duties and have such powers as may be prescribed from time to
time by the Board, the Chairman or the President.
SECTION 5
CERTIFICATES OF STOCK AND OTHER STOCKHOLDER MATTERS
Section 5.1 Form. The shares of the Corporation shall be represented by
certificates; provided, however, that the Board may provide by resolution or
resolutions that some or all of any or all classes or series of the
Corporation's stock shall be uncertificated shares. Certificates of stock in the
Corporation, if any, shall be signed by or in the name of the Corporation by the
Chairman or the President or a Vice President and by the Treasurer or an
Assistant Treasurer of the Corporation. Where a certificate is countersigned by
a transfer agent, other than the Corporation or a director, officer or employee
of the Corporation, or by a registrar, the signatures of the Chairman, the
President or a Vice President and the Treasurer or an Assistant Treasurer
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may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the certificate may be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar were such officer,
transfer agent or registrar at the date of its issue.
Section 5.2 Replacement. In case of the loss, destruction, mutilation or
theft of a certificate for any stock of the Corporation, a new certificate of
stock or uncertificated shares in place of any certificate therefor issued by
the Corporation may be issued upon (x) in the case of a mutilated certificate,
surrender of such mutilated certificate to the Corporation, and (y) in the case
of a certificate alleged to have been lost, destroyed or stolen, satisfactory
proof of such loss, destruction or theft and upon such terms as the Board may
prescribe. The Board may in its discretion require the owner of the lost,
mutilated, destroyed or stolen certificate, or his legal representative, to give
the Corporation a bond, in such sum and in such form and with such surety or
sureties as it may direct, to indemnify the Corporation against any claim that
may be made against it with respect to a certificate alleged to have been lost,
mutilated, destroyed or stolen.
Section 5.3 Transfer. Subject to the restrictions, if any, stated or noted
on the certificate, upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate of stock or
uncertificated shares in place of any certificate therefor issued by the
Corporation to the person entitled thereto, cancel the old certificate and
record the transaction on its books.
Section 5.4 Stock Ledger Determinative of Dividend Distributions and
Voting Entitlement. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and other distributions, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the
Commonwealth of Massachusetts.
SECTION 6
INDEMNIFICATION
Section 6.1 Right to Indemnification. The Corporation shall indemnify and
hold harmless each person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit, proceeding or investigation, whether civil, criminal or
administrative (a "Proceeding"), by reason of being, having been or having
agreed to become, a director or officer of the Corporation, or serving, having
served or having agreed to serve, at the request of the Corporation, as a
director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan (any such person being
referred to hereafter as an "Indemnitee"), or by reason of any action
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alleged to have been taken or omitted in such capacity, against all expense,
liability and loss (including without limitation reasonable attorneys' fees,
judgments, fines, "ERISA" excise taxes or penalties) incurred or suffered by the
Indemnitee or on behalf of the Indemnitee in connection with such Proceeding and
any appeal therefrom, unless the Indemnitee shall have been adjudicated in such
Proceeding not to have acted in good faith in the reasonable belief that his or
her action was in the best interest of the Corporation or, to the extent such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
Notwithstanding anything to the contrary in these By-Laws, except as set forth
in Section 6.6 below, the Corporation shall not indemnify or advance expenses to
an Indemnitee seeking indemnification in connection with a Proceeding (or part
thereof) initiated by the Indemnitee, unless the initiation thereof was approved
by the Board.
Section 6.2 Settlements. Subject to compliance by the Indemnitee with the
applicable provisions of Section 6.5 below, the right to indemnification
conferred in these By-Laws shall include the right to be paid by the Corporation
for amounts paid in settlement of any such Proceeding and any appeal therefrom,
and all expenses (including attorneys' fees) incurred in connection with such
settlement, pursuant to a consent decree or otherwise, unless it is held or
determined pursuant to Section 6.5 below that the Indemnitee did not act in good
faith in the reasonable belief that his or her action was in the best interest
of the Corporation or, to the extent such matter relates to service with respect
to an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
Section 6.3 Notification and Defense of Proceedings. The Indemnitee shall
notify the Corporation in writing as soon as reasonably practicable of any
Proceeding involving the Indemnitee for which indemnity or advancement of
expenses is intended to be sought. Any omission to so notify the Corporation
shall not relieve it from any liability that it may have to the Indemnitee under
these By-Laws unless, and only to the extent that, such omission results in the
forfeiture of substantive rights or defenses by the Corporation. With respect to
any Proceeding of which the Corporation is so notified, the Corporation shall be
entitled but not obligated, to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee, except as provided in the last sentence of this
Section 6.3. After notice from the Corporation to the Indemnitee of its election
so to assume such defense (subject to the limitations in the last sentence of
this Section 6.3), the Corporation shall not be liable to the Indemnitee for any
fees and expenses of counsel subsequently incurred by the Indemnitee in
connection with such Proceeding, other than as provided below in this Section
6.3. The Indemnitee shall have the right to employ his or her own counsel in
connection with such Proceeding, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof at its expense with counsel reasonably acceptable to Indemnitee shall be
at the expense of the Indemnitee unless (i) the employment of counsel by the
Indemnitee at the Corporation's expense has been authorized by the Corporation,
(ii) counsel to the Indemnitee shall have reasonably concluded that there may be
a conflict of interest or position on any significant issue between the
Corporation and the Indemnitee in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel reasonably
acceptable to the Indemnitee to assume the defense of such Proceeding within a
reasonable time after receiving notice thereof, in each of which cases the
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fees and expenses of counsel for the Indemnitee shall be at the expense of the
Corporation, except as otherwise expressly provided in these By-Laws. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any Proceeding brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
Section 6.4 Advance of Expenses. Except as provided in Section 6.3 of
these By-Laws, as part of the right to indemnification granted by these By-Laws,
any expenses (including attorneys' fees) incurred by an Indemnitee in defending
any Proceeding within the scope of Section 6.1 of these By-laws or any appeal
therefrom shall be paid by the Corporation in advance of the final disposition
of such matter, provided, however, that the payment of such expenses incurred by
an Indemnitee in advance of the final disposition of such matter shall be made
only upon receipt of a written undertaking by or on behalf of the Indemnitee to
repay all amounts so advanced in the event that it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by the
Corporation as authorized by Section 6.1 or Section 6.2 of these By-Laws. Such
undertaking need not be secured and shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment. Such advancement of
expenses shall be made by the Corporation promptly following its receipt of
written requests therefor by the Indemnitee, accompanied by reasonably detailed
documentation, and of the foregoing undertaking.
Section 6.5 Certain Presumptions and Determinations. If, in a Proceeding
brought by or in the right of the Corporation, a director or officer of the
Corporation is held not liable for monetary damages, whether because that
director or officer is relieved of personal liability under the provisions of
Article VI, Part B of the Articles of Organization of the Corporation or
otherwise, that director or officer shall be deemed to have met the standard of
conduct set forth in Section 6.1 and thus to be entitled to be indemnified by
the Corporation thereunder. In any adjudicated Proceeding against an Indemnitee
brought by reason of the Indemnitee's serving, having served or agreed to serve,
at the request of the Corporation, for an organization other than the
Corporation in one or more of the capacities indicated in Section 6.1, if the
Indemnitee shall not have been adjudicated not to have acted in good faith in
the reasonable belief that the Indemnitee's action was in the best interest of
such other organization, the Indemnitee shall be deemed to have met the standard
of conduct set forth in Section 6.1 and thus be entitled to be indemnified
thereunder. An adjudication in such a Proceeding that the Indemnitee did not act
in good faith in the reasonable belief that the Indemnitee's action was in the
best interest of such other organization shall not create a presumption that the
Indemnitee has not met the standard of conduct set forth in Section 6.1. In
order to obtain indemnification of amounts paid in settlement pursuant to
Section 6.2 of these By-Laws, the Indemnitee shall submit to the Corporation a
written request, including in such request such documentation and information as
is reasonably available to the Indemnitee and is reasonably necessary to
determine whether and to what extent the Indemnitee is entitled to such
indemnification. Any such indemnification under Section 6.2 shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless a court of competent jurisdiction
holds within such 60-day period that the Indemnitee did not meet the standard of
conduct set forth in Section 6.2 or the Corporation determines, by clear and
convincing evidence, within such 60-day period that the Indemnitee did not meet
such standard. Such determination shall be made by the Board, based
14
<PAGE>
on advice of independent legal counsel (who may, with the consent of the
Indemnitee, be regular legal counsel to the Corporation). The Corporation and
the directors shall be under no obligation to undertake any such determination
or to seek any ruling from any court.
Section 6.6 Remedies. The right to indemnification or advances as granted
by these By-Laws shall be enforceable by the Indemnitee in any court of
competent jurisdiction if the Corporation denies such a request, in whole or in
part, or, with respect to indemnification pursuant to Section 6.2, if no
disposition thereof is made within the 60-day period referred to above in
Section 6.5. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
these By-Laws shall be on the Corporation. Neither absence of any determination
prior to the commencement of such action that indemnification is proper in the
circumstances because the Indemnitee has met any applicable standard of conduct,
nor an actual determination by the Corporation pursuant to Section 6.5 that the
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Indemnitee's expenses (including reasonable
attorneys' fees) incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such Proceeding shall
also be paid by the Corporation.
Section 6.7 Contract Right; Subsequent Amendment. The right to
indemnification and advancement of expenses conferred in these By-Laws shall be
a contract right. No amendment, termination or repeal of these By-Laws or of the
relevant provisions of Chapter 156B of the Massachusetts General Laws or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification or advancement of expenses under the provisions
hereof with respect to any Proceeding arising out of or relating to any action,
omission, transaction or facts occurring prior to the final adoption of such
amendment, termination or repeal, except with the consent of the Indemnitee.
Section 6.8 Other Rights. The indemnification and advancement of expenses
provided by these By-Laws shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or directors or otherwise, both as to action in his or her official capacity and
as to action in any other capacity while holding office for the Corporation, and
shall continue as to an Indemnitee who has ceased to be a director or officer,
and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in these By-Laws shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with any Indemnitee providing indemnification rights and
procedures different from those set forth in these By-Laws.
Section 6.9 Partial Indemnification. If an Indemnitee is entitled under
any provision of these By-Laws to indemnification by the Corporation for some or
a portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by the Indemnitee or
on his or her behalf in connection with any Proceeding and any appeal therefrom
but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including reasonable
15
<PAGE>
attorneys' fees), judgments, fines or amounts paid in settlement to which the
Indemnitee is entitled.
Section 6.10 Insurance. The Corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Corporation or another organization or employee benefit plan
against any expense, liability or loss incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Chapter 156B of the Massachusetts General Laws.
Section 6.11 Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under these By-Laws with respect to any Proceeding arising out of or
relating to any action, omission, transaction or facts occurring on or prior to
the date of such merger or consolidation.
Section 6.12 Savings Clause. If these By-Laws or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and advance expenses to each Indemnitee
as to any expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement in connection with any Proceeding, including an action by or
in the right of the Corporation, to the fullest extent permitted by any
applicable portion of these By-Laws that shall not have been invalidated and to
the fullest extent permitted by applicable law.
Section 6.13 Subsequent Legislation. If the Massachusetts General Laws are
amended after adoption of these By-Laws to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the Massachusetts General Laws as so amended.
Section 6.14 Indemnification of Others. The Corporation may, to the extent
authorized from time to time by its Board, grant indemnification rights to
employees or agents of the Corporation or other persons serving the Corporation
who are not Indemnitees, and such rights may be equivalent to, or greater or
less than, those set forth in these By-Laws.
SECTION 7
DIVIDENDS
Section 7.1 Declaration of Dividends. Dividends may be declared by the
Board at any regular or special meeting, pursuant to law and in accordance with
the voting requirements stated in these By-Laws. Dividends may be paid in cash,
in property or in shares of the Corporation's capital stock.
Section 7.2 Reserves for Dividends. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Board
16
<PAGE>
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for repairing or maintaining any property of
the Corporation, or for such other purpose as the Board determines promotes the
interest of the Corporation and the Board may modify or abolish any such reserve
in the manner in which it was created.
SECTION 8
GENERAL PROVISIONS
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board.
Section 8.2 Corporate Seal. The corporate seal shall be in such form as
may be approved from time to time by the Board. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
Section 8.3 Corporation Checks. All checks or other orders for the payment
of money and notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board may from time to time
designate.
Section 8.4 Protection of Corporate Books. As provided under applicable
laws of the Commonwealth of Massachusetts, or any successor laws, the
Corporation shall make available to the stockholders the books and records of
the Corporation, including, without limitation, periodic financial statements of
the Corporation.
Section 8.5 Control Share Acquisitions. The provisions of Chapter 110D of
the Massachusetts General Laws with respect to the regulation of control share
acquisitions shall not apply to this Corporation.
SECTION 9
AMENDMENTS
Section 9.1 Amendments of By-Laws. Subject to any requirement set forth in
the Articles of Organization, these By-Laws may be altered, amended or repealed
or new By-Laws may be adopted by the Board or the stockholders; provided, that
Sections 2.3, 2.11, 3.2, 3.3, 3.17, 6.1-6.14, 8.5 and 9.1 of these By-Laws may
be amended or repealed only (i) by the affirmative vote of at least two-thirds
of the shares of the capital stock then issued and outstanding and entitled to
vote or (ii) by the affirmative vote of a majority of the directors then in
office. The fact that the power to amend, alter, repeal or adopt the By-Laws has
been conferred upon the Board shall not divest the stockholders of the same
powers.
<PAGE>
Exhibit 10.1
- --------------------------------------------------------------------------------
$160,000,000
CREDIT AGREEMENT
among
FRIENDLY ICE CREAM CORPORATION,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto
and
SOCIETE GENERALE,
as Arranger and Administrative Agent
Dated as of November 19, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.................................................... 2
1.1 Defined Terms................................................... 2
1.2 Other Definitional Provisions................................... 24
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................ 25
2.1 Term Loan Commitments........................................... 25
2.2 Procedure for Term Loan Borrowing............................... 25
2.3 Repayment of Term Loans......................................... 25
2.4 Revolving Credit Commitments.................................... 27
2.5 Procedure for Revolving Credit Borrowing........................ 28
2.6 Repayment of Loans; Evidence of Debt............................ 28
2.7 Commitment Fees, etc. .......................................... 29
2.8 Termination or Reduction of Revolving Credit Commitments........ 29
2.9 Optional Prepayments............................................ 30
2.10 Mandatory Prepayments and Commitment Reductions................ 30
2.11 Conversion and Continuation Options............................ 31
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches...... 32
2.13 Interest Rates and Payment Dates............................... 32
2.14 Computation of Interest and Fees............................... 32
2.15 Inability to Determine Interest Rate........................... 33
2.16 Pro Rata Treatment and Payments................................ 33
2.17 Requirements of Law............................................ 35
2.18 Taxes.......................................................... 37
2.19 Indemnity...................................................... 38
2.20 Change of Lending Office....................................... 39
2.21 Replacement of Lenders under Certain Circumstances............. 39
SECTION 3. LETTERS OF CREDIT.............................................. 40
3.1 L/C Commitment.................................................. 40
3.2 Procedure for Issuance of Letter of Credit...................... 40
3.3 Commissions, Fees and Other Charges............................. 40
3.4 L/C Participations.............................................. 41
3.5 Reimbursement Obligation of the Borrower........................ 42
3.6 Obligations Absolute............................................ 42
3.7 Letter of Credit Payments....................................... 42
3.8 Applications.................................................... 43
SECTION 4. REPRESENTATIONS AND WARRANTIES................................. 43
4.1 Financial Condition............................................. 43
4.2 No Change....................................................... 44
4.3 Corporate Existence; Compliance with Law........................ 44
4.4 Corporate Power; Authorization; Enforceable Obligations......... 44
4.5 No Legal Bar.................................................... 44
4.6 No Material Litigation.......................................... 45
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Page
----
4.7 No Default...................................................... 45
4.8 Ownership of Property; Liens.................................... 45
4.9 Intellectual Property........................................... 45
4.10 Taxes.......................................................... 45
4.11 Federal Regulations............................................ 46
4.12 Labor Matters.................................................. 46
4.13 ERISA.......................................................... 46
4.14 Investment Company Act; Other Regulations...................... 46
4.15 Subsidiaries................................................... 47
4.16 Use of Proceeds................................................ 47
4.17 Environmental Matters.......................................... 47
4.18 Accuracy of Information, etc................................... 48
4.19 Security Documents............................................. 49
4.20 Solvency....................................................... 49
4.21 Regulation H................................................... 49
4.22 Material Contracts............................................. 49
SECTION 5. CONDITIONS PRECEDENT........................................... 49
5.1 Conditions to Initial Extension of Credit....................... 49
5.2 Conditions to Each Extension of Credit.......................... 53
SECTION 6. AFFIRMATIVE COVENANTS.......................................... 53
6.1 Financial Statements............................................ 53
6.2 Certificates; Other Information................................. 54
6.3 Payment of Obligations.......................................... 55
6.4 Conduct of Business and Maintenance of Existence, etc. ......... 56
6.5 Maintenance of Property; Insurance.............................. 56
6.6 Inspection of Property; Books and Records; Discussions.......... 56
6.7 Notices......................................................... 57
6.8 Environmental Laws.............................................. 57
6.9 Interest Rate Protection........................................ 58
6.10 Additional Collateral, etc..................................... 58
6.11 Mortgage Recording Taxes....................................... 59
6.12 Leased Properties.............................................. 59
SECTION 7. NEGATIVE COVENANTS............................................. 60
7.1 Financial Condition Covenants................................... 60
7.2 Limitation on Indebtedness...................................... 63
7.3 Limitation on Liens............................................. 65
7.4 Limitation on Fundamental Changes............................... 66
7.5 Limitation on Sale of Assets.................................... 67
7.6 Limitation on Dividends......................................... 67
7.7 Limitation on Capital Expenditures.............................. 68
7.8 Limitation on Investments, Loans and Advances................... 68
7.9 Limitation on Optional Payments and Modifications of Debt
Instruments, etc. ............................................. 70
7.10 Limitation on Transactions with Affiliates..................... 70
7.11 Limitation on Sales and Leasebacks............................. 70
7.12 Limitation on Changes in Fiscal Periods........................ 70
7.13 Limitation on Negative Pledge Clauses.......................... 70
7.14 Limitation on Restrictions on Subsidiary Distributions......... 71
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Page
----
7.15 Limitation on Lines of Business................................ 72
SECTION 8. EVENTS OF DEFAULT.............................................. 72
SECTION 9. THE AGENT...................................................... 75
9.1 Appointment..................................................... 75
9.2 Delegation of Duties............................................ 76
9.3 Exculpatory Provisions.......................................... 76
9.4 Reliance by Agent............................................... 76
9.5 Notice of Default............................................... 76
9.6 Non-Reliance on Agent and Other Lenders......................... 77
9.7 Indemnification................................................. 77
9.8 Agent in Its Individual Capacity................................ 78
9.9 Successor Agent................................................. 78
9.10 Authorization to Release Liens................................. 78
SECTION 10. MISCELLANEOUS................................................. 78
10.1 Amendments and Waivers......................................... 78
10.2 Notices........................................................ 79
10.3 No Waiver; Cumulative Remedies................................. 80
10.4 Survival of Representations and Warranties..................... 80
10.5 Payment of Expenses............................................ 80
10.6 Successors and Assigns; Participations and Assignments......... 81
10.7 Adjustments; Set-off........................................... 84
10.8 Counterparts................................................... 84
10.9 Severability................................................... 85
10.10 Integration................................................... 85
10.11 GOVERNING LAW................................................. 85
10.12 Submission To Jurisdiction; Waivers........................... 85
10.13 Acknowledgements.............................................. 86
10.14 WAIVERS OF JURY TRIAL......................................... 86
10.15 Confidentiality............................................... 86
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<PAGE>
ANNEXES:
A Pricing Grid
B ECF Percentage Grid
C Permitted Capital Expenditure Grid
SCHEDULES:
1.1A Commitments
1.1B Mortgaged Properties
1.1C Management Permitted Holders
4.4 Consents, Authorizations, Filings and Notices
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
4.22 Material Contracts
5.1(p) Plant and Headquarters Properties
7.1 Financial Covenant Calculations
7.2(e) Existing Indebtedness
7.3(f) Existing Liens
7.8(h) Existing Investments
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D-1 Form of Mortgage (Leasehold)
D-2 Form of Mortgage (Fee)
E Form of Assignment and Acceptance
F-1 Form of Opinion of Mayer, Brown & Platt, Special Counsel for the
Borrower
F-2 Form of Opinion of General Counsel for the Borrower
F-3 Form of Opinion of Local Massachusetts Counsel for the Borrower
G-1 Form of Term Note
G-2 Form of Revolving Credit Note
H Form of Prepayment Option Notice
I Form of Exemption Certificate
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<PAGE>
CREDIT AGREEMENT, dated as of November 19, 1997, among FRIENDLY ICE
CREAM CORPORATION, a Massachusetts corporation (the "Borrower"), the several
banks and other financial institutions or entities from time to time parties to
this Agreement (the "Lenders") and SOCIETE GENERALE ("Societe Generale"), as
arranger and administrative agent for the Lenders hereunder.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, certain subsidiaries of the Borrower, the
financial institutions party thereto (the "Existing Lenders") and BankBoston,
N.A. (formerly known as The First National Bank of Boston), as administrative
agent, collateral agent and issuing bank, are parties to the Second Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of January 1, 1996
and as amended, supplemented or otherwise modified (the "Existing Credit
Facility");
WHEREAS, the Borrower desires to refinance the indebtedness
outstanding under the Existing Credit Facility;
WHEREAS, concurrently with the initial extension of credit under
this Agreement the Borrower is offering to the public (a) $200,000,000 aggregate
principal amount of its unsecured senior notes due 2007 (the "Senior Note
Offering"), and (b) 5,000,000 shares of its common stock (the "Common Stock
Offering" and, together with the Senior Note Offering, the "Offerings");
WHEREAS, the Borrower has requested that (a) concurrently with the
initial extension of credit under this Agreement, Societe Generale and the
Existing Lenders enter into an agreement to assign claims pursuant to which
Societe Generale shall purchase the Existing Lenders' rights and obligations
under the Existing Credit Facility with respect to $90,000,000 aggregate
principal amount of outstanding term loans thereunder (the "Assigned Loans"),
such amount to be purchased from Societe Generale by the Lenders hereunder in
accordance with such Lenders' respective Tranche A Term Loan Commitments,
Tranche B Term Loan Commitments and Tranche C Term Loan Commitments (as each
such term is defined below) and (b) the Lenders make additional revolving credit
and standby letter of credit facilities available to the Borrower in an
aggregate principal amount of up to $70,000,000 which, together with the
Assigned Loans, will result in available credit facilities in an aggregate
principal amount of up to $160,000,000;
WHEREAS, the Borrower has further requested that the credit
facilities available to it consist of (a) a $55,000,000 five-year revolving
credit facility, (b) a $15,000,000 five-year standby letter of credit facility
(to be implemented together with the ability of the Borrower to use a $5,000,000
portion of the revolving credit facility for standby letters of credit), (c) a
$34,285,714.29 five-year term loan facility, (d) a $34,285,714.29 seven-year
term loan facility and (e) a $21,428,571.42 eight-year term loan facility
<PAGE>
2
(collectively, the "Credit Facilities" and, together with the Offerings and the
application of the net proceeds hereunder and thereunder, the
"Recapitalization");
WHEREAS, inasmuch as the Existing Credit Facility sets forth the
terms and conditions of the Assigned Loans, the Borrower, the Agent and the
Lenders desire to amend and restate the Existing Credit Facility in its entirety
to read as follows, such amendment and restatement to become effective on the
Closing Date (as defined below) upon the purchase by the Lenders of the Assigned
Loans; and
WHEREAS, the Lenders are willing to make the Credit Facilities
available upon and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/100 of 1%) equal to the greater of (a) the Prime Rate in
effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the
rate of interest per annum publicly announced from time to time by the
Reference Lender as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate of
interest charged by the Reference Lender in connection with extensions of
credit to debtors). Any change in the ABR due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective as of the
opening of business on the effective day of such change in the Prime Rate
or the Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to
which is based upon the ABR.
"Adjustment Date": as defined in the Pricing Grid.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
(or persons performing similar functions) of such Person or (b) direct or
cause the direction of the management and policies of such Person, whether
by contract or otherwise.
<PAGE>
3
"Agent": Societe Generale, together with its affiliates, as the
arranger of the Commitments and as the administrative agent for the
Lenders under this Agreement and the other Loan Documents.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum set
forth under the relevant column heading below:
Eurodollar ABR
Loans Loans
---------- -----
Revolving Credit Loans 2.25% 0.75%
Tranche A Term Loans 2.25% 0.75%
Tranche B Term Loans 2.50% 1.00%
Tranche C Term Loans 2.75% 1.25%;
provided, that on and after the first Adjustment Date occurring after the
completion of four full fiscal quarters of the Borrower after the Closing
Date, the Applicable Margin with respect to Revolving Credit Loans and
Tranche A Term Loans will be determined pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender
may specify from time to time, requesting the Issuing Lender to open a
Letter of Credit, and specifying the date on which such Letter of Credit
is to be issued, the expiration date of such Letter of Credit, the name
and address of the beneficiary of such Letter of Credit, whether such
Letter of Credit is to be a Trade Letter of Credit or a Standby Letter of
Credit and such other information as may be necessary or desirable to
complete such Letter of Credit.
"Asset Sale": any Disposition of Property or series of related
Dispositions of Property (excluding any such Disposition permitted by
clause (a), (b), (c), (d) or (g) of Section 7.5) which yields gross
proceeds to the Borrower or any of its Subsidiaries (valued at the initial
principal amount thereof in the case of non-cash proceeds consisting of
notes or other debt securities and valued at fair market value in the case
of other non-cash proceeds) in excess of $100,000.
"Assigned Loans": as defined in the recitals to this Agreement.
"Assignee": as defined in Section 10.6(c).
"Assignor": as defined in Section 10.6(c).
"Authorized Signatory": the chief executive officer, president,
chief administrative officer or chief financial officer of the Borrower,
or their respective
<PAGE>
4
designees notified to the Agent in writing, but in any event, with respect
to financial matters, the chief financial officer of the Borrower.
"Available Revolving Credit Commitment": as to any Revolving Credit
Lender at any time, an amount equal to the excess, if any, of (a) such
Lender's Revolving Credit Commitment over (b) such Lender's Revolving
Extensions of Credit.
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrowing Date": any Business Day specified by the Borrower as a
date on which the Borrower requests the relevant Lenders to make Loans
hereunder.
"Business": as defined in Section 4.17(b).
"Business Day": (a) for all purposes other than as covered by clause
(b) below, a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to
close and (b) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day
which is a Business Day described in clause (a) and which is also a day
for trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Business-Sustaining Capital Expenditures": for any period of four
consecutive fiscal quarters, Capital Expenditures during such period in an
amount equal to $15,000,000, constituting the amount of Capital
Expenditures necessary to maintain the then existing Property of the
Borrower and its Subsidiaries in good working order and condition
(excluding payments in respect of the principal amount of Indebtedness
incurred in connection with such expenditures).
"Capital Expenditures": for any period, with respect to any Person,
the aggregate of all expenditures by such Person and its Subsidiaries for
the acquisition or leasing (pursuant to a capital lease) of fixed or
capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) which should be
capitalized under GAAP on a consolidated balance sheet of such Person and
its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP, and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
<PAGE>
5
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants, rights or options to purchase any
of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or
less from the date of acquisition issued by any Lender or by any
commercial bank organized under the laws of the United States of America
or any state thereof having combined capital and surplus of not less than
$500,000,000; (c) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's Investors
Service, Inc. ("Moody's"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating
agencies cease publishing ratings of commercial paper issuers generally,
and maturing within nine months from the date of acquisition; (d)
repurchase obligations of any Lender or of any commercial bank satisfying
the requirements of clause (b) of this definition, having a term of not
more than 30 days with respect to securities issued or fully guaranteed or
insured by the United States government; (e) securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed
by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth
or territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A
by Moody's; (f) securities with maturities of six months or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of
this definition; or (g) shares of money market mutual or similar funds
which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition or which comply with the risk limiting
conditions of Rule 2a-7 or any successor rule of the Securities and
Exchange Commission under the Investment Company Act of 1940.
"Closing Date": the date on which the conditions precedent set forth
in Section 5.1 shall have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all Property of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
"Commitment": as to any Lender, the sum of the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment, the Tranche C Term Loan
Commitment and the Revolving Credit Commitment of such Lender.
<PAGE>
6
"Commitment Fee Rate": 1/2 of 1% per annum; provided, that on and
after the first Adjustment Date occurring after the completion of four
full fiscal quarters of the Borrower after the Closing Date, the
Commitment Fee Rate will be determined pursuant to the Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrower and which is treated as a single employer under Section 414 of
the Code.
"Common Stock": the Borrower's common stock, par value $0.01 per
share.
"Common Stock Offering": as defined in the recitals to this
Agreement.
"Compliance Certificate": a certificate duly executed by a
Authorized Signatory substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
Memorandum dated October 10, 1997 and furnished to the Lenders.
"Consolidated Cash Interest Expense": for any period, total cash
interest expense (including that attributable to Capital Lease
Obligations) of the Borrower and its Subsidiaries for such period with
respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries (including, without limitation, all commissions, discounts
and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under Interest Rate Protection
Agreements to the extent such net costs are allocable to such period in
accordance with GAAP); provided that for purposes of calculating
Consolidated Cash Interest Expense of the Borrower and its Subsidiaries
for the fourth fiscal quarter of the Borrower's 1997 fiscal year, cash
interest expense with respect to Indebtedness created in connection with
the Recapitalization shall be included on a pro forma basis for such
fiscal quarter (assuming that the consummation of the Recapitalization and
the incurrence of such Indebtedness occurred on the first day of such
fiscal quarter and that the rate applicable to any floating rate
Indebtedness from the first day of such fiscal quarter to the Closing Date
is the rate in effect on the Closing Date applicable to Eurodollar Loans
having an interest period of one month).
"Consolidated EBITDA": for any period, Consolidated Net Income for
such period plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period,
the sum of (a) income tax expense, (b) interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions,
discounts and other fees and charges associated with Indebtedness
(including the Loans), (c) depreciation and amortization expense, (d)
amortization of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary, unusual or non-recurring
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net
<PAGE>
7
Income for such period, losses on sales of assets outside of the ordinary
course of business) and (f) any other non-cash charges, and minus, to the
extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary, unusual or
non-recurring income or gains (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net
Income for such period, gains on the sales of assets outside of the
ordinary course of business (it being understood that sales of restaurants
in an aggregate amount up to $2,500,000 in any fiscal year are deemed to
be in the ordinary course of business)) and (c) any other non-cash income,
all as determined on a consolidated basis.
"Consolidated Fixed Charge Coverage Ratio": for any period, the
ratio of (a) Consolidated EBITDA for such period minus (i)
Business-Sustaining Capital Expenditures for such period and (ii) cash
income taxes for such period to (b) Consolidated Fixed Charges for such
period.
"Consolidated Fixed Charges": for any period, the sum (without
duplication) of (a) Consolidated Cash Interest Expense for such period,
(b) scheduled payments made during such period on account of principal of
Indebtedness of the Borrower or any of its Subsidiaries (including
scheduled principal payments in respect of the Term Loans) and (c)
scheduled payments (excluding interest expense attributable to such
Capital Lease Obligations) made during such period on account of Capital
Lease Obligations.
"Consolidated Interest Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA minus (i) Business-Sustaining Capital Expenditures
for such period and (ii) cash income taxes for such period to (b)
Consolidated Cash Interest Expense for such period.
"Consolidated Leverage Ratio": as at the last day of any period, the
ratio of (a) Consolidated Total Debt on such day to (b) Consolidated
EBITDA for such period; provided that for purposes of calculating
Consolidated EBITDA of the Borrower and its Subsidiaries for any period,
the Consolidated EBITDA of any Person acquired by the Borrower or its
Subsidiaries during such period shall be included on a pro forma basis for
such period (assuming the consummation of each such acquisition and the
incurrence or assumption of any Indebtedness in connection therewith
occurred on the first day of such period) if the consolidated balance
sheet of such acquired Person and its consolidated Subsidiaries as at the
end of the period preceding the acquisition of such Person and the related
consolidated statements of income and stockholders' equity and of cash
flows for the period in respect of which Consolidated EBITDA is to be
calculated (i) have been previously provided to the Agent and the Lenders
and (ii) either (A) have been reported on without a qualification arising
out of the scope of the audit or a "going concern" or like qualification
or exception by independent certified public accountants of nationally
recognized standing or (B) have been found acceptable by the Agent.
<PAGE>
8
"Consolidated Net Income": for any period, the consolidated net
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Subsidiaries, (b) the income
(or deficit) of any Person (other than a Subsidiary of the Borrower) in
which the Borrower or any of its Subsidiaries has an ownership interest,
except to the extent that any such income is actually received by the
Borrower or such Subsidiary in the form of dividends or similar
distributions and (c) the undistributed earnings of any Subsidiary of the
Borrower to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by
the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Net Worth": at any date, all amounts which would, in
conformity with GAAP, be included on a consolidated balance sheet of the
Borrower and its Subsidiaries under stockholders' equity at such date.
"Consolidated Total Debt": at any date, the aggregate principal
amount of all Indebtedness of the Borrower and its Subsidiaries at such
date, determined on a consolidated basis in accordance with GAAP.
"Continuing Directors": the directors of the Borrower on the Closing
Date, after giving effect to the Recapitalization and the other
transactions contemplated hereby, and each other director, if, in each
case, such other director's nomination for election to the board of
directors of the Borrower is recommended by at least a majority of the
then Continuing Directors or such other director receives the vote of the
Permitted Holders in his or her election by the shareholders of the
Borrower.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Default": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Disposition": with respect to any Property, any sale, lease, sale
and leaseback, assignment, conveyance, transfer or other disposition
thereof; and the terms "Dispose" and "Disposed of" shall have correlative
meanings.
"Disqualified Stock": means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening or any
event (a) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (b) is convertible or exchangeable for
Indebtedness or Disqualified Stock or (c) is
<PAGE>
9
redeemable at the option of the holder thereof, in whole or in part, in
each case prior to the Tranche C Maturity Date.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Domestic Subsidiary": any Subsidiary of the Borrower organized
under the laws of any jurisdiction within the United States of America.
"ECF Percentage": 80%; provided, that on and after the first ECF
Percentage Adjustment Date occurring after the completion of four fiscal
quarters of the Borrower after the Closing Date, the ECF Percentage will
be determined pursuant to the ECF Percentage Grid.
"ECF Percentage Adjustment Date": as defined in the ECF Percentage
Grid.
"ECF Percentage Grid": the Grid attached hereto as Annex B.
"Environmental Laws": any and all foreign, federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of human health or
the environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto) dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board)
maintained by a member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
determined on the basis of the rate for deposits in Dollars for a period
equal to such Interest Period commencing on the first day of such Interest
Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the
Telerate Service (or otherwise on such service), the "Eurodollar Base
Rate" for purposes of this definition shall be determined by reference to
such other comparable publicly available service for displaying eurodollar
rates as may be selected by the Agent or, in the absence of such
availability, by reference to the rate at which the Agent is offered
<PAGE>
10
Dollar deposits at or about 11:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank
eurodollar market where its eurodollar and foreign currency and exchange
operations are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward, if
necessary, to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
the then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such Loans
shall originally have been made on the same day).
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of time,
or both, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess,
if any, of (a) Consolidated EBITDA for such fiscal year, over (b) the sum,
without duplication, of (i) the aggregate amount actually paid by the
Borrower and its Subsidiaries in cash during such fiscal year on account
of Capital Expenditures (excluding the principal amount of Indebtedness
incurred in connection with such expenditures and any such expenditures
financed with the proceeds of any Reinvestment Deferred Amount), (ii) the
aggregate amount of all prepayments of Revolving Credit Loans during such
fiscal year to the extent accompanying permanent optional reductions of
the Revolving Credit Commitments and all optional prepayments of the Term
Loans during such fiscal year, (iii) the aggregate amount of all regularly
scheduled principal payments of Funded Debt (including, without
limitation, the Term Loans) of the Borrower and its Subsidiaries made
during such fiscal year (other than in respect of any revolving credit
facility to the extent there is not an equivalent permanent reduction in
commitments thereunder) and (iv) the aggregate amount actually paid by the
Borrower and its Subsidiaries in cash during such fiscal year on account
of income taxes.
"Excluded Foreign Subsidiaries": any Foreign Subsidiary the pledge
of all of whose Capital Stock as Collateral would, in the good faith
judgment of the Borrower, result in adverse tax consequences to the
Borrower.
"Existing Credit Facility": as defined in the recitals to this
Agreement.
<PAGE>
11
"Existing Lenders": as defined in the recitals to this Agreement.
"Facility": each of (a) the Tranche A Term Loan Commitments and the
Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"),
(b) the Tranche B Term Loan Commitments and the Tranche B Term Loans made
thereunder (the "Tranche B Term Loan Facility"), (c) the Tranche C Term
Loan Commitments and the Tranche C Term Loans made thereunder (the
"Tranche Term Loan Facility") and (d) the Revolving Credit Commitments and
the extensions of credit made thereunder (the "Revolving Credit
Facility").
"Federal Funds Effective Rate"; for any day, 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 on
the next succeeding 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 the day of such transactions received by
the Reference Lender from three federal funds brokers of recognized
standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such Person
that matures more than one year from the date of its creation or matures
within one year from such date but is renewable or extendible, at the
option of such Person, to a date more than one year from such date or
arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year
from such date, including, without limitation, all current maturities and
current sinking fund payments in respect of such Indebtedness whether or
not required to be paid within one year from the date of its creation and,
in the case of the Borrower, Indebtedness in respect of the Loans.
"Funding Office": the office of the Agent set forth in Section 10.2.
"GAAP": generally accepted accounting principles in the United
States of America as in effect from time to time set forth in the opinions
and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board and the rules
and regulations of the Securities and Exchange Commission, or in such
other statements by such other entity as may be in general use by
significant segments of the accounting profession, which are applicable to
the circumstances of the Borrower as of the date of determination, except
that for purposes of Section 7.1, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those
used in the preparation of the most recent audited financial statements
delivered pursuant to Section 4.1(b).
<PAGE>
12
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee and Collateral Agreement": the Guarantee and Collateral
Agreement to be executed and delivered by the Borrower and each Guarantor,
substantially in the form of Exhibit A, as the same may be amended,
supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued
a reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any Property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of
the primary obligor, (iii) to purchase Property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Guarantors": each Subsidiary of the Borrower other than any
Excluded Foreign Subsidiary and other than RIC.
"Incur": as defined in Section 7.2.
"Indebtedness": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of Property or services (other
than current trade payables incurred in the ordinary course of such
Person's business), (c) all obligations
<PAGE>
13
of such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to Property acquired
by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such Property), (e) all Capital Lease Obligations
of such Person, (f) all obligations of such Person, contingent or
otherwise, as an account party under acceptance facilities and all
obligations of such Person in respect of unreimbursed drawings under any
letter of credit facility, (g) all obligations of such Person, contingent
or otherwise, to purchase, redeem, retire or otherwise acquire for value
any Capital Stock (other than common stock) of such Person, (h) all
Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (g) above; (i) all obligations of the
kind referred to in clauses (a) through (h) above secured by (or for which
the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on Property (including, without
limitation, accounts and contract rights) owned by such Person, whether or
not such Person has assumed or become liable for the payment of such
obligation, and (j) for the purposes of Sections 7.2 and 8(e) only, all
obligations of such Person in respect of Interest Rate Protection
Agreements.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, copyrights, copyright licenses, patents,
patent licenses, trademarks, trademark licenses, technology, know-how and
processes, and all rights to sue at law or in equity for any infringement
or other impairment thereof, including the right to receive all proceeds
and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the fifteenth day
of each January, April, July and October to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the
last day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day which is three months,
or a whole multiple thereof, after the first day of such Interest Period
and the last day of such Interest Period and (d) as to any Loan (other
than any Revolving Credit Loan that is an ABR Loan), the date of any
repayment or prepayment made in respect thereof, but only to the extent of
the portion prepaid or repaid.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by the Borrower in its notice of borrowing
or notice of conversion, as the case may
<PAGE>
14
be, given with respect thereto; and (b) thereafter, each period commencing
on the last day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower by irrevocable notice to the Agent not less than
three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that, all of the foregoing
provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month
in which event such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond
the Revolving Credit Termination Date or beyond the date final
payment is due on the Tranche A Term Loans, the Tranche B Term Loans
or the Tranche C Term Loans, as the case may be, shall end on the
Revolving Credit Termination Date or such due date, as applicable;
(iii) 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 end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Interest Rate Protection Agreement": any interest rate protection
agreement, interest rate futures contract, interest rate option, interest
rate cap or other interest rate hedge arrangement, to or under which the
Borrower or any of its Subsidiaries is a party or a beneficiary on the
date hereof or becomes a party or a beneficiary after the date hereof.
"Issuing Lender": Societe Generale, in its capacity as issuer of any
Letter of Credit.
"L/C Commitment": $25,000,000.
"L/C Fee Payment Date": the fifteenth day of each January, April,
July and October and the last day of the Revolving Credit Commitment
Period.
"L/C Obligations": at any time, an amount equal to the sum of (a)
the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters
of Credit which have not then been reimbursed pursuant to Section 3.5.
<PAGE>
15
"L/C Participants": the collective reference to all the Revolving
Credit Lenders other than the Issuing Lender.
"Letters of Credit": any Standby Letter of Credit or Trade Letter of
Credit issued pursuant to Section 3.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any capital lease having substantially the same economic
effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes, the Guarantee and
Collateral Agreement and each other Security Document.
"Loan Parties": the Borrower and each Subsidiary of the Borrower
which is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
holders of more than 50% of the aggregate unpaid principal amount of the
Term Loans or the Total Revolving Extensions of Credit, as the case may
be, outstanding under such Facility (or, in the case of the Revolving
Credit Facility, prior to any termination of the Revolving Credit
Commitments, the holders of more than 50% of the Total Revolving Credit
Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
Lenders in respect of the Revolving Credit Facility.
"Major Mortgaged Properties": as defined in Section 5.1(p).
"Material Adverse Effect": a material adverse effect on (a) the
Recapitalization, (b) the business, assets, property, condition (financial
or otherwise), operations, performance or prospects of the Borrower and
its Subsidiaries taken as a whole or (c) the validity or enforceability of
this Agreement or any of the other Loan Documents against the Borrower or
any Guarantor party thereto or the rights or remedies of the Agent or the
Lenders hereunder or thereunder.
"Material Environmental Amount": an amount payable by the Borrower
and/or its Subsidiaries in excess of $5,000,000 for remedial costs,
compliance costs, compensatory damages, punitive damages, fines, penalties
or any combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic
<PAGE>
16
substances, materials or wastes, defined or regulated as such in or under
any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Mortgaged Properties": the real properties listed on Schedule 1.1B,
as to which the Agent for the benefit of the Lenders shall be granted a
Lien pursuant to the Mortgages.
"Mortgages": each of the mortgages and deeds of trust made by any
Loan Party in favor of, or for the benefit of, the Agent for the benefit
of the Lenders, substantially in the forms of Exhibit D-1 and D-2 (with
such changes thereto as shall be advisable under the law of the
jurisdiction in which such mortgage or deed of trust is to be recorded),
as the same may be amended, supplemented or otherwise modified from time
to time.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) of such Asset Sale or Recovery Event, net of (i) attorneys'
fees, accountants' fees, investment banking fees, amounts required to be
applied to the repayment of Indebtedness secured by a Lien expressly
permitted hereunder on any asset which is the subject of such Asset Sale
or Recovery Event (other than any Lien pursuant to a Security Document)
and other customary fees and expenses actually incurred in connection
therewith, (ii) taxes paid or reasonably estimated to be payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and (iii) appropriate amounts
to be provided by the Borrower or any Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with
such Asset Sale and retained by the Borrower or any Subsidiary, as the
case may be, after such Asset Sale, including pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale (provided that, if and to the extent that such
reserves are no longer required to be maintained in accordance with GAAP,
such amounts shall constitute Net Cash Proceeds) and (b) in connection
with any issuance or sale of equity securities or debt securities or
instruments or the incurrence of loans, the cash proceeds received from
such issuance or incurrence, net of attorneys' fees, investment banking
fees, accountants' fees, underwriting discounts and commissions and other
customary fees and expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.18(a).
"Non-U.S. Lender": as defined in Section 2.18(d).
<PAGE>
17
"Notes": the collective reference to any promissory note evidencing
Loans.
"Obligations": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans and all other obligations and liabilities of the
Borrower to the Agent or to any Lender (or, in the case of Interest Rate
Protection Agreements, any affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with,
this Agreement, any other Loan Document, the Letters of Credit, any
Interest Rate Protection Agreement entered into with any Lender or any
affiliate of any Lender or any other document made, delivered or given in
connection herewith or therewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all reasonable fees, charges and
disbursements of counsel to the Agent or to any Lender that are required
to be paid by the Borrower pursuant hereto) or otherwise.
"Offerings": as defined in the recitals to this Agreement.
"Other Taxes": any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
arising from any payment made hereunder or from the execution, delivery or
enforcement of, or otherwise with respect to, this Agreement.
"Participant": as defined in Section 10.6(b).
"Payment Office": the office of the Agent set forth in Section 10.2.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Capital Expenditure Adjustment Date": as defined in the
Permitted Capital Expenditure Grid.
"Permitted Capital Expenditure Amount": with respect to any fiscal
year, the amount set forth opposite such fiscal year under the caption
"Capital Expenditure Amount" on the Permitted Capital Expenditure Grid;
provided that on and after the first Permitted Capital Expenditure
Adjustment Date occurring after the Closing Date, the Permitted Capital
Expenditure Amount with respect to the Borrower's 1999 fiscal year and
each subsequent fiscal year shall be an amount equal to the product of (a)
the Capital Expenditure Amount otherwise applicable for such fiscal year
and (b) the relevant Permitted Capital Expenditure Percentage from the
Permitted Capital Expenditure Grid.
<PAGE>
18
"Permitted Capital Expenditure Grid": the grid attached hereto as
Annex C.
"Permitted Holders": the collective reference to Donald N. Smith,
Harrah's Operating Company, Inc., The Equitable Life Assurance Society of
the U.S., the members of the Borrower's existing senior management listed
on Schedule 1.1C and their respective Affiliates.
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
"Projections": as defined in Section 6.2(c).
"Properties": as defined in Section 4.17(a).
"Property": any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.
"Ratio of Consolidated EBITDA to Consolidated EBITDA Target": as at
the last day of any period of four consecutive fiscal quarters, the ratio
of (a) Consolidated EBITDA for such period to (b) the "Consolidated EBITDA
Target" set forth for such period on the Permitted Capital Expenditure
Grid.
"Real Property": all real property owned or leased by the Borrower
or any of its Subsidiaries and all improvements thereon.
"Recapitalization": as defined in the recitals to this Agreement.
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding
relating to any asset of the Borrower or any of its Subsidiaries which
yields gross proceeds to the Borrower or any of its Subsidiaries in excess
of $100,000.
"Reference Lender": Societe Generale.
"Register": as defined in Section 10.6(d).
<PAGE>
19
"Regulation G": Regulation G of the Board as in effect from time to
time.
"Regulation U": Regulation U of the Board as in effect from time to
time.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
under Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
Event, the aggregate Net Cash Proceeds received by the Borrower or any of
its Subsidiaries in connection therewith which are not applied to prepay
the Term Loans or reduce the Revolving Credit Commitments pursuant to
Section 2.10(b) as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by an Authorized
Signatory stating that no Event of Default has occurred and is continuing
and that the Borrower (directly or indirectly through a Subsidiary)
intends and expects to use all or a specified portion of the Net Cash
Proceeds of an Asset Sale or Recovery Event to acquire assets useful in
its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
Event, the earlier of (a) the date occurring 180 days after such
Reinvestment Event and (b) the date on which the Borrower shall have
determined not to, or shall have otherwise ceased to, acquire assets
useful in the Borrower's business with all or any portion of the relevant
Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c)
of ERISA, other than those events as to which the thirty day notice period
is waived under subsection .22, .23, .25, .27 or .28 of PBGC Reg. ss.
4043.
"Required Lenders": the holders of more than 50% of (a) until the
Closing Date, the Commitments and (b) thereafter, the sum of (i) the
aggregate unpaid principal amount of the Term Loans and (ii) the Total
Revolving Credit Commitments or, if the Revolving Credit Commitments have
been terminated, the Total Revolving Extensions of Credit.
<PAGE>
20
"Required Prepayment Lenders": the Majority Facility Lenders in
respect of each Facility.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
"Revolving Credit Commitment": as to any Lender, the obligation of
such Lender, if any, to make Revolving Credit Loans and participate in
Letters of Credit, in an aggregate principal and/or face amount not to
exceed the amount set forth under the heading "Revolving Credit
Commitment" opposite such Lender's name on Schedule 1.1A, as the same may
be changed from time to time pursuant to the terms hereof. The original
amount of the Total Revolving Credit Commitments is $70,000,000.
"Revolving Credit Commitment Period": the period from and including
the Closing Date to the Revolving Credit Termination Date.
"Revolving Credit Lender": each Lender which has a Revolving Credit
Commitment or which is the holder of Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
"Revolving Credit Percentage": as to any Revolving Credit Lender at
any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the Total Revolving Credit Commitments (or, at any
time after the Revolving Credit Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Revolving Credit Loans then outstanding constitutes of the
aggregate principal amount of the Revolving Credit Loans then
outstanding).
"Revolving Credit Termination Date": November 15, 2002.
"Revolving Extensions of Credit": as to any Revolving Credit Lender
at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Revolving Credit Loans made by such Lender then outstanding
and (b) such Lender's Revolving Credit Percentage of the L/C Obligations
then outstanding.
"RIC": Restaurant Insurance Corporation, a Vermont corporation, and
its successors.
"Sale/Leaseback Transaction": an arrangement relating to property
now owned or hereafter acquired whereby the Borrower or any of its
Subsidiaries transfers such property to a Person and the Borrower or any
of its Subsidiaries leases it from such Person.
<PAGE>
21
"Security Documents": the collective reference to the Guarantee and
Collateral Agreement, the Mortgages and all other security documents
hereafter delivered to the Agent granting a Lien on any Property of any
Person to secure the obligations and liabilities of any Loan Party under
any Loan Document.
"Senior Note Indenture": the Indenture entered into by the Borrower,
Friendly's Restaurants Franchise, Inc., the Borrower's franchise
Subsidiary, and The Bank of New York, as Trustee, in connection with the
issuance of the Senior Notes, together with all instruments and other
agreements entered into by the Borrower or such Subsidiary in connection
therewith, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with Section 7.9.
"Senior Note Offering": as defined in the recitals to this
Agreement.
"Senior Notes": the senior notes due 2007 of the Borrower issued on
the Closing Date pursuant to the Senior Note Indenture.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the
amount of all "liabilities of such Person, contingent or otherwise", as of
such date, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the
insolvency of debtors, (b) the present fair saleable value of the assets
of such Person will, as of such date, be greater than the amount that will
be required to pay the liability of such Person on its debts as such debts
become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they
mature. For purposes of this definition, (i) "debt" means liability on a
"claim", and (ii) "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (y) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or
not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or
unsecured.
"Standby Letter of Credit": an irrevocable letter of credit (other
than a Trade Letter of Credit) for the account of the Borrower and for the
benefit of any holder of obligations of the Borrower or any Subsidiary.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the
<PAGE>
22
board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Borrower.
"Term Loan Lenders": the collective reference to the Tranche A Term
Loan Lenders, the Tranche B Term Loan Lenders and the Tranche C Term Loan
Lenders.
"Term Loans": the collective reference to the Tranche A Term Loans,
the Tranche B Term Loans and the Tranche C Term Loans.
"Total Revolving Credit Commitments": at any time, the aggregate
amount of the Revolving Credit Commitments at such time.
"Total Revolving Extensions of Credit": at any time, the aggregate
amount of the Revolving Extensions of Credit of all the Revolving Credit
Lenders at such time.
"Trade Letter of Credit": a documentary, trade or commercial letter
of credit in respect of the purchase of goods or services issued for the
account of the Borrower and for the benefit of any holder of obligations
of the Borrower or any Subsidiary incurred in the ordinary course of
business.
"Tranche A Maturity Date": November 15, 2002.
"Tranche A Term Loan": as defined in Section 2.1.
"Tranche A Term Loan Commitment": as to any Lender, the obligation
of such Lender, if any, to purchase, indirectly through Societe Generale,
a Tranche A Term Loan from the Existing Lenders in a principal amount not
to exceed the amount set forth under the heading "Tranche A Term Loan
Commitment" opposite such Lender's name on Schedule 1.1A. The original
aggregate amount of the Tranche A Term Loan Commitments is $34,285,714.29.
"Tranche A Term Loan Lender": each Lender which has a Tranche A Term
Loan Commitment or which is the holder of a Tranche A Term Loan.
"Tranche A Term Loan Percentage": as to any Lender at any time, the
percentage which such Lender's Tranche A Term Loan Commitment then
constitutes of the aggregate Tranche A Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal
amount of such Lender's Tranche A Term Loans then outstanding constitutes
of the aggregate principal amount of the Tranche A Term Loans then
outstanding).
"Tranche B Maturity Date": November 15, 2004.
<PAGE>
23
"Tranche B Term Loan": as defined in Section 2.1.
"Tranche B Term Loan Commitment": as to any Lender, the obligation
of such Lender, if any, to purchase, indirectly through Societe Generale,
a Tranche B Term Loan from the Existing Lenders in a principal amount not
to exceed the amount set forth under the heading "Tranche B Term Loan
Commitment" opposite such Lender's name on Schedule 1.1A. The original
aggregate amount of the Tranche B Term Loan Commitments is $34,285,714.29.
"Tranche B Term Loan Lender": each Lender which has a Tranche B Term
Loan Commitment or which is the holder of a Tranche B Term Loan.
"Tranche B Term Loan Percentage": as to any Lender at any time, the
percentage which such Lender's Tranche B Term Loan Commitment then
constitutes of the aggregate Tranche B Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal
amount of such Lender's Tranche B Term Loans then outstanding constitutes
of the aggregate principal amount of the Tranche B Term Loans then
outstanding); provided, that solely for purposes of calculating the amount
of each installment of Tranche B Term Loans (other than the last
installment) payable to a Term Loan Lender pursuant to Section 2.3(b),
such Term Loan Lender's Tranche B Term Loan Percentage shall be calculated
without giving effect to any portion of any prior mandatory or optional
prepayment attributable to such Term Loan Lender's Tranche B Term Loans
which shall have been declined by such Term Loan Lender (or, in the case
of any Term Loan Lender which shall have acquired its Tranche B Term Loans
by assignment from another Person, by such other Person).
"Tranche C Maturity Date": November 15, 2005.
"Tranche C Term Loan": as defined in Section 2.1.
"Tranche C Term Loan Commitment": as to any Lender, the obligation
of such Lender, if any, to purchase, indirectly through Societe Generale,
a Tranche C Term Loan from the Existing Lenders in a principal amount not
to exceed the amount set forth under the heading "Tranche C Term Loan
Commitment" opposite such Lender's name on Schedule 1.1A. The original
aggregate amount of the Tranche C Term Loan Commitments is $21,428,571.42.
"Tranche C Term Loan Lender": each Lender which has a Tranche C Term
Loan Commitment or which is the holder of a Tranche C Term Loan.
"Tranche C Term Loan Percentage": as to any Lender at any time, the
percentage which such Lender's Tranche C Term Loan Commitment then
constitutes of the aggregate Tranche C Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal
amount of such Lender's Tranche C Term Loans then outstanding constitutes
of the aggregate principal amount
<PAGE>
24
of the Tranche C Term Loans then outstanding); provided, that solely for
purposes of calculating the amount of each installment of Tranche C Term
Loans (other than the last installment) payable to a Term Loan Lender
pursuant to Section 2.3(c), such Term Loan Lender's Tranche C Term Loan
Percentage shall be calculated without giving effect to any portion of any
prior mandatory or optional prepayment attributable to such Term Loan
Lender's Tranche C Term Loans which shall have been declined by such Term
Loan Lender (or, in the case of any Term Loan Lender which shall have
acquired its Tranche C Term Loans by assignment from another Person, by
such other Person).
"Transferee": as defined in Section 10.15.
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares
required by law or shares required by law to be held by foreign nationals
representing not more than 2% of such Capital Stock) is owned by such
Person directly and/or through other Wholly Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Guarantor that is a Wholly
Owned Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
<PAGE>
25
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
hereof, (a) each Tranche A Term Loan Lender severally agrees to extend credit to
the Borrower by purchasing at par, indirectly through Societe Generale, from the
Existing Lenders a term loan (a "Tranche A Term Loan") on the Closing Date in an
amount equal to the amount of the Tranche A Term Loan Commitment of such Lender,
(b) each Tranche B Term Loan Lender severally agrees to extend credit to the
Borrower by purchasing at par, indirectly through Societe Generale, from the
Existing Lenders a term loan (a "Tranche B Term Loan") on the Closing Date in an
amount equal to the amount of the Tranche B Term Loan Commitment of such Lender
and (c) each Tranche C Term Loan Lender severally agrees to extend credit to the
Borrower by purchasing at par, indirectly through Societe Generale, from the
Existing Lenders a term loan (a "Tranche C Term Loan") on the Closing Date in an
amount equal to the amount of the Tranche C Term Loan Commitment of such Lender.
Each purchase by a Term Loan Lender, indirectly through Societe Generale, of a
Term Loan pursuant to this Section 2.1 shall be made without recourse to Societe
Generale and shall be made on and subject to the terms and conditions set forth
in Sections 2(a) and 2(b) of the Assignment and Acceptance attached hereto as
Exhibit E, which terms and conditions shall be deemed incorporated herein by
reference. The Term Loans may from time to time be Eurodollar Loans or ABR
Loans, as determined by the Borrower and notified to the Agent in accordance
with Sections 2.2 and 2.11.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give the
Agent irrevocable notice (which notice must be received by the Agent prior to
10:00 A.M., New York City time, one Business Day prior to the anticipated
Closing Date) requesting that the Term Loan Lenders purchase the Term Loans on
the Closing Date. The Term Loans purchased on the Closing Date shall initially
be ABR Loans, and no Term Loan may be converted into or continued as a
Eurodollar Loan having an Interest Period in excess of one month prior to the
date which is 60 days after the Closing Date. Upon receipt of such notice the
Agent shall promptly notify each Term Loan Lender thereof. Not later than 12:00
Noon, New York City time, on the Closing Date each Term Loan Lender shall make
available to Societe Generale at the Funding Office an amount in immediately
available funds equal to the Term Loan or Term Loans to be purchased by such
Lender.
2.3 Repayment of Term Loans. (a) The Tranche A Term Loan of each
Tranche A Lender shall mature in 15 consecutive quarterly installments,
commencing on April 15, 1999, to be followed by a final installment on the
Tranche A Maturity Date, each of which shall be in an amount equal to such
Lender's Tranche A Term Loan Percentage multiplied by the amount set forth below
opposite such installment:
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
April 15, 1999 $1,142,857.14
July 15, 1999 1,142,857.14
October 15, 1999 1,142,857.15
January 15, 2000 2,142,857.14
</TABLE>
<PAGE>
26
<TABLE>
<CAPTION>
<S> <C>
April 15, 2000 2,142,857.14
July 15, 2000 2,142,857.14
October 15, 2000 2,142,857.14
January 15, 2001 2,571,428.57
April 15, 2001 2,571,428.57
July 15, 2001 2,571,428.57
October 15, 2001 2,571,428.57
January 15, 2002 3,000,000.00
April 15, 2002 3,000,000.00
July 15, 2002 3,000,000.00
Tranche A Maturity Date 3,000,000.00
</TABLE>
(b) The Tranche B Term Loan of each Tranche B Lender shall mature in
23 consecutive quarterly installments, commencing on April 15, 1999, to be
followed by a final installment on the Tranche B Maturity Date, each of which
shall be in an amount equal to such Lender's Tranche B Term Loan Percentage
multiplied by the amount set forth below opposite such installment:
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
April 15, 1999 $114,285.71
July 15, 1999 114,285.71
October 15, 1999 114,285.72
January 15, 2000 85,714.29
April 15, 2000 85,714.29
July 15, 2000 85,714.29
October 15, 2000 85,714.29
January 15, 2001 85,714.29
April 15, 2001 85,714.29
July 15, 2001 85,714.29
October 15, 2001 85,714.29
January 15, 2002 85,714.29
April 15, 2002 85,714.29
July 15, 2002 85,714.29
October 15, 2002 85,714.29
January 15, 2003 3,942,857.14
April 15, 2003 3,942,857.14
July 15, 2003 3,942,857.14
October 15, 2003 3,942,857.14
January 15, 2004 4,285,714.29
April 15, 2004 4,285,714.29
July 15, 2004 4,285,714.29
Tranche B Maturity Date 4,285,714.29
</TABLE>
(c) The Tranche C Term Loan of each Tranche C Lender shall mature in
27 consecutive quarterly installments, commencing on April 15, 1999, to be
followed by a final
<PAGE>
27
installment on the Tranche C Maturity Date, each of which shall be in an amount
equal to such Lender's Tranche C Term Loan Percentage multiplied by the amount
set forth below opposite such installment:
Installment Principal Amount
----------- ----------------
April 15, 1999 $71,428.57
July 15, 1999 71,428.57
October 15, 1999 71,428.58
January 15, 2000 53,571.43
April 15, 2000 53,571.43
July 15, 2000 53,571.43
October 15, 2000 53,571.43
January 15, 2001 53,571.43
April 15, 2001 53,571.43
July 15, 2001 53,571.43
October 15, 2001 53,571.43
January 15, 2002 53,571.43
April 15, 2002 53,571.43
July 15, 2002 53,571.43
October 15, 2002 53,571.43
January 15, 2003 53,571.43
April 15, 2003 53,571.43
July 15, 2003 53,571.43
October 15, 2003 53,571.43
January 15, 2004 53,571.43
April 15, 2004 53,571.43
July 15, 2004 53,571.43
October 15, 2004 53,571.43
January 15, 2005 5,035,714.29
April 15, 2005 5,035,714.29
July 15, 2005 5,035,714.29
Tranche C Maturity Date 5,035,714.29
2.4 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the L/C Obligations then outstanding does not exceed the
amount of such Lender's Revolving Credit Commitment; provided, however, that in
no event shall the aggregate principal amount of Revolving Credit Loans (other
than Revolving Credit Loans arising pursuant to Section 3.5 from unreimbursed
drawings under Standby Letters of Credit) exceed $55,000,000 less the amount of
any reduction in the Revolving Credit Commitments pursuant to Sections 2.8 and
2.10. During the Revolving Credit Commitment Period the Borrower may use the
Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans
in whole or in part, and
<PAGE>
28
reborrowing, all in accordance with the terms and conditions hereof. The
Revolving Credit Loans may from time to time be Eurodollar Loans or ABR Loans,
as determined by the Borrower and notified to the Agent in accordance with
Sections 2.5 and 2.13, provided that no Revolving Credit Loan shall be made as a
Eurodollar Loan after the day that is one month prior to the Revolving Credit
Termination Date.
(b) The Borrower shall repay all outstanding Revolving Credit Loans
on the Revolving Credit Termination Date.
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
Agent irrevocable notice (which notice must be received by the Agent prior to
12:00 Noon, New York City time, (a) three Business Days prior to the requested
Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior
to the requested Borrowing Date, in the case of ABR Loans), specifying (i) the
amount and Type of Revolving Credit Loans to be borrowed, (ii) the requested
Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts
of each such Type of Loan and the respective lengths of the initial Interest
Period therefor. Any Revolving Credit Loans made on the Closing Date shall
initially be ABR Loans, and no Revolving Credit Loan may be made as, converted
into or continued as a Eurodollar Loan having an Interest Period in excess of
one month prior to the date which is 60 days after the Closing Date. Each
borrowing under the Revolving Credit Commitments shall be in an amount equal to
(x) in the case of ABR Loans, $1,000,000 or a whole multiple thereof (or, if the
then aggregate Available Revolving Credit Commitments are less than $1,000,000,
such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a
whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice
from the Borrower, the Agent shall promptly notify each Revolving Credit Lender
thereof. Each Revolving Credit Lender will make the amount of its pro rata share
of each borrowing available to the Agent for the account of the Borrower at the
Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date
requested by the Borrower in funds immediately available to the Agent. Such
borrowing will then be made available to the Borrower by the Agent crediting the
account of the Borrower on the books of the Funding Office with the aggregate of
the amounts made available to the Agent by the Revolving Credit Lenders and in
like funds as received by the Agent.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Agent for the account of the appropriate
Revolving Credit Lender or Term Loan Lender, as the case may be, (i) the then
unpaid principal amount of each Revolving Credit Loan of such Revolving Credit
Lender on the Revolving Credit Termination Date (or such earlier date on which
the Loans become due and payable pursuant to Section 8) and (ii) the principal
amount of each Term Loan of such Term Loan Lender in installments according to
the amortization schedules set forth in Section 2.3 (or on such earlier date on
which the Loans become due and payable pursuant to Section 8). The Borrower
hereby further agrees to pay interest on the unpaid principal amount of the
Loans from time to time outstanding from the date hereof until payment in full
thereof at the rates per annum, and on the dates, set forth in Section 2.13.
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29
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Agent, on behalf of the Borrower, shall maintain the
Register pursuant to Section 10.6(e), and a subaccount therein for each Lender,
in which shall be recorded (i) the amount of each Loan made hereunder and any
Note evidencing such Loan, the Type thereof and each Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) both
the amount of any sum received by the Agent hereunder from the Borrower and each
Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Loans made to such Borrower by
such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Agent by any
Lender, the Borrower will execute and deliver to such Lender a promissory note
of the Borrower evidencing any Term Loans or Revolving Credit Loans, as the case
may be, of such Lender, substantially in the forms of Exhibit G-1 or G-2,
respectively, with appropriate insertions as to date and principal amount.
2.7 Commitment Fees, etc. (a) The Borrower agrees to pay to the
Agent for the account of each Revolving Credit Lender a commitment fee for the
period from and including the Closing Date to the last day of the Revolving
Credit Commitment Period, computed at the Commitment Fee Rate on the average
daily amount of the Available Revolving Credit Commitment of such Lender during
the period for which payment is made, payable quarterly in arrears on the
fifteenth day of each January, April, July and October and on the Revolving
Credit Termination Date, commencing on the first of such dates to occur after
the date hereof.
(b) The Borrower agrees to pay to the Agent the fees in the amounts
and on the dates previously agreed to, and from time to time agreed to, in
writing by the Borrower and the Agent.
2.8 Termination or Reduction of Revolving Credit Commitments. The
Borrower shall have the right, upon not less than three Business Days' notice to
the Agent, to terminate the Revolving Credit Commitments or, from time to time,
to reduce the amount of the Revolving Credit Commitments; provided that no such
termination or reduction of Revolving Credit Commitments shall be permitted if,
after giving effect thereto and to any prepayments of the Revolving Credit Loans
made on the effective date thereof, the Total
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30
Revolving Extensions of Credit would exceed the Total Revolving Credit
Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a
whole multiple thereof, and shall reduce permanently the Revolving Credit
Commitments then in effect.
2.9 Optional Prepayments. The Borrower may at any time and from time
to time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Agent at least three Business Days prior
thereto in the case of Eurodollar Loans and at least one Business Day prior
thereto in the case of ABR Loans, which notice shall specify the date and amount
of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans;
provided, that if a Eurodollar Loan is prepaid on any day other than the last
day of the Interest Period applicable thereto, the Borrower shall also pay any
amounts owing pursuant to Section 2.19. Upon receipt of any such notice the
Agent shall promptly notify each relevant Lender thereof. If any such notice is
given, the amount specified in such notice shall be due and payable on the date
specified therein, together with (except in the case of Revolving Credit Loans
which are ABR Loans) accrued interest to such date on the amount prepaid.
Partial prepayments of Term Loans and Revolving Credit Loans shall be in an
aggregate principal amount of $1,000,000 or a whole multiple thereof.
2.10 Mandatory Prepayments and Commitment Reductions. (a) Unless the
Required Prepayment Lenders shall otherwise agree, if any Indebtedness shall be
issued or Incurred by the Borrower or any of its Subsidiaries (excluding any
Indebtedness Incurred in accordance with Section 7.2 as in effect on the date of
this Agreement), an amount equal to 100% of the Net Cash Proceeds thereof shall
be applied on the date of such issuance or Incurrence toward the prepayment of
the Term Loans and the reduction of the Revolving Credit Commitments as set
forth in Section 2.10(d); provided, however, that if any such subordinated
Indebtedness in an aggregate principal amount not to exceed $100,000,000 shall
be issued or Incurred by the Borrower on terms and conditions (including,
without limitation, terms of subordination) satisfactory to the Required
Lenders, as evidenced by their prior written consent, which consent shall not be
unreasonably withheld, an amount equal to 50% of the Net Cash Proceeds thereof
shall be applied on the date of such issuance or Incurrence toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in Section 2.10(d).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date, the Borrower or any of its Subsidiaries shall receive Net Cash
Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment
Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be
applied on such date toward the prepayment of the Term Loans and the reduction
of the Revolving Credit Commitments as set forth in Section 2.10(d); provided
that, notwithstanding the foregoing, (i) the Borrower may exclude from the
requirements of this paragraph the first $7,500,000 of aggregate Net Cash
Proceeds from Asset Sales and Recovery Events and (ii) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in Section 2.10(d).
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31
(c) Unless the Required Prepayment Lenders shall otherwise agree,
if, for any fiscal year of the Borrower commencing with the fiscal year ending
December 31, 1998, there shall be Excess Cash Flow, the Borrower shall apply the
ECF Percentage of such Excess Cash Flow toward the prepayment of the Term Loans
as set forth in Section 2.10(d) on a date no later than five days after the
earlier of (i) the date on which the financial statements of the Borrower
referred to in Section 6.1(a), for the fiscal year with respect to which such
prepayment is made, are required to be delivered to the Lenders and (ii) the
date such financial statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to Section 2.10 shall be applied, first, to
the prepayment of the Term Loans and, second, to reduce permanently the
Revolving Credit Commitments; provided that no Excess Cash Flow shall be applied
to reduce the Revolving Credit Commitments. Any such reduction of the Revolving
Credit Commitments shall be accompanied by prepayment of the Revolving Credit
Loans to the extent, if any, that the Total Revolving Extensions of Credit
exceed the amount of the Total Revolving Credit Commitments as so reduced,
provided that if the aggregate principal amount of Revolving Credit Loans then
outstanding is less than the amount of such excess (because L/C Obligations
constitute a portion thereof), the Borrower shall, to the extent of the balance
of such excess, replace outstanding Letters of Credit and/or deposit an amount
in cash in a cash collateral account established with the Agent for the benefit
of the Lenders on terms and conditions satisfactory to the Agent. The
application of any prepayment pursuant to Section 2.10 shall be made first to
ABR Loans and second to Eurodollar Loans. Each prepayment of the Loans under
Section 2.10 (except in the case of Revolving Credit Loans that are ABR Loans)
shall be accompanied by accrued interest to the date of such prepayment on the
amount prepaid.
2.11 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to ABR Loans by giving the Agent
at least two Business Days' prior irrevocable notice of such election, provided
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to
time to convert ABR Loans to Eurodollar Loans by giving the Agent at least three
Business Days' prior irrevocable notice of such election (which notice shall
specify the length of the initial Interest Period therefor), provided that no
ABR Loan under a particular Facility may be converted into a Eurodollar Loan (i)
when any Event of Default has occurred and is continuing and the Agent has or
the Majority Facility Lenders in respect of such Facility have determined in its
or their sole discretion not to permit such conversions or (ii) after the date
that is one month prior to the final scheduled termination or maturity date of
such Facility. Upon receipt of any such notice the Agent shall promptly notify
each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Agent, in accordance with the applicable provisions of
the term "Interest Period" set forth in Section 1.1, of the length of the next
Interest Period to be applicable to such Loans, provided that no Eurodollar Loan
under a particular Facility may be continued as such (i) when any Event of
Default has occurred and is continuing and the Agent has or the Majority
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32
Facility Lenders in respect of such Facility have determined in its or their
sole discretion not to permit such continuations or (ii) after the date that is
one month prior to the final scheduled termination or maturity date of such
Facility, and provided, further, that if the Borrower shall fail to give any
required notice as described above in this paragraph or if such continuation is
not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to ABR Loans on the last day of such then expiring
Interest Period. Upon receipt of any such notice the Agent shall promptly notify
each relevant Lender thereof.
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall
be outstanding at any one time.
2.13 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
which is equal to (x) in the case of the Loans, the rate applicable to ABR Loans
under the relevant Facility plus 2% or (y) in the case of Reimbursement
Obligations, the rate applicable to ABR Loans under the Revolving Credit
Facility plus 2%, and (ii) if all or a portion of any interest payable on any
Loan or Reimbursement Obligation or any commitment fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum equal to the rate applicable to ABR Loans under the relevant Facility
plus 2% (or, in the case of any such other amounts that do not relate to a
particular Facility, the ABR plus 2.75%), in each case, with respect to clauses
(i) and (ii) above, from the date of such non-payment until such amount is paid
in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
2.13 shall be payable from time to time on demand.
2.14 Computation of Interest and Fees. (a) Interest, fees and
commissions payable pursuant hereto shall be calculated on the basis of a
360-day year for the actual days elapsed, except that, with respect to ABR Loans
the rate of interest on which is calculated on
<PAGE>
33
the basis of the Prime Rate, the interest thereon shall be calculated on the
basis of a 365- (or 366-, as the case may be) day year for the actual days
elapsed. The Agent shall as soon as practicable notify the Borrower and the
relevant Lenders of each determination of a Eurodollar Rate. Any change in the
interest rate on a Loan resulting from a change in the ABR or the Eurocurrency
Reserve Requirements shall become effective as of the opening of business on the
day on which such change becomes effective. The Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of the effective date
and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error. The Agent shall, at the
request of the Borrower, deliver to the Borrower a statement showing the
quotations used by the Agent in determining any interest rate pursuant to
Section 2.13(a).
2.15 Inability to Determine Interest Rate. If prior
to the first day of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the Majority Facility
Lenders in respect of the relevant Facility that the Eurodollar Rate
determined or to be determined for such Interest Period will not
adequately and fairly reflect the actual cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the relevant Lenders as soon as practicable thereafter. If such notice is given
(x) any Eurodollar Loans under the relevant Facility requested to be made on the
first day of such Interest Period shall be made as ABR Loans, (y) any Loans
under the relevant Facility that were to have been converted on the first day of
such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z)
any outstanding Eurodollar Loans under the relevant Facility shall be converted,
on the first day of such Interest Period, to ABR Loans. Until such notice has
been withdrawn by the Agent, no further Eurodollar Loans under the relevant
Facility shall be made or continued as such, nor shall the Borrower have the
right to convert Loans under the relevant Facility to Eurodollar Loans.
2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Tranche A Term Loan Percentages,
Tranche B Term Loan Percentages, Tranche C Term Loan Percentages or Revolving
Credit Percentages, as the case may be, of the relevant Lenders.
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34
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Term Loans shall be made pro rata
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Loan Lenders (except as otherwise provided in Section 2.16(d)).
The amount of each principal prepayment of the Term Loans shall be applied to
reduce the then remaining installments of the Tranche A Term Loans, Tranche B
Term Loans and Tranche C Term Loans, as the case may be, in the inverse order of
maturity. Amounts prepaid on account of the Term Loans may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Revolving Credit Lenders.
(d) Notwithstanding anything to the contrary in Section 2.10 or
elsewhere in this Section 2.16, so long as any Tranche A Term Loans are
outstanding, each Tranche B Term Loan Lender and each Tranche C Term Loan Lender
may, at its option, decline the portion of any optional prepayment or mandatory
payment applicable to the Tranche B Term Loans or, as the case may be, Tranche C
Term Loans of such Lender; accordingly, with respect to the amount of any
mandatory prepayment described in Section 2.10 that is allocated to Tranche B
Term Loans or, as the case may be, Tranche C Term Loans (such amount, the
"Tranche B Prepayment Amount" or, as the case may be, the "Tranche C Prepayment
Amount"), the Borrower will, in lieu of applying such amount to the prepayment
of Tranche B Term Loans or, as the case may be, Tranche C Term Loans, as
provided in paragraph Section 2.10(d), on the date specified in Section 2.10 for
such prepayment, give the Agent telephonic notice (promptly confirmed in
writing) requesting that the Agent prepare and provide to each Tranche B Term
Loan Lender and each Tranche C Term Loan Lender a notice (each, a "Prepayment
Option Notice") as described below. As promptly as practicable after receiving
such notice from the Borrower, the Agent will send to each Tranche B Term Loan
Lender and each Tranche C Term Loan Lender a Prepayment Option Notice, which
shall be in the form of Exhibit H, and shall include an offer by the Borrower to
prepay on the date (each, a "Prepayment Date") that is 10 Business Days after
the date of the Prepayment Option Notice, the Tranche B Term Loans or, as the
case may be, Tranche C Term Loans of such Lender by an amount equal to the
Tranche B Prepayment Amount or, as the case may be, Tranche C Prepayment Amount
indicated in such Lender's Prepayment Option Notice. On the Prepayment Date, (A)
the Borrower shall pay to the Agent the aggregate amount necessary to prepay
that portion of the outstanding Tranche B Term Loans and Tranche C Term Loans in
respect of which Tranche B Term Loan Lenders and Tranche C Term Loan Lenders
have accepted prepayment as described above (such Lenders, the "Accepting
Lenders"), and such amount shall be applied to reduce the Tranche B Prepayment
Amounts and the Tranche C Prepayment Amounts, respectively, with respect to each
Accepting Lender and (B) the Borrower shall pay to the Agent an amount equal to
the portion of the Tranche B Prepayment Amount and the Tranche C Prepayment
Amount not accepted by the Accepting Lenders, and such amount shall be applied
to the prepayment of the Tranche A Term Loans.
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35
(e) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Agent, for the account of the
Lenders, at the Payment Office, in Dollars and in immediately available funds.
The Agent shall distribute such payments to the Lenders promptly upon receipt in
like funds as received. If any payment hereunder (other than payments on the
Eurodollar Loans) becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day. If any
payment on a Eurodollar Loan becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(f) Unless the Agent shall have been notified in writing by any
Lender prior to a borrowing that such Lender will not make the amount that would
constitute its share of such borrowing available to the Agent, the Agent may
assume that such Lender is making such amount available to the Agent, and the
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Agent, on demand, such amount with interest thereon at a rate equal to the daily
average Federal Funds Effective Rate for the period until such Lender makes such
amount immediately available to the Agent. A certificate of the Agent submitted
to any Lender with respect to any amounts owing under this Section 2.16(f) shall
be conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Agent by such Lender within three
Business Days of such Borrowing Date, the Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans under the relevant Facility, on demand, from the Borrower.
(g) Unless the Agent shall have been notified in writing by the
Borrower prior to the date of any payment being made hereunder that the Borrower
will not make such payment to the Agent, the Agent may assume that the Borrower
is making such payment, and the Agent may, but shall not be required to, in
reliance upon such assumption, make available to the Lenders their respective
pro rata shares of a corresponding amount. If such payment is not made to the
Agent by the Borrower within three Business Days of such required date, the
Agent shall be entitled to recover, on demand, from each Lender to which any
amount which was made available pursuant to the preceding sentence, such amount
with interest thereon at the rate per annum equal to the daily average Federal
Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the
Agent or any Lender against the Borrower.
2.17 Requirements of Law. (a) If the adoption of or any change in
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
<PAGE>
36
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Letter of Credit, any Application or any
Eurodollar Loan made by it, or change the basis of taxation of payments to
such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.18 and changes in the rate of tax on the overall net income of
such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the actual cost to such
Lender, by an amount which such Lender deems to be material, of making,
converting into, continuing or maintaining Eurodollar Loans or issuing or
participating in Letters of Credit, or to reduce any amount receivable hereunder
in respect thereof, then, in any such case, the Borrower shall promptly pay such
Lender, within 15 days of demand, any additional amounts necessary to compensate
such Lender for such increased cost or reduced amount receivable; provided that
the Borrower shall not be required to compensate a Lender pursuant to this
paragraph for any amounts incurred more than six months prior to the date that
such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the circumstances giving
rise to such claim have a retroactive effect, then such six-month period shall
be extended to include the period of such retroactive effect. If any Lender
becomes entitled to claim any additional amounts pursuant to this Section 2.17,
it shall promptly notify the Borrower (with a copy to the Agent) of the event by
reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Agent) of a
written request therefor, the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender for such reduction; provided
that the Borrower shall not be required to compensate a Lender pursuant to this
paragraph for any amounts incurred more than six months prior to the date that
such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the
<PAGE>
37
circumstances giving rise to such claim have a retroactive effect, then such
six-month period shall be extended to include the period of such retroactive
effect.
(c) Any Lender claiming reimbursement or compensation under this
Section 2.17 shall deliver to the Borrower a certificate (with a copy to the
Agent) setting forth in reasonable detail the basis for such claim and a
calculation of the amount payable to such Lender in connection therewith. Such
certificate shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section 2.17 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Agent or any Lender as a result of a present or
former connection between the Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Agent or such Lender having executed, delivered or performed its obligations
or received a payment under, or enforced, this Agreement or any other Loan
Document). If any such non-excluded taxes, levies, imposts, duties, charges,
fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes are
required to be withheld from any amounts payable to the Agent or any Lender
hereunder, the amounts so payable to the Agent or such Lender shall be increased
to the extent necessary to yield to the Agent or such Lender (after payment of
all Non-Excluded Taxes and Other Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement,
provided, however, that the Borrower shall not be required to increase any such
amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that
are attributable to such Lender's failure to comply with the requirements of
paragraph (d) or (e) of this Section 2.18 or (ii) that are United States
withholding taxes imposed on amounts payable to such Lender at the time the
Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to this Section 2.18(a).
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by
the Borrower, as promptly as possible thereafter the Borrower shall send to the
Agent for the account of the Agent or relevant Lender, as the case may be, a
certified copy of an original official receipt received by the Borrower showing
payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other
Taxes when due to the appropriate taxing authority or fails to remit to the
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Agent and the Lenders for any incremental taxes, interest or
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38
penalties that may become payable by the Agent or any Lender as a result of any
such failure. The agreements in this Section 2.18 shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
deliver to the Borrower and the Agent (or, in the case of a Participant, to the
Lender from which the related participation shall have been purchased) two
copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in
the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding
tax under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest" a statement substantially in the form of Exhibit I and a
Form W-8, or any subsequent versions thereof or successors thereto properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from, or a reduced rate of, U.S. federal withholding tax on all payments by the
Borrower under this Agreement and the other Loan Documents. Such forms shall be
delivered by each Non-U.S. Lender on or before the date it becomes a party to
this Agreement (or, in the case of any Participant, on or before the date such
Participant purchases the related participation). In addition, each Non-U.S.
Lender shall deliver such forms or successors thereto promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this Section 2.18(d), a Non-U.S. Lender shall not be required
to deliver any form pursuant to this Section 2.18(d) that such Non-U.S. Lender
is not legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Agent), at the time or times prescribed by applicable law or reasonably
requested by the Borrower, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate, provided that such Lender is legally entitled
to complete, execute and deliver such documentation and in such Lender's
reasonable judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
2.19 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not
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39
the last day of an Interest Period with respect thereto. Such indemnification
may include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, converted
or continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of such Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Loans provided for herein (excluding, however, the
Applicable Margin included therein, if any) over (ii) the amount of interest (as
reasonably determined by such Lender) which would have accrued to such Lender on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. A certificate as to any
amounts payable pursuant to this Section 2.19 submitted to the Borrower by the
Lender shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
2.20 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.17 or 2.18(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section 2.20 shall
affect or postpone any of the obligations of any Borrower or the rights of any
Lender pursuant to Section 2.17 or 2.18(a).
2.21 Replacement of Lenders under Certain Circumstances. The
Borrower shall be permitted to replace any Lender which requests reimbursement
for amounts owing pursuant to Section 2.17 or 2.18 with a replacement financial
institution; provided that (a) such replacement does not conflict with any
Requirement of Law, (b) no Event of Default shall have occurred and be
continuing at the time of such replacement, (c) prior to any such replacement,
such Lender shall have taken no action under Section 2.20 so as to eliminate the
continued need for payment of amounts owing pursuant to Section 2.17 or 2.18,
(d) the replacement financial institution shall purchase, at par, all Loans and
other amounts owing to such replaced Lender on or prior to the date of
replacement, (e) the Borrower shall be liable to such replaced Lender under
Section 2.19 if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
(f) the replacement financial institution, if not already a Lender, shall be
reasonably satisfactory to the Agent, (g) the replaced Lender shall be obligated
to make such replacement in accordance with the provisions of Section 10.6
(provided that the Borrower shall be obligated to pay the registration and
processing fee referred to therein), (h) until such time as such replacement
shall be consummated, the Borrower shall pay all additional amounts (if any)
required pursuant to Section 2.17 or 2.18, as the case may be, and (i) any such
replacement shall not be deemed to be a waiver of any rights which the Borrower,
the Agent or any other Lender shall have against the replaced Lender.
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40
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
the Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue Letters of Credit for the
account of the Borrower on any Business Day during the Revolving Credit
Commitment Period in such form as may be approved from time to time by the
Issuing Lender; provided that the Issuing Lender shall have no obligation to
issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment, (ii) the L/C Obligations in respect
of all Standby Letters of Credit would exceed $20,000,000, (iii) the L/C
Obligations in respect of all Trade Letters of Credit would exceed $5,000,000 or
(iv) the aggregate amount of the Available Revolving Credit Commitments would be
less than zero. Each Letter of Credit shall (i) be denominated in Dollars and
(ii) expire no later than the earlier of (x) the first anniversary of its date
of issuance and (y) the date which is 30 days prior to the Revolving Credit
Termination Date, provided that any Standby Letter of Credit with a one-year
term may provide for the renewal thereof for additional one-year periods (which
shall in no event extend beyond the date referred to in clause (y) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Agent, which shall in turn promptly
furnish to the Lenders, notice of the issuance of each Letter of Credit
(including the amount thereof).
3.3 Commissions, Fees and Other Charges. (a) The Borrower will pay a
commission on the undrawn amount of all outstanding Letters of Credit at a per
annum rate equal to the Applicable Margin then in effect with respect to
Eurodollar Loans under the Revolving Credit Facility, shared ratably among the
Revolving Credit Lenders and payable
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41
quarterly in arrears on each L/C Fee Payment Date after the issuance date. In
addition, the Borrower shall pay to the Issuing Lender for its own account a
fronting fee of 1/4 of 1% per annum, payable quarterly in arrears on each L/C
Fee Payment Date after the Issuance Date.
(b) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Issuing Lender for such normal and customary costs
and expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage of the amount of such draft,
or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans under the Revolving Credit Facility. A certificate of
the Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account
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42
thereof, the Issuing Lender will distribute to such L/C Participant its pro rata
share thereof; provided, however, that in the event that any such payment
received by the Issuing Lender shall be required to be returned by the Issuing
Lender, such L/C Participant shall return to the Issuing Lender the portion
thereof previously distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States of America and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Section from the date such amounts become payable (whether
at stated maturity, by acceleration or otherwise) until the date that is two
Business Days after such draft is so paid at the rate set forth in Section
2.13(b) and thereafter until payment in full at the rate set forth in Section
2.13(c). Each drawing under any Letter of Credit shall (unless an event of the
type described in clause (i) or (ii) of Section 8(f) shall have occurred and be
continuing with respect to the Borrower, in which case the procedures specified
in Section 3.4 for funding by L/C Participants shall apply) constitute a request
by the Borrower to the Agent for a borrowing pursuant to Section 2.5 of ABR
Loans in the amount of such drawing. The Borrowing Date with respect to such
borrowing shall be the date of such drawing.
3.6 Obligations Absolute. The Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions that resulted from the gross negligence or willful misconduct of the
Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date
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43
and amount thereof. The responsibility of the Issuing Lender to the Borrower in
connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are substantially in conformity with such Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans and issue or participate in the Letters of Credit, the
Borrower hereby represents and warrants to the Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at September
28, 1997 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies
of which have heretofore been furnished to each Lender, has been prepared giving
effect (as if such events had occurred on such date) to (i) the consummation of
the Recapitalization, (ii) the use of proceeds of the Loans to be made, and the
Senior Notes and Common Stock to be issued, on the Closing Date and (iii) the
payment of fees and expenses in connection with the foregoing. The Pro Forma
Balance Sheet has been prepared based on the best information available to the
Borrower as of the date of delivery thereof, and presents fairly on a pro forma
basis the estimated financial position of Borrower and its consolidated
Subsidiaries as at September 28, 1997, assuming that the events specified in the
preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at January 1, 1995, December 31, 1995 and December
29, 1996, and the related consolidated statements of income and of cash flows
for the fiscal years ended on such dates, reported on by and accompanied by an
unqualified report from Arthur Andersen LLP, present fairly the consolidated
financial condition of the Borrower and its consolidated Subsidiaries as at such
dates, and the consolidated results of its operations and its consolidated cash
flows for the respective fiscal years then ended. The unaudited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at September
28, 1997, and the related unaudited consolidated statements of income and cash
flows for the nine-month period ended on such date, present fairly the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of its operations and
its consolidated cash flows for the nine-month period then ended (subject to
normal year-end audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and disclosed therein). The Borrower and its
Subsidiaries do not have any material Guarantee Obligations, contingent
liabilities and
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44
liabilities for taxes, or any long-term leases or unusual forward or long-term
commitments, including, without limitation, any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, which are not reflected in the most recent financial statements
referred to in this paragraph (b). During the period from December 29, 1996 to
and including the date hereof there has been no Disposition by the Borrower or
any of its consolidated Subsidiaries of any material part of its business or
Property, other than its sale of Properties to DavCo Restaurants, Inc. on July
14, 1997.
4.2 No Change. Since September 28, 1997 there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Borrower
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law, except, in the case of clauses (b), (c) and (d), to the extent that the
failure to do so could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Recapitalization and the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents, except (i) consents, authorizations, filings and
notices described in Schedule 4.4, which consents, authorizations, filings and
notices have been obtained or made and are in full force and effect and (ii) the
filings referred to in Section 4.19. Each Loan Document has been duly executed
and delivered on behalf of each Loan Party thereto. This Agreement constitutes,
and each other Loan Document upon execution will constitute, a legal, valid and
binding obligation of each Loan Party thereto, enforceable against each such
Loan Party in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
4.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any
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45
Contractual Obligation of the Borrower or any of its Subsidiaries and will not
result in, or require, the creation or imposition of any Lien on any of their
respective properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).
No Requirement of Law or Contractual Obligation applicable to the Borrower or
any of its Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
4.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of their respective properties or revenues
(a) with respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby or (b) as to which there is a reasonable
possibility of an adverse determination and which could reasonably be expected
to have a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is
in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and each of
its Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its Real Property, and good title to, or a valid leasehold interest in, all
its other Property, except for such defects in title as could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect,
and none of such Property is subject to any Lien except as permitted by Section
7.3. The Borrower has previously furnished to the Agent a list of all Real
Property and such list, and the information set forth thereon, is true and
complete in all material respects.
4.9 Intellectual Property. Each of the Borrower and each of its
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted, except for such
Intellectual Property the failure to so own or be licensed to use could not
reasonably be expected to have a Material Adverse Effect. To the Borrower's
knowledge, no material claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any Intellectual Property, nor does Borrower know of any
valid basis for any such claim. To the Borrower's knowledge, the use of
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person in any material respect.
4.10 Taxes. Each of the Borrower and each of its Subsidiaries has
filed or caused to be filed all federal, state and other material tax returns
which are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
Property and all other taxes, fees or other charges imposed on it or any of its
Property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided
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46
on the books of the Borrower or its Subsidiaries, as the case may be); no tax
Lien has been filed, and, to the knowledge of the Borrower, no claim is being
asserted, with respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U as now
and from time to time hereafter in effect or for any purpose which violates the
provisions of such Regulations of the Board. If requested by any Lender or the
Agent, the Borrower will furnish to the Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form G-3 or FR Form
U-1 referred to in Regulation G or Regulation U, as the case may be.
4.12 Labor Matters. There are no strikes or other labor disputes
against the Borrower or any of its Subsidiaries pending or, to the knowledge of
the Borrower, threatened that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. Hours worked by and
payment made to employees of the Borrower and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. All payments due from
the Borrower or any of its Subsidiaries on account of employee health and
welfare insurance that (individually or in the aggregate) could reasonably be
expected to have a Material Adverse Effect if not paid have been paid or accrued
as a liability on the books of the Borrower or the relevant Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to
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47
regulation under any Requirement of Law (other than Regulation X of the Board)
which limits its ability to incur Indebtedness.
4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15
constitute all the Subsidiaries of the Borrower at the date hereof.
4.16 Use of Proceeds. The proceeds of the Term Loans, together with
the proceeds of the Offerings, shall be used to purchase, indirectly through
Societe Generale, from the Existing Lenders the Assigned Loans, to repay all
remaining outstanding obligations under the Existing Credit Facility and to pay
related fees and expenses. The proceeds of the Revolving Credit Loans and the
Letters of Credit shall be used for general corporate purposes.
4.17 Environmental Matters.
(a) The facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do not contain, and to
the Borrower's knowledge have not previously contained, any Materials of
Environmental Concern in amounts or concentrations or under circumstances which
(i) constitute or constituted a violation of, or (ii) could give rise to
liability under, any Environmental Law, except in either case insofar as such
violation or liability, or any aggregation thereof, could not reasonably be
expected to result in the payment of a Material Environmental Amount.
(b) The Properties and all operations at the Properties are in
material compliance, and have to the Borrower's knowledge in the last five years
been in material compliance, with all applicable Environmental Laws, and to the
Borrower's knowledge there is no contamination at, under or about the Properties
or violation of any Environmental Law with respect to the Properties or the
business operated by the Borrower or any of its Subsidiaries (the "Business")
which to the Borrower's knowledge could materially interfere with the continued
operation of the Properties or materially impair the fair saleable value
thereof. Neither the Borrower nor any of its Subsidiaries has assumed any
material liability of any other Person under Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has received or
is aware of any written notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or compliance
with Environmental Laws with regard to any of the Properties or the Business,
nor does the Borrower have knowledge or reason to believe that any such notice
will be received or is being threatened, except insofar as such notice or
threatened notice, or any aggregation thereof, does not involve a matter or
matters that could reasonably be expected to result in the payment of a Material
Environmental Amount.
(d) Materials of Environmental Concern have not to the Borrower's
knowledge been transported or disposed of from the Properties in violation of,
or in a manner or to a location which could give rise to liability under, any
Environmental Law, nor to the Borrower's knowledge have any Materials of
Environmental Concern been generated, treated, stored or disposed of at, on or
under any of the Properties in violation of, or in a manner that
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48
could give rise to liability under, any applicable Environmental Law, except
insofar as any such violation or liability referred to in this paragraph, or any
aggregation thereof, could not reasonably be expected to result in the payment
of a Material Environmental Amount.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be named as
a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Properties or the Business, except insofar
as such proceeding, action, decree, order or other requirement, or any
aggregation thereof, could not reasonably be expected to result in the payment
of a Material Environmental Amount.
(f) To the Borrower's knowledge, there has been no release or threat
of release of Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of the Borrower or any Subsidiary in
connection with the Properties or otherwise in connection with the Business, in
violation of or in amounts or in a manner that could give rise to liability
under Environmental Laws, except insofar as any such violation or liability
referred to in this paragraph, or any aggregation thereof, could not reasonably
be expected to result in the payment of a Material Environmental Amount.
4.18 Accuracy of Information, etc. No statement or information
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum or any other document, certificate or statement furnished
to the Agent or the Lenders or any of them, by or on behalf of any Loan Party
for use in connection with the transactions contemplated by this Agreement or
the other Loan Documents, contained as of the date such statement, information,
document or certificate was so furnished, considering each in the context in
which it was made and taken as a whole with all other statements and information
provided, any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which made, not misleading; provided that the
Borrower's representation and warranty as to the projections and pro forma
financial information contained in the materials referenced above is based upon
good faith estimates and assumptions believed by management of the Borrower to
be reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as
fact, that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount and that no assurance can be given that such projected results
will be realized. There is no fact known to any Loan Party that could reasonably
be expected to have a Material Adverse Effect that has not been expressly
disclosed herein, in the other Loan Documents, in the Confidential Information
Memorandum or in any other documents, certificates and statements furnished to
the Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
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49
4.19 Security Documents. (a) The Guarantee and Collateral Agreement
is effective to create in favor of the Agent, for the benefit of the Lenders, a
legal, valid and enforceable security interest in the Collateral described
therein and proceeds thereof. In the case of the Pledged Stock described in the
Guarantee and Collateral Agreement, when stock certificates representing such
Pledged Stock are delivered to the Agent, and in the case of the other
Collateral described in the Guarantee and Collateral Agreement, when financing
statements in appropriate form are filed in the offices specified on Schedule
4.19(a), the Guarantee and Collateral Agreement shall constitute a fully
perfected, first priority (subject to Section 4.3(b) of the Guarantee and
Collateral Agreement) Lien on, and security interest in, all right, title and
interest of the Loan Parties in such Collateral and the proceeds thereof, as
security for the Obligations (as defined in the Guarantee and Collateral
Agreement).
(b) Each of the Mortgages is effective to create in favor of the
Agent, for the benefit of the Lenders, a legal, valid and enforceable Lien on
the Mortgaged Properties described therein and proceeds thereof, and when the
Mortgages are filed in the offices specified on Schedule 4.19(b), each such
Mortgage shall constitute a fully perfected, first priority (subject to Section
4.3(b) of the Guarantee and Collateral Agreement) Lien on, and security interest
in, all right, title and interest of the Loan Parties in the Mortgaged
Properties and the proceeds thereof, as security for the Obligations (as defined
in the relevant Mortgage).
4.20 Solvency. Each Loan Party is, and after giving effect to the
Recapitalization and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be, Solvent.
4.21 Regulation H. No Mortgage encumbers improved Real Property
which is located in an area that has been identified by the Secretary of Housing
and Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of
1968.
4.22 Material Contracts. Set forth on Schedule 4.22 is a complete
list as of the date hereof of all material agreements, instruments and
undertakings to which the Borrower or any of its Subsidiaries is a party or by
which any of their respective Properties are bound.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Borrower, (ii) the Guarantee and Collateral Agreement, executed and
delivered by a duly authorized officer of the Borrower and each Guarantor,
(iii) Mortgages covering each of the Mortgaged Properties, each executed
and delivered by a duly authorized officer of each party
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50
thereto, and (iv) for the account of each relevant Lender, Notes
conforming to the requirements hereof and executed and delivered by a duly
authorized officer of the Borrower.
(b) Offerings. Each of the Offerings shall have been consummated, in
each case on terms and conditions reasonably satisfactory to the Lenders,
for gross cash proceeds of at least $275,000,000 of which not less than
$75,000,000 shall consist of the gross cash proceeds from the Common Stock
Offering.
(c) Approvals. All governmental and third party approvals (including
landlords' and other consents) necessary in connection with the
Recapitalization, the continuing operations of the Borrower and its
Subsidiaries and the transactions contemplated hereby shall have been
obtained and be in full force and effect, and 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 Recapitalization or the financing contemplated
hereby.
(d) Related Agreements. The Agent shall have received (in a form
reasonably satisfactory to it), with a copy for each Lender, true and
correct copies, certified as to authenticity by the Borrower, of the
Senior Note Indenture and such other documents or instruments as may be
reasonably requested by the Agent, including, without limitation, a copy
of any other debt instrument, security agreement or other material
contract to which the Loan Parties may be a party.
(e) Existing Credit Facility. The Agent shall have received evidence
satisfactory to it that all amounts owing under the Existing Credit
Facility shall have been paid in full and/or assigned, indirectly through
Societe Generale, to the Lenders and arrangements satisfactory to the
Agent shall have been made for the termination of Liens and security
interests granted in connection therewith.
(f) Fees. The Lenders and the Agent shall have received all fees
required to be paid, and all expenses for which invoices have been
presented, on or before the Closing Date.
(g) Business Plan. The Lenders shall have received a satisfactory
business plan for fiscal years 1997 through 2002 and a satisfactory
written analysis of the business and prospects of the Borrower and its
Subsidiaries for the period from the Closing Date through December 31,
2002.
(h) Solvency Analysis. The Lenders shall have received a reasonably
satisfactory solvency analysis certified by the chief financial officer of
the Borrower which shall document the solvency of the Borrower and its
Subsidiaries considered as a whole after giving effect to the transactions
contemplated hereby.
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51
(i) Budget. The Lenders shall have received a budget for the
Borrower and its Subsidiaries for the 1998 fiscal year.
(j) Lien Searches. The Agent shall have received the results of a
recent lien search in each of the jurisdictions where assets of the Loan
Parties are located, and such search shall reveal no liens on any of the
assets of the Borrower or its Subsidiaries except for liens permitted by
Section 7.3 and liens to be terminated on the Closing Date.
(k) Expenses. The Agent shall have received satisfactory evidence
that the fees and expenses to be incurred in connection with the
Recapitalization and the financing thereof shall not exceed $25,000,000.
(l) Closing Certificate. The Agent shall have received, with a
counterpart for each Lender, a certificate of each Loan Party, dated the
Closing Date, substantially in the form of Exhibit C, with appropriate
insertions and attachments.
(m) Legal Opinions. The Agent shall have received the following
executed legal opinions:
(i) the legal opinion of Mayer, Brown & Platt, special
counsel to the Borrower and its Subsidiaries, substantially in the
form of Exhibit F-1;
(ii) the legal opinion of Larry W. Browne, Esq., General
Counsel of the Borrower and its Subsidiaries, substantially in the
form of Exhibit F-2;
(iii) the legal opinion of Choate, Hall & Stewart, special
Massachusetts counsel to the Borrower and its Subsidiaries,
substantially in the form of Exhibit F-3; and
(iv) to the extent consented to by the relevant counsel,
each legal opinion, if any, delivered in connection with the
Offerings accompanied by a reliance letter in favor of the Lenders.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent may reasonably
require.
(n) Pledged Stock; Stock Powers. The Agent shall have received the
certificates representing the shares of Capital Stock pledged pursuant to
the Guarantee and Collateral Agreement, together with an undated stock
power for each such certificate executed in blank by a duly authorized
officer of the pledgor thereof.
(o) Filings, Registrations and Recordings. The Agent shall have
received each document (including, without limitation, any Uniform
Commercial Code financing statement) required by the Security Documents or
under law or reasonably requested by the Agent to be filed, registered or
recorded in order to create in favor of the
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52
Agent, for the benefit of the Lenders, a perfected Lien on the Collateral
described therein, prior and superior in right to any other Person
(subject to Section 4.3(b) of the Guarantee and Collateral Agreement), in
proper form for filing, registration or recordation.
(p) Mortgages, etc. (i) The Agent shall have received, and the title
insurance company issuing the policy referred to in Section 5.1(p)(ii)
(the "Title Insurance Company") shall have received to the extent
reasonably requested by the Agent, maps or plats of a survey (in a form
reasonably satisfactory to the Agent) of the sites of the Mortgaged
Properties listed on Schedule 5.1(p) (the "Major Mortgaged Properties")
certified to the Agent and the Title Insurance Company in a manner
satisfactory to them, dated a date satisfactory to the Agent and the Title
Insurance Company by an independent professional licensed land surveyor
satisfactory to the Agent and the Title Insurance Company.
(ii) The Agent shall have received in respect of each Major
Mortgaged Property a mortgagee's title insurance policy (or policies) or
marked up unconditional binder for such insurance. Each such policy shall
(A) be in an amount equal to the fair market value of such Major Mortgaged
Property; (B) be issued at ordinary rates; (C) insure that the Mortgage
insured thereby creates a valid first Lien on such Major Mortgaged
Property free and clear of all defects and encumbrances, except as
disclosed therein; (D) name the Agent for the benefit of the Lenders as
the insured thereunder; (E) be in the form of 1992 ALTA Loan Policy (or
equivalent policies); (F) contain such endorsements and affirmative
coverage as the Agent may reasonably request; and (G) be issued by title
companies satisfactory to the Agent (including any such title companies
acting as co-insurers or reinsurers, at the option of the Agent). The
Agent shall have received evidence satisfactory to it that all premiums in
respect of each such policy, all charges for mortgage recording tax, and
all related expenses, if any, have been paid.
(iii) If reasonably requested by the Agent, the Agent shall have
received (A) a policy of flood insurance which (1) covers any parcel of
improved Real Property located in a flood hazard zone and which is
encumbered by any Mortgage, (2) is written in an amount not less than the
outstanding principal amount of the indebtedness secured by such Mortgage
which is reasonably allocable to such Real Property or the maximum limit
of coverage made available with respect to the particular type of property
under the National Flood Insurance Act of 1968, whichever is less, and (3)
has a term ending not later than the maturity of the Indebtedness secured
by such Mortgage; and (B) confirmation that the Borrower has received the
notice required pursuant to Section 208(e)(3) of Regulation H of the
Board.
(iv) The Agent shall have received a copy of all recorded documents
referred to, or listed as exceptions to title in, the title policy or
policies referred to in Section 5.1(p)(ii).
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53
(q) Insurance. The Agent shall have received insurance certificates
satisfying the requirements of Section 6.5.
(r) Appraisals. The Agent shall have received and be satisfied with
the form and content of asset appraisal reports with respect to the
Property owned by the Borrower and its Subsidiaries.
5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. The representations and
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date, except for representations and
warranties expressly stated to relate to a specific earlier date, in which
case such representations and warranties shall continue to be true and
correct in all material respects as of such earlier date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain
in effect, any Letter of Credit remains outstanding or any Loan or other amount
is owing to any Lender or the Agent hereunder, the Borrower shall and shall
cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Agent for delivery to each
Lender (and the Agent agrees to make and so deliver such copies):
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related audited
consolidated statements of income and of cash flows for such year, setting
forth in each case in comparative form the figures for the previous year,
reported on without a "going concern" or like qualification or exception,
or qualification arising out of the scope of the audit, by Arthur Andersen
LLP or other independent certified public accountants of nationally
recognized standing; and
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54
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and of cash
flows for such quarter and the portion of the fiscal year through the end
of such quarter, setting forth in each case in comparative form the
figures for the previous year, certified by an Authorized Signatory as
being fairly stated in all material respects (subject to normal year-end
audit adjustments); and
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein). Notwithstanding the foregoing, it is understood and
agreed that so long as the Borrower is required to file Forms 10-K and 10-Q (or
any successor forms) with the Securities and Exchange Commission (or any
successor agency), the Borrower may deliver copies of such Forms with respect to
the relevant time periods in lieu of the deliveries specified in Sections 6.1(a)
and (b).
6.2 Certificates; Other Information. Furnish to the Agent for
delivery to each Lender (and the Agent agrees to make and so deliver such
copies) or, in the case of clause (h), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of an Authorized Signatory
stating that, to the best of such Authorized Signatory's knowledge, each
Loan Party during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained
in this Agreement and the other Loan Documents to which it is a party to
be observed, performed or satisfied by it, and that such Authorized
Signatory has obtained no knowledge of any Default or Event of Default
except as specified in such certificate and (ii) in the case of quarterly
or annual financial statements, (x) a Compliance Certificate containing
all information necessary for determining compliance by the Borrower and
its Subsidiaries with the provisions of this Agreement referred to therein
as of the last day of the fiscal quarter or fiscal year of the Borrower,
as the case may be, and (y) to the extent not previously disclosed to the
Agent, a listing of any county or state within the United States where any
Loan Party keeps inventory or equipment and of any Intellectual Property
acquired by any Loan Party since the date of the most recent list
delivered pursuant to this clause (y) (or, in the case of the first such
list so delivered, since the Closing Date);
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55
(c) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of the
following fiscal year, and the related consolidated statements of
projected cash flow, projected changes in financial position and projected
income), and, as soon as available, significant revisions, if any, of such
budget and projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
certificate of an Authorized Signatory stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Authorized Signatory has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition
and results of operations of the Borrower 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, as compared to the portion
of the Projections covering such periods and to the comparable periods of
the previous year;
(e) without limiting the provisions of Section 7.9, no later than
ten Business Days prior to the effectiveness thereof, copies of
substantially final drafts of any proposed amendment, supplement, waiver
or other modification with respect to the Senior Note Indenture;
(f) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to the holders
of any class of its debt securities or public equity securities and within
five days after the same are filed, copies of all financial statements and
reports which the Borrower may make to, or file with, the Securities and
Exchange Commission or any successor or analogous Governmental Authority;
(g) within ten days of receipt, copies of any management letter
issued or provided by the auditors of the Borrower or any Subsidiary; and
(h) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. (a) Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, all
its material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be, and (b) pay
when due all real estate taxes, assessments and other charges assessed or levied
against any Real Property.
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56
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
Preserve, renew and keep in full force and effect its corporate existence and
(ii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (ii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; (b) comply with all Contractual
Obligations and Requirements of Law (including, without limitation, those
relating to Real Property) except to the extent that failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all Property useful
and necessary in its business (including, without limitation, all Real Property)
in good working order and condition, ordinary wear and tear excepted.
(b) Maintain with financially sound and reputable insurance
companies insurance on all its Property (including, without limitation, all
Inventory, Equipment and Vehicles) in at least such amounts and against at least
such risks (but including in any event fire, explosion, theft, such other
casualties as may be reasonably requested by the Agent, public liability,
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business, it
being understood that dealings with RIC in accordance with past practice shall
not cause this Section 6.5 to be breached, and insuring the Borrower, its
Subsidiaries, the Agent and each Lender against liability for personal injury
and property damage relating to such Property.
(c) With respect to all Real Property, maintain casualty insurance
in an amount equal to "full replacement value", covering risks customarily
insured against in the prudent operation of a similar business.
(d) All such insurance shall (i) name the Agent as insured party,
loss payee or mortgagee, (ii) provide that 30 days' notice will be given to the
Agent for any cancellation, material reduction in amount, material change in
coverage or other modification, (iii) if reasonably requested by the Agent,
include a breach of warranty clause and (iv) be reasonably satisfactory in all
other respects to the Agent.
(e) The Borrower shall deliver to the Agent and the Lenders a
certificate of a reputable insurance broker with respect to such insurance on an
annual basis upon policy renewal and such supplemental reports with respect
thereto as the Agent may from time to time reasonably request.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time during normal business hours and upon reasonable advance notice to the
Borrower and as often as may reasonably be desired and to discuss the business,
operations,
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57
properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants; provided, however, that
(i) the Agent and each Lender agree to use reasonable efforts to coordinate
their visits and inspections so as not to be unreasonably burdensome to the
Borrower and (ii) any discussions between a Lender or the Agent and the
Borrower's accountants shall be with the right of a representative of the
Borrower to be in attendance.
6.7 Notices. Promptly give notice to the Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding which, if adversely determined,
could result in a liability to the Borrower or any of its Subsidiaries of
$1,000,000 or more and not covered by insurance or in which injunctive or
similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof: (i)
the occurrence of any Reportable Event with respect to any Plan, a failure
to make any required contribution to a Plan, the creation of any Lien in
favor of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC
or the Borrower or any Commonly Controlled Entity or any Multiemployer
Plan with respect to the withdrawal from, Reorganization or Insolvency of,
or termination under circumstances to which the provisions of Section
4041(c) of ERISA apply of, any Plan; and
(e) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
an Authorized Signatory setting forth details of the occurrence referred to
therein and stating what action the Borrower or the relevant Subsidiary proposes
to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with,
and ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
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58
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Interest Rate Protection. In the case of the Borrower, within 60
days after the Closing Date, enter into Interest Rate Protection Agreements to
the extent necessary to provide that at least 50% of the aggregate principal
amount of outstanding Loans and Letters of Credit is subject to either a fixed
interest rate or interest rate protection for a period of not less than two
years, which Interest Rate Protection Agreements shall have terms and conditions
reasonably satisfactory to the Agent.
6.10 Additional Collateral, etc. (a) With respect to any Property
acquired after the Closing Date by the Borrower or any of its Subsidiaries other
than RIC and Excluded Foreign Subsidiaries (other than (x) any Property
described in paragraph (b), (c) or (d) below and (y) any Property subject to a
Lien expressly permitted by Section 7.3(g)) as to which the Agent, for the
benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and
deliver to the Agent such amendments to the Guarantee and Collateral Agreement
or such other documents as the Agent deems necessary or advisable in order to
grant to the Agent, for the benefit of the Lenders, a security interest in such
Property and (ii) take all actions necessary or advisable to grant to the Agent,
for the benefit of the Lenders, a perfected security interest in such Property,
including without limitation, the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Agent.
(b) With respect to any fee interest or leasehold interest in any
real estate having a value (together with improvements thereof) of at least
$100,000 acquired after the Closing Date by the Borrower or any of its
Subsidiaries other than RIC and Excluded Foreign Subsidiaries (other than any
such real estate subject to a Lien expressly permitted by Section 7.3(g)),
promptly (i) execute and deliver a Mortgage in favor of the Agent, for the
benefit of the Lenders, covering such real estate, (ii) if such value is in
excess of $1,000,000, provide the Lenders with (x) title and extended coverage
insurance covering such real estate in an amount at least equal to the purchase
price of such real estate (or such other amount as shall be reasonably specified
by the Agent) as well as a current ALTA survey thereof, together with a
surveyor's certificate and (y) any consents or estoppels reasonably deemed
necessary or advisable by the Agent in connection with such mortgage or deed of
trust, each of the foregoing in form and substance reasonably satisfactory to
the Agent, and (iii) if requested by the Agent, deliver to the Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired by the Borrower or any of its
Subsidiaries after the Closing Date (which, for the purposes of this paragraph
(c), shall include any existing Subsidiary that ceases to be an Excluded Foreign
Subsidiary), promptly (i) execute and deliver to the Agent such amendments to
the Guarantee and Collateral Agreement as the Agent deems necessary
<PAGE>
59
or advisable in order to grant to the Agent, for the benefit of the Lenders, a
perfected first priority security interest in the Capital Stock of such new
Subsidiary which is owned by the Borrower or any of its Subsidiaries, (ii)
deliver to the Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such
new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement
and (B) to take such actions necessary or advisable to grant to the Agent for
the benefit of the Lenders a perfected first priority security interest in the
Collateral described in the Guarantee and Collateral Agreement with respect to
such new Subsidiary, including, without limitation, the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be required by
the Guarantee and Collateral Agreement or by law or as may be requested by the
Agent, and (iv) if requested by the Agent, deliver to the Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by the Borrower or any of its Subsidiaries,
promptly (i) execute and deliver to the Agent such amendments to the Guarantee
and Collateral Agreement as the Agent deems necessary or advisable in order to
grant to the Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock of such new Subsidiary which is owned by
the Borrower or any of its Subsidiaries (other than Excluded Foreign
Subsidiaries) (provided that in no event shall more than 65% of the total
outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), (ii) deliver to the Agent the certificates representing such Capital
Stock, together with undated stock powers, in blank, executed and delivered by a
duly authorized officer of the Borrower or such Subsidiary, as the case may be,
and take such other actions as may be necessary or, in the opinion of the Agent,
desirable to perfect the Lien thereon, and (iii) if requested by the Agent,
deliver to the Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Agent.
6.11 Mortgage Recording Taxes. The Borrower shall pay all taxes and
other charges imposed by any Governmental Authority or by any Requirement of Law
in connection with the recording or filing of any of the Mortgages, which taxes
and charges shall be paid when due or when assessed or requested by such
Governmental Authority.
6.12 Leased Properties. (a) With respect to any Real Property of the
Borrower (other than Real Property located in the State of Maryland) for which
Mortgages are not delivered on the Closing Date and for which the Borrower
leases the land and has constructed and owns the improvements thereon, the
Borrower shall use commercially reasonable efforts (i) to provide to the Agent
all required consents and fulfill all other requirements reasonably deemed
necessary or advisable by the Agent to grant to the Agent, for the benefit of
the Lenders, a Lien on such Real Property and (ii) to execute and deliver a
Mortgage in favor of the Agent, for the benefit of the Lenders, covering such
Real Property.
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60
(b) The Borrower shall furnish to the Agent (i) within 30 days after
the Closing Date, copies of all leases covering Real Property of the Borrower,
(ii) within 15 days after the effectiveness thereof, copies of any lease with
respect to any leasehold interest in real estate acquired by the Borrower or any
of its Subsidiaries after the Closing Date and (iii) within 15 days after the
effectiveness thereof, copies of any amendment, supplement, waiver or other
modification with respect to any lease referred to in the foregoing clauses (i)
and (ii).
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain
in effect, any Letter of Credit remains outstanding or any Loan or other amount
is owing to any Lender or the Agent hereunder, the Borrower shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
Ratio as at the last day of any period of four consecutive fiscal quarters of
the Borrower (or, if less, the number of full fiscal quarters subsequent to the
Closing Date) ending with any fiscal quarter set forth below to exceed the ratio
set forth below opposite such fiscal quarter:
Consolidated
Fiscal Quarter Leverage Ratio
-------------- --------------
Fiscal quarters from and including fourth
quarter of fiscal 1997 through and including
third quarter of fiscal 1998 4.75 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 1998 through and including
third quarter of fiscal 1999 4.25 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 1999 through and including
third quarter of fiscal 2000 4.00 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2000 through and including
third quarter of fiscal 2001 3.50 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2001 through and including
third quarter of fiscal 2002 3.00 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2002 through and including
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61
third quarter of fiscal 2003 2.50 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2003 through and including
third quarter of fiscal 2004 2.25 to 1.00
Fourth fiscal quarter of fiscal 2004 and all
fiscal quarters thereafter 2.00 to 1.00;
provided that, for purposes of determining the ratio described above for the
first three fiscal quarters of the Borrower following the Closing Date,
Consolidated EBITDA for each of the first three fiscal quarters of 1997 shall be
deemed to be the respective amounts set forth on Schedule 7.1.
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower (or, if less, the number of full fiscal quarters subsequent to the
Closing Date) ending with any fiscal quarter set forth below to be less than the
ratio set forth below opposite such fiscal quarter:
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- ---------------------
Fiscal quarters from and including fourth
quarter of fiscal 1997 through and including
third quarter of fiscal 1998 1.50 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 1998 through and including
third quarter of fiscal 1999 1.60 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 1999 through and including
third quarter of fiscal 2000 1.80 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2000 through and including
third quarter of fiscal 2001 2.20 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2001 through and including
third quarter of fiscal 2002 2.50 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2002 through and including
third quarter of fiscal 2003 2.90 to 1.00
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62
Fourth fiscal quarter of fiscal 2003 and all
fiscal quarters thereafter 3.50 to 1.00;
provided that, for purposes of determining the ratio described above for the
first three fiscal quarters of the Borrower following the Closing Date,
Consolidated EBITDA, Consolidated Cash Interest Expense and cash income taxes
for each of the first three fiscal quarters of 1997 shall be deemed to be the
respective amounts set forth on Schedule 7.1.
(c) Consolidated Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters
subsequent to the Closing Date) ending with any fiscal quarter set forth below
to be less than the ratio set forth below opposite such fiscal quarter:
Consolidated Fixed
Fiscal Quarter Charge Coverage Ratio
-------------- ---------------------
Fiscal quarters from and including fourth
quarter of fiscal 1997 through and including
third quarter of fiscal 1998 1.40 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 1998 through and including
third quarter of fiscal 2000 1.50 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2000 through and including
third quarter of fiscal 2001 1.60 to 1.00
Fiscal quarters from and including fourth
quarter of fiscal 2001 through and including
third quarter of fiscal 2002 1.75 to 1.00
Fourth fiscal quarter of fiscal 2002 and all
fiscal quarters thereafter 2.00 to 1.00;
provided that, for purposes of determining the ratio described above for the
first three fiscal quarters of the Borrower following the Closing Date,
Consolidated EBITDA, Consolidated Cash Interest Expense, cash income taxes and
the other components of Consolidated Fixed Charges for each of the first three
fiscal quarters of 1997 shall be deemed to be the respective amounts set forth
on Schedule 7.1.
(d) Maintenance of Net Worth. Permit Consolidated Net Worth as of
the last day of any fiscal quarter of the Borrower ending during any fiscal year
set forth below to be less than the amount set forth below opposite such fiscal
year:
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63
Fiscal Quarter Consolidated
-------------- ------------
Net Worth
---------
Fiscal quarters from and including
fourth quarter of fiscal 1997
through and including third
quarter of fiscal 1998 ($95,000,000)
Fiscal quarters from and including
fourth quarter of fiscal 1998
through and including third
quarter of fiscal 1999 ($87,000,000)
Fiscal quarters from and including
fourth quarter of fiscal 1999
through and including third
quarter of fiscal 2000 ($77,000,000)
Fiscal quarters from and including
fourth quarter of fiscal 2000
through and including third
quarter of fiscal 2001 ($63,000,000)
Fiscal quarters from and including
fourth quarter of fiscal 2001
through and including third
quarter of fiscal 2002 ($39,000,000)
Fiscal quarters from and including
fourth quarter of fiscal 2002
through and including third
quarter of fiscal 2003 ($5,000,000)
Fiscal quarters from and including
fourth quarter of fiscal 2003
through and including third
quarter of fiscal 2004 $24,000,000
Fiscal quarters from and including
fourth quarter of fiscal 2004
through and including third
quarter of fiscal 2005 $63,000,000
Fourth fiscal quarter of fiscal
2005 and all fiscal quarters
thereafter $112,000,000
7.2 Limitation on Indebtedness and Disqualified Stock. Create,
incur, assume or suffer to exist (in each case, to "Incur") any Indebtedness or
issue Disqualified Stock, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness (i) of the Borrower to any Subsidiary, (ii) of any
Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary
and (iii) to the extent permitted by Section 7.8(h), of any Subsidiary
that is not a Guarantor to the Borrower or any other Subsidiary;
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64
(c) Indebtedness of the Borrower or any of its Subsidiaries incurred
to finance the acquisition, construction or improvement of fixed or
capital assets, in an aggregate principal amount at any one time
outstanding not to exceed $15,000,000, provided that such Indebtedness is
incurred within 180 days after the date of such acquisition, construction
or improvement and does not exceed the fair market value of such acquired,
constructed or improved assets as determined in good faith by the
Borrower's Board of Directors;
(d) Indebtedness represented by Capital Lease Obligations in respect
of Sale/Leaseback Transactions involving the sale of restaurants within 24
months of the purchase of the associated real property, in an aggregate
principal amount not to exceed $20,000,000 at any one time outstanding;
(e) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(e) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof);
(f) guarantees made in the ordinary course of business by the
Borrower or any of its Subsidiaries of obligations of any Subsidiary of
the Borrower, provided that, in the case of any guarantee of obligations
of any Subsidiary that is not a Guarantor, such guarantee is permitted by
Section 7.8(h);
(g) guarantees made in the ordinary course of business by the
Borrower or any of its Subsidiaries of Indebtedness of franchisees of the
Borrower or any Wholly Owned Subsidiary Guarantor in an aggregate
principal amount at any one time outstanding not to exceed $20,000,000;
(h) Indebtedness incurred by the Borrower or any of its Subsidiaries
to finance the payment of property, casualty and specialty insurance
premiums in the ordinary course of the Borrower's business which is repaid
within 18 months of its incurrence, provided that such Indebtedness does
not exceed $7,500,000 in the aggregate at any one time outstanding;
(i) Indebtedness represented by guarantees of loans to employees of
the Borrower or any of its Subsidiaries for the purpose of paying
withholding taxes incurred by such employees in connection with the
vesting of stock and/or stock options granted by the Borrower, in an
aggregate amount not to exceed $3,000,000 at any one time outstanding;
(j) (i) Indebtedness of the Borrower in respect of the Senior Notes
in an aggregate principal amount not to exceed $200,000,000 and (ii)
Guarantee Obligations of any Guarantor in respect of such Indebtedness;
(k) interest rate protection, currency swap, commodity swap and
foreign exchange arrangements entered into in connection with bona fide
hedging operations;
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65
(l) initial or successive refinancings of the Indebtedness permitted
by clause (j) above; provided that (i) the documentation with respect to
such refinancing Indebtedness shall not contain provisions that are more
restrictive on the Borrower than the provisions contained in the Senior
Note Indenture, (ii) such refinancing Indebtedness has a stated maturity
no earlier than the stated maturity of the Indebtedness being refinanced,
(iii) such refinancing Indebtedness has a weighted average life at the
time such Indebtedness is incurred that is equal to or greater than the
weighted average life of the Indebtedness being refinanced, (iv) such
refinancing Indebtedness is unsecured and (v) such refinancing
Indebtedness is in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or
less than the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced; and provided further that such refinancing
Indebtedness shall not include Indebtedness of a Subsidiary of the
Borrower that refinances Indebtedness of the Borrower; and
(m) obligations with respect to customary provisions regarding
post-closing purchase price adjustments and indemnification in agreements
for the purchase or sale of a business or assets otherwise permitted by
this Agreement.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
any Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes, fees, assessments and other governmental
charges not yet due or which are being contested in good faith by
appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Borrower or its Subsidiaries,
as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 30 days or which are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the Property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
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66
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(e), provided that no such
Lien is spread to cover any additional Property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition,
construction or improvement of fixed or capital assets, provided that (i)
such Liens shall be created substantially simultaneously with, or within
180 days after, the acquisition, construction or improvement of such fixed
or capital assets, (ii) such Liens do not at any time encumber any
Property other than the Property financed by such Indebtedness and (iii)
the amount of Indebtedness secured thereby shall not exceed the cost of
the assets or property so acquired, constructed or improved;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered into
by the Borrower or any other Subsidiary in the ordinary course of its
business and covering only the assets so leased;
(j) Liens securing Capital Lease Obligations permitted by Section
7.2(d), provided that (i) such Liens shall be created substantially
simultaneously with the related Sale/Leaseback Transaction, (ii) such
Liens do not at any time encumber any Property other than the Property
subject to such Sale/Leaseback Transaction and (iii) the amount of the
Indebtedness secured thereby shall not exceed the fair market value of the
Property subject to such Sale/Leaseback Transaction;
(k) Liens arising by virtue of any statutory or common law provision
relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a
depository institution;
(l) leases or subleases granted in the ordinary course of business;
and
(m) Liens arising in the ordinary course of business out of
consignment or similar arrangements for the sale of goods.
7.4 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business, except:
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower (provided that the Borrower shall be the
continuing or surviving corporation) or with or into any Wholly Owned
Subsidiary Guarantor (provided that the Wholly Owned Subsidiary Guarantor
shall be the continuing or surviving corporation);
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67
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Wholly Owned Subsidiary Guarantor; and
(c) any transaction permitted by Section 7.5(f).
7.5 Limitation on Sale of Assets. Dispose of any of its Property or
business (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person,
except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor;
(e) Dispositions permitted by Section 7.2(d);
(f) any Asset Sale or Recovery Event, provided that at least 75% of
the consideration for any Asset Sale shall consist of cash and Cash
Equivalents and provided further that the requirements of Sections 2.10(b)
and 2.10(c) are complied with in connection with any such Asset Sale or
Recovery Event; and
(g) the license of trademarks, service marks, tradenames and other
similar intangibles in the ordinary course of business.
7.6 Limitation on Dividends. Declare or pay any dividend (other than
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Borrower or any
Subsidiary or any warrants or options to purchase any such Capital Stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Borrower or any Subsidiary (collectively, "Restricted
Payments"), except that:
(a) any Subsidiary may make Restricted Payments to the Borrower or
any Wholly Owned Subsidiary Guarantor;
(b) any Subsidiary may declare and pay pro rata cash dividends to
Persons other than the Borrower and its Subsidiaries, provided, that the
aggregate amount of payments under this paragraph shall not exceed
$5,000,000 or, if as of the last day of
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68
each of three consecutive fiscal quarters commencing with the fourth
fiscal quarter of the Borrower's 1998 fiscal year Consolidated EBITDA for
the four consecutive fiscal quarters ending on such days shall exceed
$100,000,000, $10,000,000; and
(c) so long as no Default or Event of Default shall have occurred
and be continuing, the Borrower may purchase its Common Stock or Common
Stock options from present or former officers of the Borrower or any of
its Subsidiaries upon the death, disability or termination of employment
of such officer, provided, that the aggregate amount of payments under
this paragraph during the term of this Agreement shall not exceed
$2,000,000 in any 12-month period and $5,000,000 in the aggregate.
7.7 Limitation on Capital Expenditures. Make or commit to make (by
way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure, except (a) Capital Expenditures of the Borrower and its
Subsidiaries in the ordinary course of business not exceeding the Permitted
Capital Expenditure Amount; provided, that (i) so long as no Default or Event of
Default shall have occurred and be continuing or would occur as a result
thereof, any such amount referred to above, if not so expended in the fiscal
year for which it is permitted, may be carried over for expenditure in the next
succeeding fiscal year and (ii) Capital Expenditures made pursuant to this
clause (a) during any fiscal year shall be deemed made, first, in respect of
amounts carried over from the prior fiscal year pursuant to subclause (i) above
and, second, in respect of amounts permitted for such fiscal year as provided
above and (b) Capital Expenditures made with the proceeds of any Reinvestment
Deferred Amount.
7.8 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting all or a material part of a business
unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of the Borrower or any of its
Subsidiaries in the ordinary course of business (including, without
limitation, for travel, entertainment and relocation expenses) in an
aggregate amount for the Borrower and its Subsidiaries not to exceed
$2,000,000 at any one time outstanding;
(e) purchases of Common Stock and Common Stock options permitted by
Section 7.6(c);
(f) investments made by the Borrower or any of its Subsidiaries with
the proceeds of any Reinvestment Deferred Amount;
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69
(g) investments by the Borrower or any of its Subsidiaries in any
Person that, prior to such investment, is a Guarantor;
(h) investments in existence on the date hereof and listed on
Schedule 7.8(h) and additional investments in, and extensions of credit
to, any Subsidiary that is not a Guarantor and/or other Persons, provided
that such additional investments and extensions of credit shall not exceed
an aggregate amount of $10,000,000 or, if as of the last day of each of
three consecutive fiscal quarters commencing with the fourth fiscal
quarter of the Borrower's 1998 fiscal year Consolidated EBITDA for the
four consecutive fiscal quarters ending on such days shall exceed
$100,000,000, $20,000,000;
(i) investments by Friendly's International, Inc. or its United
Kingdom Subsidiaries in Shanghai Friendly Food Co., Ltd. solely as a
result of the transfer by the Borrower of its interests in Shanghai
Friendly Food Co., Ltd. to such Person;
(j) investments in stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing
to the Borrower or any of its Subsidiaries or in satisfaction of judgments
and which are readily convertible into cash in U.S. dollars in an amount
equal to the fair market value thereof as determined in good faith by the
Board of Directors of the Borrower;
(k) investments in securities of account debtors received in
settlement of obligations or pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such account
debtors;
(l) investments in foreign exchange contracts, currency swap
agreements, commodity swap agreements, commodity future agreements,
commodity hedge agreements, Interest Rate Protection Agreements and other
similar agreements entered into in the ordinary course of business,
provided that such agreements are entered into for bona fide hedging
purposes, are not for speculation or trading purposes and are designed to
protect against fluctuations in currency exchange rates, commodity prices
or interest rates, as the case may be, and, in the case of Interest Rate
Protection Agreements, any such Interest Rate Protection Agreement has a
notional amount corresponding to the Indebtedness being hedged thereby;
(m) investments in franchisees of the Borrower in an aggregate
amount at any one time outstanding not to exceed $10,000,000;
(n) investments in accounts and notes receivable from franchisees,
customers, suppliers and others in the ordinary course of business; and
(o) investments made by the Borrower or any of its Subsidiaries in
connection with a Disposition of Property permitted by Section 7.5,
provided that the aggregate amount of such investments held at any time
shall not exceed $5,000,000.
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7.9 Limitation on Optional Payments and Modifications of Debt
Instruments, etc. (a) Make or offer to make any payment, prepayment, repurchase
or redemption of or otherwise defease or segregate funds with respect to the
Senior Notes (other than scheduled interest payments required to be made in
cash), or (b) amend, modify, waive or otherwise change, or consent or agree to
any amendment, modification, waiver or other change to, any of the terms of the
Senior Notes (other than any such amendment, modification, waiver or other
change which (i) would extend the maturity or reduce the amount of any payment
of principal thereof or which would reduce the rate or extend the date for
payment of interest thereon and (ii) does not involve the payment of a consent
fee), except that (x) upon any private or public offering of Capital Stock of
the Borrower (other than the Common Stock Offering and the issuance of common
stock pursuant to employee benefit plans or as compensation to employees), the
Borrower may repurchase or redeem Senior Notes with the Net Cash Proceeds of
such offering, provided that no more than $60,000,000 principal amount of Senior
Notes may be so repurchased or redeemed, and (y) the Senior Notes may be
refinanced in accordance with Section 7.2(l).
7.10 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Borrower or any Guarantor) unless such transaction is (a) otherwise permitted
under this Agreement, (b) in the ordinary course of business of the Borrower or
such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no
less favorable to the Borrower or such Subsidiary, as the case may be, than it
would obtain in a comparable arm's length transaction with a Person which is not
an Affiliate.
7.11 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary other than the
Sale/Leaseback Transactions permitted by Sections 7.2(d) and 7.5(e).
7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year
of the Borrower to end on a day other than the last Sunday in December (unless
that day is earlier than December 27, in which case the fiscal year ends on the
following Sunday) or change the Borrower's method of determining fiscal
quarters.
7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to
exist or become effective any agreement which prohibits or limits the ability of
the Borrower or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, to secure the Obligations or, in the case of any Guarantor,
its obligations under the Guarantee and Collateral Agreement, other than (a)
this Agreement and the other Loan Documents and (b) any agreements governing any
purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in
which case, any prohibition or limitation shall only be effective against the
assets financed thereby).
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7.14 Limitation on Restrictions on Subsidiary Distributions. Enter
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Borrower to (a) pay
dividends or make any other distributions in respect of any Capital Stock of
such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any
other Subsidiary of the Borrower, (b) make loans or advances to the Borrower or
any other Subsidiary of the Borrower or (c) transfer any of its assets to the
Borrower or any other Subsidiary of the Borrower, except for such encumbrances
or restrictions existing under or by reason of
(i) any restrictions existing under the Loan Documents,
(ii) any restrictions with respect to a Subsidiary imposed pursuant
to an agreement which has been entered into in connection with the
Disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary,
(iii) any encumbrance or restriction in the Existing Credit Facility
prior to the assignment of the Assigned Loans and the payment of all
remaining amounts outstanding under the Existing Credit Facility,
(iv) any encumbrance or restriction with respect to a Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Subsidiary on or prior to the date on which such Subsidiary was acquired
by the Borrower or a Subsidiary and outstanding on such date (other than
Indebtedness Incurred in connection with, or in contemplation of, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Borrower or a
Subsidiary),
(v) any encumbrance or restriction pursuant to an agreement
contained in any amendment to an agreement referred to in clause (iv) of
this covenant; provided, however, that the encumbrances and restrictions
contained in any such refinancing agreement or amendment are not
materially less favorable to the Lenders than the encumbrances and
restrictions contained in any such agreement,
(vi) in the case of clause (c), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license or
similar contract, (B) by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Borrower or any Subsidiary not otherwise prohibited by this Agreement or
(C) contained in security agreements securing Indebtedness of a Subsidiary
to the extent such encumbrance or restrictions restrict the transfer of
the property subject to such security agreements,
(vii) any encumbrance or restriction arising under or by reason of
applicable law,
(viii) any encumbrance or restriction contained in the Senior Note
Indenture,
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(ix) customary provisions in joint venture agreements relating
solely to the securities, assets and revenues of such joint venture or
other business venture,
(x) any encumbrance or restriction applicable to secured
Indebtedness otherwise permitted to be Incurred under this Agreement that
limits the right of the debtor to dispose of the assets securing such
Indebtedness, and
(xi) customary net worth provisions contained in leases and other
agreements entered into by a Subsidiary in the ordinary course of
business.
7.15 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are reasonably related thereto, or permit RIC to engage in any business
other than the reinsurance of certain of the Borrower's risks (i.e. workers'
compensation, employer's liability, general liability and product liability)
from a third party insurer.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within three Business Days after any such interest or other
amount becomes due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) Any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) of Section 6.4(a)
(with respect to the Borrower only), Section 6.7(a), Section 7, or Section
5.6 of the Guarantee and Collateral Agreement or (ii) an "Event of
Default" under and as defined in any Mortgage shall have occurred and be
continuing; or
(d) any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section),
and such default shall continue unremedied for a period of 30 days after
notice to the Borrower from the Agent or the Required Lenders; or
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73
(e) The Borrower or any of its Subsidiaries shall (i) default in
making any payment of any principal of any Indebtedness (including,
without limitation, any Guarantee Obligation, but excluding the Loans and
Reimbursement Obligations) when due (giving effect to any applicable grace
period) with respect thereto; or (ii) default in making any payment of any
interest on any such Indebtedness beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created; or (iii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder
or beneficiary of such Indebtedness (or a trustee or agent on behalf of
such holder or beneficiary) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity or
(in the case of any such Indebtedness constituting a Guarantee Obligation)
to become payable; provided, that a default, event or condition described
in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time
constitute an Event of Default unless, at such time, one or more defaults,
events or conditions of the type described in clauses (i), (ii) and (iii)
of this paragraph (e) shall have occurred and be continuing with respect
to Indebtedness the outstanding principal amount of which exceeds in the
aggregate $5,000,000; or
(f) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it
or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or the Borrower or any of its Subsidiaries
shall make a general assignment for the benefit of its creditors; or (ii)
there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) the Borrower or any
of its Subsidiaries shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any
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"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in
favor of the PBGC or a Plan shall arise on the assets of the Borrower or
any Commonly Controlled Entity, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed, or
a trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes of
Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled
Entity shall, or in the reasonable opinion of the Required Lenders is
likely to, incur any liability in connection with a withdrawal from, or
the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan; and
in each case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance as to which the relevant insurance
company has acknowledged coverage) of $5,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and
priority purported to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k) (i) (A) Any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), excluding the Permitted Holders, shall
become, or obtain rights (whether by means or warrants, options or
otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3
and 13(d)-5 under the Exchange Act), directly or indirectly, of more than
35% of the outstanding common stock of the Borrower and (B) the Permitted
Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of total voting power of the Voting Stock of the Borrower than
such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Borrower; (ii) a majority of the board of
directors of the Borrower shall cease to consist of Continuing Directors;
or (iii) there shall occur a "Change of Control" as defined in the Senior
Note Indenture; or
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then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Revolving Credit Facility Lenders,
the Agent may, or upon the request of the Majority Revolving Credit Facility
Lenders, the Agent shall, by notice to the Borrower declare the Revolving Credit
Commitments to be terminated forthwith, whereupon the Revolving Credit
Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Agent may, or upon the request of the Required Lenders,
the Agent shall, by notice to the Borrower, declare the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement and
the other Loan Documents (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to this
paragraph, the Borrower shall at such time deposit in a cash collateral account
opened by the Agent an amount equal to the aggregate then undrawn and unexpired
amount of such Letters of Credit. Amounts held in such cash collateral account
shall be applied by the Agent to the payment of drafts drawn under such Letters
of Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrower (or such other Person as may be lawfully entitled thereto).
SECTION 9. THE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Agent as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes the Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
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9.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither the Agent nor any of its
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 Reliance by Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any instrument, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders (or, if so specified by this Agreement,
all Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders (or, if so specified by this Agreement, all
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
9.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring
to this Agreement, describing such Default or
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Event of Default and stating that such notice is a "notice of default". In the
event that the Agent receives such a notice, the Agent shall give notice thereof
to the Lenders. The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so specified by this Agreement, all Lenders); provided that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates have made any representations
or warranties to such Lender and that no act by the Agent hereinafter taken,
including any review of the affairs of a Loan Party or any affiliate of a Loan
Party, shall be deemed to constitute any representation or warranty by the Agent
to any Lender. Each Lender represents to the Agent that it has, independently
and without reliance upon the Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, financial and
other condition and creditworthiness of the Loan Parties and their affiliates
and made its own decision to make its Loans hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of any Loan Party or any affiliate
of a Loan Party which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Revolving Credit Percentages, Tranche A Term Loan Percentages,
Tranche B Term Loan Percentages and Tranche C Term Loan Percentages in effect on
the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Percentages immediately prior to such date), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Loans) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or any action taken or
omitted by
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the Agent under or in connection with any of the foregoing; provided that no
Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements which are found by a final and nonappealable decision
of a court of competent jurisdiction to have resulted from the Agent's gross
negligence or willful misconduct. The agreements in this Section 9.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. The Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though the Agent was not the Agent. With respect
to its Loans made or renewed by it and with respect to any Letter of Credit
issued or participated in by it, the Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
shall include the Agent in its individual capacity.
9.9 Successor Agent. Subject to the appointment and acceptance of a
successor agent as provided below, the Agent may resign as Agent upon 10 days'
notice to the Lenders and the Borrower. If the Agent shall resign as Agent under
this Agreement and the other Loan Documents, then the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower shall have occurred and be continuing) be
subject to approval by the Borrower (which approval shall not be unreasonably
withheld or delayed), whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent and the term "Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Agent's rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Loans. After any retiring
Agent's resignation as 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
Agent under this Agreement and the other Loan Documents.
9.10 Authorization to Release Liens. The Agent is hereby irrevocably
authorized by each of the Lenders to release any Lien covering any Property of
the Borrower or any of its Subsidiaries that is the subject of a Disposition
which is permitted by this Agreement or which has been consented to in
accordance with Section 10.1.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party to the relevant Loan Document may, or (with
the written consent of the Required Lenders) the Agent and each Loan Party to
the relevant Loan Document may, from time to time, (a) enter into written
amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the Loan
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79
Parties hereunder or thereunder or (b) waive, on such terms and conditions as
the Required Lenders, or the Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification
shall (i) forgive the principal amount or extend the final scheduled date of
maturity of any Loan, extend the scheduled date of any amortization payment in
respect of any Term Loan, reduce the stated rate of any interest, fee or letter
of credit commission payable hereunder or extend the scheduled date of any
payment thereof, or increase the amount or extend the expiration date of any
Lender's Revolving Credit Commitment, in each case without the consent of each
Lender affected thereby; (ii) amend, modify or waive any provision of this
Section 10.1 or reduce any percentage specified in the definition of Required
Lenders or Required Prepayment Lenders, consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement and the
other Loan Documents, release all or substantially all of the Collateral or
release all or substantially all of the Guarantors from their obligations under
the Guarantee and Collateral Agreement, in each case without the written consent
of all Lenders; (iii) amend, modify or waive any condition precedent to any
extension of credit under the Revolving Credit Facility set forth in Section 5.2
(including, without limitation, in connection with any waiver of an existing
Default or Event of Default), or amend or otherwise modify clause (B)(i) of
Section 8, without the written consent of the Majority Revolving Credit Facility
Lenders; (iv) reduce the percentage specified in the definition of Majority
Facility Lenders without the written consent of all Lenders under each affected
Facility; (v) amend, modify or waive any provision of Section 9 without the
written consent of the Agent; or (vi) amend, modify or waive any provision of
Section 3 without the written consent of the Issuing Lender. Any such waiver and
any such amendment, supplement or modification shall apply equally to each of
the Lenders and shall be binding upon the Loan Parties, the Lenders, the Agent
and all future holders of the Loans. In the case of any waiver, the Loan
Parties, the Lenders and the Agent shall be restored to their former position
and rights hereunder and under the other Loan Documents, and any Default or
Event of Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default,
or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the Agent, and as
set forth in an administrative questionnaire delivered to the Agent in the case
of the Lenders, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrower: Friendly Ice Cream Corporation
1855 Boston Road
Wilbraham, Massachusetts 01095
Attention: George Roller
Telecopy: (413) 543-3186
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Telephone: (413) 543-2400
with a copy to: Friendly Ice Cream Corporation
1855 Boston Road
Wilbraham, Massachusetts 01095
Attention: Aaron Parker
Telecopy: (413) 543-3282
Telephone: (413) 543-2400
The Agent: Societe Generale
1221 Avenue of the Americas
New York, New York 10020
Attention: Kateline Martinez
Telecopy: (212) 278-7490
Telephone: (212) 278-6855
with a copy to: Societe Generale
1221 Avenue of the Americas
New York, New York 10020
Attention: Brent Johnston
Telecopy: (212) 278-7430
Telephone: (212) 278-6881
provided that any notice, request or demand to or upon the Agent or the Lenders
shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
10.5 Payment of Expenses. The Borrower agrees (a) to pay or
reimburse the Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, syndication, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Agent, (b) to pay or
reimburse each Lender and the
<PAGE>
81
Agent for all their respective costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the other
Loan Documents and any such other documents, including, without limitation, the
fees and disbursements of counsel (including the non-duplicative allocated fees
and expenses of in-house counsel) to each Lender and of counsel to the Agent,
(c) to pay, indemnify, and hold each Lender and the Agent harmless from, any and
all recording and filing fees or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents and (d) to pay, indemnify, and hold each
Lender and the Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "indemnitee") harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including, without limitation, any of the foregoing
relating to the use of proceeds of the Loans or the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations of
the Borrower or any of its Subsidiaries or any of the Properties (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
provided, that the Borrower shall have no obligation hereunder to any indemnitee
with respect to indemnified liabilities to the extent such indemnified
liabilities resulted from the gross negligence or willful misconduct of such
indemnitee. The agreements in this Section shall survive repayment of the Loans
and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Agent, all future holders of the Loans and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Lender. Nothing expressed or implied herein is
intended to give, or shall be construed to give, any Person, other than the
parties hereto and their permitted successors and assigns hereunder, any benefit
or legal or equitable right, remedy or claim under or by virtue of this
Agreement or under or by virtue of any provision herein.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents; provided
that no such participation to a Participant shall be in an aggregate principal
amount of less than $5,000,000 (other than in the case of a participation of all
of a Lender's interests under this Agreement), unless otherw`ise agreed by the
Borrower and the Agent. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and the other Loan Documents. In no
event shall any
<PAGE>
82
Participant under any such participation have any right to approve any amendment
or waiver of any provision of any Loan Document, or any consent to any departure
by any Loan Party therefrom, except to the extent that such amendment, waiver or
consent would reduce the principal of, or interest on, the Loans or any fees
payable hereunder, or postpone the date of the final maturity of the Loans, in
each case to the extent subject to such participation. The Borrower agrees that
if amounts outstanding under this Agreement and the Loans are due or unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall, to the maximum extent
permitted by applicable law, be deemed to have the right of set-off in respect
of its participating interest in amounts owing under this Agreement to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under this Agreement, provided that, in purchasing such
participating interest, such Participant shall be deemed to have agreed to share
with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as
if it were a Lender hereunder. The Borrower also agrees that each Participant
shall be entitled to the benefits of Sections 2.17, 2.18 and 2.19 with respect
to its participation in the Commitments and the Loans outstanding from time to
time as if it was a Lender; provided that, in the case of Section 2.18, such
Participant shall have complied with the requirements of said Section and
provided, further, that no Participant shall be entitled to receive any greater
amount pursuant to any such Section than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such participation occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable
law, at any time and from time to time assign to any Lender or any affiliate
thereof or, with the consent of the Borrower, and the Agent (which, in each
case, shall not be unreasonably withheld or delayed) (provided that no such
consent need be obtained in the case of any assignment made when any Event of
Default shall have occurred and be continuing), to an additional bank, financial
institution or other entity (an "Assignee") all or any part of its rights and
obligations under this Agreement pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit E, executed by such Assignee, such Assignor
and the Agent (and, where the consent of the Borrower is required pursuant to
the foregoing provisions, by the Borrower) and delivered to the Agent for its
acceptance and recording in the Register; provided that no such assignment to an
Assignee (other than any Lender or any affiliate thereof) shall be in an
aggregate principal amount of less than $8,000,000 (or, in the case of any
Tranche C Term Loan, $5,000,000) other than in the case of an assignment of all
of a Lender's interests under this Agreement, unless otherwise agreed by the
Borrower and the Agent. Any such assignment need not be ratable as among the
Facilities. Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment and/or Loans as set forth therein, and (y) the
Assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of an Assignor's rights and
obligations under this Agreement, such assigning Lender shall cease to be a
party hereto).
<PAGE>
83
(d) The Agent shall maintain at its address referred to in Section
10.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
and the Commitment of, and principal amount of the Loans owing to, each Lender
from time to time and any Notes evidencing such Loans. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Loan and any Note evidencing such
Loan recorded therein for all purposes of this Agreement. Any assignment of any
Loan whether or not evidenced by a Note shall be effective only upon appropriate
entries with respect thereto being made in the Register (and each Note shall
expressly so provide). Any assignment or transfer of all or part of a Loan
evidenced by a Note shall be registered on the Register only upon surrender for
registration of assignment or transfer of the Note evidencing such Loan,
accompanied by a duly executed Assignment and Acceptance, and thereupon one or
more new Notes in the same aggregate principal amount shall be issued to the
designated Assignee and the old Notes shall be returned by the Agent to the
Borrower marked "cancelled". The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof or a Person under common management with
such Lender, by the Borrower, the Agent and the Issuing Lender) together with
payment to the Agent of a registration and processing fee of $3,500 (except that
no such registration and processing fee shall be payable in the case of an
Assignee which is already a Lender or is an affiliate of a Lender or a Person
under common management with a Lender), the Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) on the effective date determined pursuant
thereto record the information contained therein in the Register and give notice
of such acceptance and recordation to the Lenders and the Borrower. On or prior
to such effective date, the Borrower, at its own expense, upon request, shall
execute and deliver to the Agent (in exchange for the Revolving Credit Note
and/or Term Notes, as the case may be, of the assigning Lender) a new Revolving
Credit Note and/or Term Notes, as the case may be, to the order of such Assignee
in an amount equal to the Revolving Credit Commitment and/or applicable Term
Loans, as the case may be, assumed or acquired by it pursuant to such Assignment
and Acceptance and, if the assigning Lender has retained a Revolving Credit
Commitment and/or Term Loans, as the case may be, upon request, a new Revolving
Credit Note and/or Term Notes, as the case may be, to the order of the assigning
Lender in an amount equal to the Revolving Credit Commitment and/or applicable
Term Loans, as the case may be, retained by it hereunder. Such new Notes shall
be dated the Closing Date and shall otherwise be in the form of the Note
replaced thereby.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section concerning assignments of Loans
and Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including, without limitation,
any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.
<PAGE>
84
10.7 Adjustments; Set-off. (a) Except to the extent that this
Agreement provides for payments to be allocated to the Lenders under a
particular Facility, (i) except to the extent that the Loan Documents provide
that only the Tranche A Term Loans, the Tranche B Term Loans and the Tranche C
Term Loans shall be secured by the Real Property of the Borrower located in the
State of New York (the "New York Collateral"), if any Lender shall at any time
receive any payment of all or part of its Loans or the Reimbursement Obligations
owing to it, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 8(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans or the Reimbursement
Obligations owing to such other Lender, or interest thereon, or (ii) if, as a
result of any exercise of rights and remedies with respect to the New York
Collateral, any Lender holding a Tranche A Term Loan, a Tranche B Term Loan or a
Tranche C Term Loan shall at any time receive any payment of all or part of its
Loans owing to it, or interest thereon (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in Section
8(f), or otherwise), in a greater proportion than any such payment to any other
Lender, if any, in respect of such other Lender's Loans or the Reimbursement
Obligations owing to such other Lender, or interest thereon, such benefitted
Lender (each benefitted Lender referred to in clauses (i) and (ii) above, a
"Benefitted Lender") shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loans and/or
of the Reimbursement Obligations owing to each such other Lender, or shall
provide such other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such Benefitted Lender to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such Benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to the Borrower,
any such notice being expressly waived by the Borrower to the extent permitted
by applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to set
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify the
Borrower and the Agent after any such setoff and application made by such
Lender, provided that the failure to give such notice shall not affect the
validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the Agent.
<PAGE>
85
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of the Borrower, the
Agent and each Lender hereby irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts
of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 10.2 or at such other address
of which the Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section 10.12 any special, exemplary, punitive or consequential
damages.
<PAGE>
86
10.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to the Borrower arising out of or in connection with this
Agreement or any of the other Loan Documents, and the relationship between
the Agent and Lenders, on one hand and the Borrower, on the other hand, in
connection herewith or therewith is solely that of creditor and debtor;
and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Agent and each Lender agrees to
keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent the Agent or any Lender
from disclosing any such information (a) to the Agent, any other Lender or any
affiliate of any Lender, (b) to any Participant or Assignee (each, a
"Transferee") or prospective Transferee which agrees to comply with the
provisions of this Section 10.15, (c) to the employees, directors, agents,
attorneys, accountants and other professional advisors of such Lender or its
affiliates, (d) upon the request or demand of any Governmental Authority having
jurisdiction over the Agent or such Lender, (e) in response to any order of any
court or other Governmental Authority or as may otherwise be required pursuant
to any Requirement of Law, (f) if requested or required to do so in connection
with any litigation or similar proceeding, (g) which has been publicly disclosed
other than in breach of this Section, (h) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender, or (i)
in connection with the exercise of any remedy hereunder or under any other Loan
Document.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
FRIENDLY ICE CREAM CORPORATION
By: /s/ George G. Roller
---------------------------------------
Name:
Title:
SOCIETE GENERALE,
as Arranger, Administrative Agent and a
Lender
By: /s/ [Illegible]
---------------------------------------
Name:
Title:
<PAGE>
NATIONSBANK, N.A.
By: /s/ Patricia G. McCormack
---------------------------------------
Name: Patricia G. McCormack
Title: Senior Vice President
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.
its Agent/Manager
By: /s/ Gary L. Francis
---------------------------------------
Name: Gary L. Francis
Title: Senior Vice President
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Roger M. Burns
---------------------------------------
Name: Roger M. Burns
Title: Vice President
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Attila Koc
---------------------------------------
Name: Attila Koc
Title: First Vice President
<PAGE>
BANKBOSTON, N.A.
By: /s/ Christopher M. Holtz
---------------------------------------
Name: Christopher M. Holtz
Title: Vice President
<PAGE>
BLACK DIAMOND CAPITAL MANAGEMENT,
L.L.C.
By: /s/ James J. Zenni Jr.
---------------------------------------
Name: James J. Zenni Jr.
Title: President
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Mark Flamm
---------------------------------------
Name: Mark Flamm
Title: Vice President
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
---------------------------------------
Name: Perry Vavoules
Title: Senior Vice President
<PAGE>
ANNEX A
-------
PRICING GRID FOR REVOLVING CREDIT LOANS,
TRANCHE A TERM LOANS AND COMMITMENT FEES
<TABLE>
<CAPTION>
======================================================================================================
Consolidated Applicable Margin Commitment Fee
Leverage Ratio for Eurodollar Loans Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
(greater than or = to) 4.0 to 1.0 2.500% 0.500%
- ------------------------------------------------------------------------------------------------------
(greater than or = to) 3.5 to 1.0 and (less than) 4.0 to 1.0 2.250% 0.500%
- ------------------------------------------------------------------------------------------------------
(greater than or = to) 3.0 to 1.0 and (less than) 3.5 to 1.0 2.125% 0.500%
- ------------------------------------------------------------------------------------------------------
(greater than or = to) 2.5 to 1.0 and (less than) 3.0 to 1.0 1.875% 0.375%
- ------------------------------------------------------------------------------------------------------
(less than) 2.5 to 1.0 1.625% 0.375%
======================================================================================================
</TABLE>
Changes in the Applicable Margin with respect to Revolving Loans and
Tranche A Loans or in the Commitment Fee Rate resulting from changes in the
Consolidated Leverage Ratio shall become effective on the date (the "Adjustment
Date") on which financial statements are delivered to the Lenders pursuant to
Section 6.1 (but in any event not later than the 45th day after the end of each
of the first three quarterly periods of each fiscal year or the 90th day after
the end of each fiscal year, as the case may be) and shall remain in effect
until the next change to be effected pursuant to this paragraph. If any
financial statements referred to above are not delivered within the time periods
specified above, then, until such financial statements are delivered, the
Consolidated Leverage Ratio as at the end of the fiscal period that would have
been covered thereby shall for the purposes of this definition be deemed to be
greater than 4.0 to 1.0. In addition, at all times while a Default or an Event
of Default shall have occurred and be continuing, there shall be no reduction in
the Applicable Margin with respect to Revolving Loans and Tranche A Loans or in
the Commitment Fee Rate; provided, however, that any applicable reduction shall
become effective at such time as no Default or Event of Default shall be
continuing. Each determination of the Consolidated Leverage Ratio pursuant to
this definition shall be made as at the end of and with respect to the period of
four consecutive fiscal quarters of the Borrower ending at the end of the period
covered by the relevant financial statements and shall reflect the matters set
forth in the proviso to Section 7.1(a).
<PAGE>
ANNEX B
-------
ECF PERCENTAGE GRID
================================================================================
Consolidated ECF
Leverage Ratio Percentage
- --------------------------------------------------------------------------------
(greater than or = to) 3.5 to 1.0 80%
- --------------------------------------------------------------------------------
(greater than or = to) 3.0 to 1.0 and (less than) 3.5 to 1.0 65%
- --------------------------------------------------------------------------------
(greater than or = to) 2.0 to 1.0 and (less than) 3.0 to 1.0 50%
- --------------------------------------------------------------------------------
(less than) 2.0 to 1.0 0%
================================================================================
Changes in the ECF Percentage resulting from changes in the
Consolidated Leverage Ratio shall become effective on the date (the "ECF
Percentage Adjustment Date") on which audited financial statements are delivered
to the Lenders pursuant to Section 6.1(a) (but in any event not later than the
90th day after the end of each fiscal year) and shall remain in effect until the
next change to be effected pursuant to this paragraph. If any financial
statements are not delivered within the time period specified above, then, until
such financial statements are delivered, the Consolidated Leverage Ratio as at
the end of the fiscal year that would have been covered thereby shall for the
purposes of this definition be deemed to be greater than 3.5 to 1.0. Each
determination of the Consolidated Leverage Ratio pursuant to this definition
shall be made as at the end of and with respect to the period of four
consecutive fiscal quarters of the Borrower ending at the end of the fiscal year
covered by the relevant financial statements.
<PAGE>
ANNEX C
-------
PERMITTED CAPITAL EXPENDITURE GRID
<TABLE>
<CAPTION>
======================================================================================================
Ratio of
Consolidated Permitted
Capital Consolidated EBITDA to Capital
Fiscal Expenditure EBITDA Consolidated Expenditure
Year Amount Target EBITDA Target Percentage
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 $53,000,000 $ 86,200,000 (greater than or = to) 1.00 to 1.00 120%
- ------------------------------------------------------------------------------------------------------
1999 $53,900,000 $ 96,700,000 (less than) 1.00 to 1.00 100%
- ---------------------------------------------- and
2000 $57,900,000 $115,600,000 (greater than or = to) 0.90 to 1.00
- ------------------------------------------------------------------------------------------------------
2001 $65,800,000 $137,300,000 (less than) 0.90 to 1.00 80%
and
(greater than or = to) 0.80 to 1.00
- ------------------------------------------------------------------------------------------------------
2002 and $71,200,000 $161,000,000 (less than) 0.80 to 1.00 50%
thereafter
======================================================================================================
</TABLE>
Changes in the Permitted Capital Expenditure Amount resulting from
changes in the Ratio of Consolidated EBITDA to Consolidated EBITDA Target shall
become effective on the date (the "Permitted Capital Expenditure Adjustment
Date") on which audited financial statements are delivered to the Lenders
pursuant to Section 6.1(a) with respect to any fiscal year, commencing with the
Borrower's 1998 fiscal year (but in any event not later than the 90th day after
the end of each such fiscal year), and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
are not delivered within the time period specified above, then, until such
financial statements are delivered, the Ratio of Consolidated EBITDA to
Consolidated EBITDA Target as at the end of the fiscal year that would have been
covered thereby shall for the purposes of this definition be deemed to be less
than 0.80 to 1.00. Each determination of the Ratio of Consolidated EBITDA to
Consolidated EBITDA Target shall be made with respect to the period of four
consecutive quarters of the Borrower ending at the end of the fiscal year
covered by the relevant financial statements.
<PAGE>
SCHEDULE 1.1A
COMMITMENTS: LENDING OFFICES AND ADDRESSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name of Lender and
Information for Notices Commitments
- ----------------------- -----------
- -------------------------------------------------------------------------------------------------------------------
Tranche A Tranche B Tranche C
Term Term Term
Revolving Credit Loan Loan Loan Total
---------------- ---- ---- ---- -----
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOCIETE GENERALE $15,472,727.27 $7,823,376.62 $14,057,142.86 $12,857,142.85 $50,210,389.60
1221 Avenue of the Americas
New York, NY 10020
Contact: Maggie O'Donnell
Telephone: (212) 278-6853
Telecopy: (212) 278-7490
- -------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT $12,727,272.73 $6,233,766.23 $0 $0 $18,961,038.96
CORPORATION
555 Theodore Friend Avenue
Suite C-301
Rye, NY 10580
Contact: Ron Walker
Telephone: (914) 925-7233
Telecopy: (914) 921-0110
- -------------------------------------------------------------------------------------------------------------------
SANWA BUSINESS CREDIT $8,866,666.67 $4,342,857.14 $4,342,857.14 $0 $17,552,380.95
CORPORATION
1 South Wacker Drive, 28th Floor
Chicago, IL 60606
Contact: Tracy Cassello
Telephone: (312) 853-8679
Telecopy: (312) 853-8874
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name of Lender and
Information for Notices Commitments
- ----------------------- -----------
- -------------------------------------------------------------------------------------------------------------------
Tranche A Tranche B Tranche C
Term Term Term
Revolving Credit Loan Loan Loan Total
---------------- ---- ---- ---- -----
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BLACK DIAMOND CAPITAL $4,000,000.00 $1,714,285.71 $1,714,285.72 $8,571,428.57 $16,000,000.00
MANAGEMENT, L.L.C.
One Conway Park
100 Field Drive, Suite #330
Lake Forest, IL 60045
Contact: James Zenni, Jr.
Telephone: (847) 615-9000
Telecopy: (847) 615-9064
- -------------------------------------------------------------------------------------------------------------------
BANKBOSTON, N.A. $7,000,000.00 $3,428,571.43 $3,428,571.43 $0 $13,857,142.86
100 Federal Street
P.O. Box 2016 Mailstop 01-09-05
Boston, MA 02110
Contact: Rod Guinn
Telephone: (617) 434-4588
Telecopy: (617) 434-0637
- -------------------------------------------------------------------------------------------------------------------
CREDIT LYONNAIS NEW YORK $7,000,000.00 $3,428,571.43 $3,428,571.43 $0 $13,857,142.86
BRANCH
53 State Street, 27th Floor
Boston, MA 02109
Contact: Anthony Muller
Telephone: (617) 723-2615
Telecopy: (617) 723-4803
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name of Lender and
Information for Notices Commitments
- ----------------------- -----------
- -------------------------------------------------------------------------------------------------------------------
Tranche A Tranche B Tranche C
Term Term Term
Revolving Credit Loan Loan Loan Total
---------------- ---- ---- ---- -----
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL ELECTRIC CAPITAL $5,600,000.00 $2,742,857.15 $2,742,857.14 $0 $11,085,714.29
CORPORATION
201 Highridge Road
Stamford, CT 06927
Contact: Roger Burns
Telephone: (203) 316-7985
Telecopy: (203) 316-7978
- -------------------------------------------------------------------------------------------------------------------
FIRST SOURCE FINANCIAL LLP $4,666,666.67 $2,285,714.29 $2,285,714.28 $0 $9,238,095.24
2850 West Golf Road, 5th Floor
Rolling Meadow, IL 60006
Contact: Janice Rackow
Telephone: (847) 734-2044
Telecopy: (847) 734-7910
- -------------------------------------------------------------------------------------------------------------------
NATIONSBANK, N.A. $4,666,666.66 $2,285,714.29 $2,285,714.29 $0 $9,238.095.24
767 Fifth Avenue
New York, NY 10153
Contact: Sean Cassidy
Telephone: (212) 407-5372
Telecopy: (212) 593-1083
===================================================================================================================
</TABLE>
<PAGE>
Exhibit 10.2
EXECUTION COPY
FRIENDLY ICE CREAM CORPORATION
10 1/2% Senior Notes Due 2007
-----------------------------
INDENTURE
Dated as of November 19, 1997
-----------------------------
THE BANK OF NEW YORK,
as Trustee
<PAGE>
CROSS REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
310(a)(1) .......................................................... 7.10
(a)(2) .......................................................... 7.10
(a)(3) .......................................................... N.A.
(a)(4) .......................................................... N.A.
(b) ..................................................... 7.8; 7.10
(c) .......................................................... N.A.
311(a) .......................................................... 7.11
(b) .......................................................... 7.11
312(a) .......................................................... 2.5
(b) ..................................................... 2.5; 11.3
(c) .......................................................... 11.3
313(a) .......................................................... 11.3
(b)(1) .......................................................... 7.6
(b)(2) .......................................................... N.A.
(c) .......................................................... 11.2
(d) .......................................................... 7.6
314(a) ............................................... 4.2; 4.12; 11.2
(b) .......................................................... N.A.
(c)(1) .......................................................... 11.4
(c)(2) .......................................................... 11.4
(c)(3) .......................................................... N.A.
(d) .......................................................... N.A.
(e) .......................................................... 11.5
(f) .......................................................... 4.12
315(a) .......................................................... 7.1
(b) ..................................................... 7.5; 11.2
(c) .......................................................... 7.1
(d) .......................................................... 7.1
(e) .......................................................... 6.11
316(a)(last sentence)................................................. 11.6
(a)(1)(A).......................................................... 6.5
(a)(1)(B).......................................................... 6.4
(a)(2) .......................................................... N.A.
(b) .......................................................... 6.7
317(a)(1) .......................................................... 6.8
(a)(2) .......................................................... 6.9
(b) .......................................................... 2.4
318(a) .......................................................... 11.1
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions and Incorporation by Reference............... 1
SECTION 1.1. Definitions.......................................... 1
SECTION 1.2. Other Definitions.................................... 18
SECTION 1.3. Incorporation by Reference of Trust Indenture Act.... 18
SECTION 1.4. Rules of Construction................................ 19
ARTICLE 2
The Securities............................. 20
SECTION 2.1. Form and Dating...................................... 20
SECTION 2.2. Execution and Authentication......................... 20
SECTION 2.3. Registrar and Paying Agent........................... 21
SECTION 2.4. Paying Agent To Hold Money in Trust.................. 21
SECTION 2.5. Securityholder Lists................................. 22
SECTION 2.6. Transfer and Exchange................................ 22
SECTION 2.7. Replacement Securities............................... 24
SECTION 2.8. Outstanding Securities............................... 24
SECTION 2.9. Temporary Securities................................. 25
SECTION 2.10. Cancellation......................................... 25
SECTION 2.11. Defaulted Interest................................... 25
SECTION 2.12. CUSIP Numbers........................................ 25
ARTICLE 3
Redemption............................... 26
SECTION 3.1. Notices to Trustee................................... 26
SECTION 3.2. Selection of Securities To Be Redeemed............... 26
SECTION 3.3. Notice of Redemption................................. 26
SECTION 3.4. Effect of Notice of Redemption....................... 27
SECTION 3.5. Deposit of Redemption Price.......................... 27
SECTION 3.6. Securities Redeemed in Part.......................... 28
ii
<PAGE>
Page
----
ARTICLE 4
Covenants............................... 28
SECTION 4.1. Payment of Securities................................ 28
SECTION 4.2. SEC Reports.......................................... 28
SECTION 4.3. Limitation on Indebtedness........................... 29
SECTION 4.4. Limitation on Restricted Payments.................... 32
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries............................ 35
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock... 36
SECTION 4.7. Limitation on Transactions with Affiliates........... 40
SECTION 4.8. Change of Control.................................... 40
SECTION 4.9. Limitation on Liens.................................. 42
SECTION 4.10. Limitation on Sale of Subsidiary Capital Stock....... 42
SECTION 4.11. Future Guarantors.................................... 42
SECTION 4.12. Compliance Certificate............................... 42
SECTION 4.13. Further Instruments and Acts......................... 42
SECTION 4.14. Maintenance of Office or Agency...................... 43
SECTION 4.15. Corporate Existence.................................. 43
SECTION 4.16. Payment of Taxes and Other Claims.................... 43
SECTION 4.17. Maintenance of Properties and Insurance.............. 43
SECTION 4.18. Compliance with Laws................................. 44
ARTICLE 5
Successor Company........................... 44
SECTION 5.1. When the Company May Merge or Transfer Assets........ 44
SECTION 5.2. When Subsidiary Guarantor May Merge or Transfer
Assets............................................. 45
ARTICLE 6
Defaults and Remedies......................... 45
SECTION 6.1. Events of Default.................................... 45
SECTION 6.2. Acceleration......................................... 47
SECTION 6.3. Other Remedies....................................... 48
SECTION 6.4. Waiver of Past Defaults.............................. 48
SECTION 6.5. Control by Majority.................................. 48
SECTION 6.6. Limitation on Suits.................................. 49
SECTION 6.7. Rights of Holders To Receive Payment................. 49
SECTION 6.8. Collection Suit by Trustee........................... 49
SECTION 6.9. Trustee May File Proofs of Claim..................... 49
iii
<PAGE>
Page
----
SECTION 6.10. Priorities........................................... 50
SECTION 6.11. Undertaking for Costs................................ 50
SECTION 6.12. Waiver of Stay or Extension Laws..................... 50
ARTICLE 7
Trustee................................ 51
SECTION 7.1. Duties of Trustee.................................... 51
SECTION 7.2. Rights of Trustee.................................... 52
SECTION 7.3. Individual Rights of Trustee......................... 52
SECTION 7.4. Trustee's Disclaimer................................. 52
SECTION 7.5. Notice of Defaults................................... 53
SECTION 7.6. Reports by Trustee to Holders........................ 53
SECTION 7.7. Compensation and Indemnity........................... 53
SECTION 7.8. Replacement of Trustee............................... 54
SECTION 7.9. Successor Trustee by Merger.......................... 55
SECTION 7.10. Eligibility; Disqualification........................ 55
SECTION 7.11. Preferential Collection of Claims Against Company.... 55
ARTICLE 8
Discharge of Indenture; Defeasance................... 56
SECTION 8.1. Discharge of Liability on Securities; Defeasance..... 56
SECTION 8.2. Conditions to Defeasance............................. 57
SECTION 8.3. Application of Trust Money........................... 58
SECTION 8.4. Repayment to Company................................. 58
SECTION 8.5. Indemnity for Government Obligations................. 58
SECTION 8.6. Reinstatement........................................ 59
ARTICLE 9
Amendments............................... 59
SECTION 9.1. Without Consent of Holders........................... 59
SECTION 9.2. With Consent of Holders.............................. 60
SECTION 9.3. Compliance with Trust Indenture Act.................. 61
SECTION 9.4. Revocation and Effect of Consents and Waivers........ 61
SECTION 9.5. Notation on or Exchange of Securities................ 61
SECTION 9.6. Trustee To Sign Amendments........................... 61
iv
<PAGE>
Page
----
ARTICLE 10
Subsidiary Guarantees......................... 62
SECTION 10.1. Subsidiary Guarantees................................ 62
SECTION 10.2. Limitation on Liability.............................. 63
SECTION 10.3. Successors and Assigns............................... 64
SECTION 10.4. No Waiver............................................ 64
SECTION 10.5. Right of Contribution................................ 64
SECTION 10.6. No Subrogation....................................... 64
SECTION 10.7. Modification......................................... 65
SECTION 10.8. Release of Subsidiary Guarantor...................... 65
ARTICLE 11
Miscellaneous............................. 65
SECTION 11.1. Trust Indenture Act Controls......................... 65
SECTION 11.2. Notices.............................................. 65
SECTION 11.3. Communication by Holders with Other Holders.......... 66
SECTION 11.4. Certificate and Opinion as to Conditions Precedent... 66
SECTION 11.5. Statements Required in Certificate or Opinion........ 67
SECTION 11.6. When Securities Disregarded.......................... 67
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar......... 67
SECTION 11.8. Legal Holidays....................................... 67
SECTION 11.9. Governing Law........................................ 67
SECTION 11.10. No Recourse Against Others........................... 68
SECTION 11.11. Successors........................................... 68
SECTION 11.12. Multiple Originals................................... 68
SECTION 11.13. Table of Contents; Headings.......................... 68
SECTION 11.14. Severability Clause.................................. 68
Exhibit A - Form of Security
v
<PAGE>
INDENTURE dated as of November 19, 1997, among FRIENDLY ICE
CREAM CORPORATION, a Massachusetts corporation (the "Company"), FRIENDLY'S
RESTAURANTS FRANCHISE, INC., a Delaware corporation, and THE BANK OF NEW
YORK, a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 10 1/2% Senior
Notes Due 2007 (the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.1. Definitions.
"Acquired Indebtedness" of any specified Person means Indebtedness
of any other Person existing at the time such other Person is merged with or
into or becomes a Restricted Subsidiary of such specified Person, including
Indebtedness Incurred in connection with, or in contemplation of, such other
Person's becoming a Restricted Subsidiary of such specified Person.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary; provided, however, that, in the case of clauses
(ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Article 4, "Affiliate" shall also mean any beneficial owner of
shares representing 10% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Company or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof; provided that Donald N. Smith shall be deemed to be an
"Affiliate" so long as he is the beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis) of
the Company or of rights or warrants to purchase such Voting Stock (whether or
not currently exercisable).
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets
<PAGE>
2
(including sales and other dispositions of tangible assets to franchisees and
licensees and tangible assets at underperforming restaurants, but excluding
sales, dispositions or licenses of trademarks, service marks, tradenames and
other intangibles), including by way of a Sale/Leaseback Transaction (each
referred to for the purposes of this definition as a "disposition"), by the
Company or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
property or assets in the ordinary course of business, (iii) dispositions of
inventory in the ordinary course of business, (iv) for purposes of Section 4.6
only, a disposition that constitutes a Restricted Payment permitted by Section
4.4, (v) the sale, lease, transfer or other disposition of all or substantially
all the assets of the Company as permitted under Article 5, (vi) the grant of
Liens permitted by Section 4.11 and (vii) sales of obsolete or worn-out
equipment.
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the product of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors or equivalent
governing body of a Person (or the general partner of such Person, as the case
may be) or any committee thereof duly authorized to act on behalf of such Board
or equivalent governing body.
"Business Day" means a day other than a Saturday, Sunday or other
day on which banking institutions in New York State are authorized or required
by law to close.
"Capitalized Lease Obligation" of a Person means an obligation of
such Person that is required to be classified and accounted for on the balance
sheet of such Person as a capitalized lease for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participation or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
events with respect to the Company:
<PAGE>
3
(i) (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company and (B) the
Permitted Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors of the Company;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office;
(iii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, the assets of the Company to any Person or group of Persons (other
than to any Wholly Owned Subsidiary of the Company);
(iv) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company and the
securities of the Company that are outstanding immediately prior to such
transaction and which represent 100% of the voting power of the Voting
Stock of the Company are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities
of the surviving corporation that represent immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving Person or transferee; or
(v) the adoption of a plan of liquidation of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means any commodity swap agreement, commodity
future agreement, commodity hedge agreement or other similar agreement relating
to commodities, in each case relating to those commodities used in the ordinary
course of business of the Company and its Subsidiaries.
<PAGE>
4
"Common Stock Offering" means the offering to the public by the
Company of 5,000,000 shares of its Common Stock concurrently with the offering
of the Securities, including any offering of shares pursuant to over-allotment
options.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters for which internal financial information
is available ending at least 45 days prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, (2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence or retirement of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition or Investment occurred on the
<PAGE>
5
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such interest expense, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or
other obligation of any other Person, (vii) Preferred Stock dividends in respect
of all Preferred Stock of the Company and its Subsidiaries held by Persons other
than the Company or a Wholly Owned Subsidiary and (viii) the cash contributions
to any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such
plan or trust; provided, however, that there shall be excluded therefrom any
such interest expense of any Unrestricted Subsidiary to the extent the related
Indebtedness is not Guaranteed or paid by the Company or any Restricted
Subsidiary.
"Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income:
(i) any net income (loss) of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that (A), subject to
the limitations contained in clause (iv) below, the Company's equity in
the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such Person (other than an Unrestricted
Subsidiary) for such period shall be included in determining such
Consolidated Net Income,
(ii) any net income (but not loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition,
<PAGE>
6
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A),
subject to the exclusion contained in clause (iv) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Restricted Subsidiary during
such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income,
(iv) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or its
consolidated Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person,
(v) any extraordinary gain or loss,
(vi) the cumulative effect of a change in accounting principles,
(vii) foreign currency exchange gains and losses, and
(viii) any income (loss) from discontinued operations.
Notwithstanding the foregoing, for the purpose of Section 4.4 only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (3)(D) of paragraph (a) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
<PAGE>
7
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the Stated Maturity of the
Securities.
"EBITDA" for any period means the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense and (v) non- cash
charges, in each case for such period. Notwithstanding the foregoing, the income
tax expense, depreciation expense and amortization expense of a Restricted
Subsidiary of the Company shall be included in EBITDA only to the extent (and in
the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be distributable to the Company by
such Subsidiary as a dividend.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Foreign Subsidiary" means any Subsidiary which is incorporated or
otherwise organized under the laws of any jurisdiction other than the United
States of America, any state thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements,
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8
or by agreement to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person to a counterparty (net of amounts receivable from such counterparty)
pursuant to any Interest Rate Agreement, or Currency Agreement or Commodity
Agreement.
"Holder" or "Senior Noteholder" means the Person in whose name a
Senior Note is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Disqualified Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be incurred by such
Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
(i) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money,
(ii) the principal of and premium (if any) in respect of obligations
of such Person evidenced by bonds, debentures, Securities or other similar
instruments,
(iii) all obligations of such Person in respect of unreimbursed
drawings under letters of credit or other similar instruments (including
reimbursement obligations with respect thereto),
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables and accrued
expenses), which purchase price is due more that six months after the date
of placing such property in service or taking delivery and title thereto
or the completion of such services,
(v) all Capitalized Lease Obligations of such Person,
(vi) the amount of all non-contingent obligations of such Person
with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with
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9
respect to any Restricted Subsidiary that is not a Subsidiary Guarantor,
any Preferred Stock (but excluding, in each case, any accrued dividends),
(vii) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other
Person,
(viii) all Indebtedness of other Persons to the extent Guaranteed by
such Person,
(ix) to the extent not otherwise included in this definition,
Hedging Obligations and,
(x) Acquired Indebtedness.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indenture" means this Indenture as amended or supplemented from
time to time by one or more supplemental indentures entered into pursuant to the
applicable provisions hereof or otherwise in accordance with the terms hereof.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of such Person) or
other extension of credit (including by way of Guarantee or similar arrangement)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and Section 4.4, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an
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10
Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time that such
Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors and evidenced by a resolution of such Board of
Directors certified in an Officers' Certificate to the Trustee. For the purposes
of calculating the amount of other "Investments," including Permitted
Investments, the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by the Company or any of
its Restricted Subsidiaries, without any adjustments for increases or decreases
in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income.
"Issue Date" means the date on which the Securities are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a Senior Note or installment receivable or otherwise, but
only as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other non cash form)
therefrom, in each case net of (i) all legal, accounting, investment banking,
title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Company or any Restricted Subsidiary
after such Asset Disposition.
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11
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Credit Facility" means that certain credit facility to be
entered into on the Issue Date among the Company, Societe Generale, and the
lenders from time to time party thereto, including any collateral documents,
instruments and agreements executed in connection therewith, and the term New
Credit Facility shall also include any amendments, supplements, modifications,
extensions, renewals, restatements or refundings thereof and any credit
facilities that replace, refund or refinance any part of the loans, other credit
facilities or commitments thereunder, including any such replacement, refunding
or refinancing facility that increases the amount borrowable thereunder or
alters the maturity thereof.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any Restricted Subsidiary (a) provides any Guarantee or credit
support of any kind (including any undertaking, Guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise) and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Officer" means the Chairman of the Board, any Vice Chairman, the
Chief Executive Officer, the Chief Financial Officer, the President, any
Executive Vice President, Vice President of Finance and Business Planning (or
any such other officer that performs similar duties), the Secretary or any
General Partner of the Company.
"Officers' Certificate" means a certificate signed by two Officers,
one of which is the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Executive Vice President, Vice
President of Finance and Business Planning (or any such other officer that
performs similar duties) or any General Partner.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee. Opinions of Counsel required to be
delivered under this Indenture may have qualifications customary for opinions of
the type required and counsel delivering such Opinions of Counsel may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, including certificates certifying as to matters
of fact.
<PAGE>
12
"Permitted Holders" means Donald N. Smith, The Equitable Life
Assurance Society of the U.S., the Company's existing senior management and
their respective Affiliates.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company, or a Restricted Subsidiary or a Person
which will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) accounts and receivables owing to the
Company or any Restricted Subsidiary, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (v) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees made in the ordinary
course of business; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments and which
are readily convertible into cash in U.S. dollars in an amount equal to the fair
market value thereof as determined in good faith by the Board of Directors;
(viii) franchisees of the Company in an amount at any one time outstanding not
to exceed $10 million; (ix) Unrestricted Subsidiaries in an aggregate amount at
any one time outstanding not to exceed $10 million; (x) Guarantees permitted to
be made pursuant to Section 4.3; (xi) securities of account debtors received in
settlement of obligations or pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy of insolvency of any account debtors of
customers, (xii) Currency Agreements, Interest Rate Agreements and Commodity
Agreements entered into in the ordinary course of business; provided that such
agreements are entered into for bona fide hedging purposes, are not for
speculation or trading purposes and are designed to protect against fluctuations
in interest rates, currency exchange rates or commodity prices, as the case may
be, and, in the case of Interest Rate Agreements, any such Interest Rate
Agreement has a notional amount corresponding to the Indebtedness being hedged
thereby, (xiii) accounts and notes receivable from franchisees, customers,
suppliers and others in the ordinary course of business, (xiv) in connection
with an Asset Disposition made in compliance with Section 4.6 and (xv)
Friendly's International, Inc. or its United Kingdom subsidiaries represented by
the transfer by the Company of the Company's interests in Shanghai Friendly Food
Co., Ltd.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure
<PAGE>
13
public or statutory obligations of such Person or deposits or cash or United
States government bonds to secure surety or appeal bonds to which such Person is
a party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case incurred in the ordinary course of business; (b)
Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens, in
each case for sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising out of judgments or awards against such
Person with respect to which such Person shall then be proceeding with an appeal
or other proceedings for review; (c) Liens for taxes, assessments, governmental
charges or claims not yet subject to penalties for non-payment or which are
being contested in good faith by appropriate proceedings; (d) Liens in favor of
issuers of surety bonds or letters of credit issued pursuant to the request of
and for the account of such Person, and Liens to secure bankers' acceptances, in
each case in the ordinary course of its business; (e) survey exceptions,
encumbrances, easements or reservations of, or rights of others for, licenses,
rights of way, sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of real
properties or Liens incidental to the conduct of the business of such Person or
to the ownership of its properties which were not incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens (A) securing obligations under Interest Rate
Agreements so long as the related Indebtedness is, and is permitted to be under
the Indenture, secured by a Lien on the same property securing such obligations
and (B) securing obligations under Currency Agreements and Commodity Agreements,
provided that such Liens shall not encumber any assets or property of the
Company other than the underlying contracts and the rights thereunder; (g) Liens
existing as of the date on which the Securities are originally issued and Liens
created by the Indenture; (h) Liens created solely for the purpose of securing
the payment of all or a part of the purchase price of assets or property
acquired or constructed in the ordinary course of business after the date on
which the Securities are originally issued; provided, however, that (A) the
aggregate principal amount of Indebtedness secured by such Liens shall not
exceed the cost of the assets or property so acquired or constructed, (B) the
Indebtedness secured by such Liens shall have otherwise been permitted to be
issued under the Indenture and (C) such Liens shall not encumber any other
assets or property of the Company or any of its Restricted Subsidiaries and
shall attach to such assets or property within 180 days of the construction or
acquisition of such assets or property; (i) Liens on the assets or property of a
Restricted Subsidiary of the Company existing at the time such Restricted
Subsidiary became a Subsidiary of the Company and not incurred as a result of
(or in connection with or in anticipation of) such Restricted Subsidiary
becoming a Subsidiary of the Company; provided, however, that (A) any such Lien
does not by its terms cover any categories of property or assets after the time
such Restricted Subsidiary becomes a Subsidiary which were not covered
immediately prior to such transaction, (B) the incurrence of the Indebtedness
secured by such Lien shall have otherwise been permitted to be issued under the
Indenture, and (C) such Liens do not extend to or cover any other categories of
property or assets of the Company or any of its Restricted Subsidiaries; (j)
Liens to secure Capitalized Lease Obligations permitted to be Incurred under the
Indenture; (k) Liens securing Indebtedness outstanding under the New Credit
Facility (including, without limitation, any
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14
Refinancing Indebtedness in respect thereof to the extent permitted under
Section 4.3; (l) any interest or title of a lessor under any lease, whether or
not characterized as an operating or capital lease; (m) Liens encumbering
deposits made to secure obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or any Restricted
Subsidiary, including rights of set-off; (n) leases or subleases granted in the
ordinary course of business; (o) Liens arising out of consignment or similar
arrangements for the sale of goods; (p) rights of set-off arising under law by
banks; (q) Liens in addition to the foregoing incurred in the ordinary course of
business which are not incurred in connection with the borrowing of money or the
obtaining of advances of credit; provided that the amount of the obligations of
the Company and its Restricted Subsidiaries secured by such Liens does not
exceed in the aggregate $2 million at any one time outstanding; and (r) Liens
extending, renewing or replacing in whole or in part a Lien permitted by this
Indenture; provided, however, that (A) such Liens do not extend beyond the
property subject to the existing Lien and improvements and construction on such
property and (B) the Indebtedness secured by the Lien may not exceed the
Indebtedness secured at the time by the existing Lien.
"Person" means any individual, corporation, partnership joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus
the premium, if any, payable on the Security which is due or overdue or is to
become due at the relevant time.
"Qualified Equity Offering" means (i) an underwritten primary public
offering (other than the Common Stock Offering) of common stock of the Company
pursuant to an effective registration statement under the Securities Act or (ii)
a private offering of common stock other than issuances of common stock pursuant
to employee benefit plans or as compensation to employees.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of the
Indenture or Incurred in compliance with the Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances other
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a
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15
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the sum of the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced; provided further, however, that Refinancing Indebtedness shall
not include (x) Indebtedness of a Restricted Subsidiary that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary (unless
such Unrestricted Subsidiary is concurrently redesignated a Restricted
Subsidiary).
"Related Business" means the businesses of the Company and the
Restricted Subsidiaries on the date of the Indenture and any business related,
ancillary or complementary thereto, in each case as determined by the Company in
good faith.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"RIC" means Restaurant Insurance Corporation, the Company's
insurance Subsidiary, and its successors.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Senior Indebtedness" means all Indebtedness of the Company
including interest thereon, whether outstanding on the Issue Date or thereafter
Incurred, unless in the instrument creating or evidencing the same or pursuant
to which the same is outstanding it is provided that such obligations are
subordinated in right of payment to the Securities; provided, however, that
Senior Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness,
Guarantee or obligation of the Company which is subordinate or junior in any
respect to any other Indebtedness, Guarantee or obligation of the Company,
including any Subordinated Obligations, (5) any obligations with respect to any
Capital Stock, (6) Indebtedness which, when Incurred and without respect to any
election
<PAGE>
16
under Section 1111(b) of Title II, United States Code, is without recourse to
the Company, or (7) any Indebtedness Incurred in violation of this Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means Friendly's Restaurants Franchise, Inc.
and each new Subsidiary (other than Foreign Subsidiaries and Unrestricted
Subsidiaries) that guarantees the Company's obligations with respect to the
Securities.
"Subsidiary Guaranty" means the Guaranty by a Subsidiary Guarantor
of the Company's obligations with respect to the Securities.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 360 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $250,000,000 (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act), (iii)
repurchase obligations with a term of not more than 60 days for underlying
securities of the
<PAGE>
17
types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 270 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's
Ratings Group, (v) investments in securities with maturities of 12 months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi)
investments in shares of money market funds registered under the Investment
Company Act of 1940, as amended.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa77bbbb) as in effect on the date of this Indenture except as provided in
Section 9.3.
"Trade Payables" means, with respect to any Person, any accounts
payable or any indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person arising in the ordinary course of business
in connection with the acquisition of goods or services.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total consolidated assets of $1,000 or less or (B) if such
Subsidiary has consolidated assets greater than $1,000, then such designation
would be permitted under Section 4.4. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness
<PAGE>
18
under Section 4.3(a) and (y) no Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock
of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the
Company all the Capital Stock of which (other than directors' qualifying shares
and, in the case of Foreign Subsidiaries, shares required to be held by foreign
nationals representing not more than 2% of such Capital Stock) is owned by the
Company or another Wholly Owned Subsidiary.
SECTION 1.2. Other Definitions.
Defined in
Term Section
-------
"Affiliate Transaction"....................................................4.7
"Bankruptcy Law"...........................................................6.1
"covenant defeasance option"............................................8.1(b)
"Custodian"................................................................6.1
"Event of Default..........................................................6.1
"Global Securities"........................................................2.1
"legal defeasance option"...............................................8.1(b)
"Legal Holiday"...........................................................11.8
"Notice of Default"........................................................6.1
"Offer".................................................................4.6(b)
"Participants".............................................................2.6
"Paying Agent".............................................................2.3
"Registrar"................................................................2.3
"Restricted Payment"....................................................4.4(a)
"Securities Register"......................................................2.3
"Successor Company"........................................................5.1
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by
<PAGE>
19
reference in and made a part of this Indenture. The following TIA terms have the
following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.4. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption
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20
or mandatory repurchase price with respect to such Preferred Stock,
whichever is greater; and
(9) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States.
ARTICLE 2
The Securities
SECTION 2.1. Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit A are part of the terms of this
Indenture.
Global Securities. The Securities shall be issued initially in the
form of one or more permanent Global Securities ("Global Securities") in
definitive, fully registered form without interest coupons in substantially the
form of Exhibit A, which shall be deposited on behalf of the purchasers of the
Securities represented thereby with the Trustee, at its principal corporate
trust office in New York City, as custodian for the Depositary, and registered
in the name of the Depositary or a nominee of the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Global Securities may from time to time be
increased or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee in the limited circumstances hereinafter provided.
Certificated Securities. Except as provided in Section 2.6, owners
of beneficial interests in Global Securities will not be entitled to receive
physical delivery of certificated securities.
SECTION 2.2. Execution and Authentication. An Officer of the Company
shall sign the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
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21
The Trustee shall authenticate and make available for delivery
Securities for original issue in an aggregate principal amount of $200,000,000,
upon a written order of the Company signed by an Officer of the Company. Such
order shall specify the amount of the Securities to be authenticated and the
date on which the original issue of Securities is to be authenticated. The
aggregate principal amount of Securities outstanding at any time may not exceed
that amount except as provided in Section 2.7.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate the Securities, upon the consent of the Company to such
appointment. Unless limited by the terms of such appointment, an authenticating
agent may authenticate Securities whenever the Trustee may do so. Each reference
in this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as any Registrar, Paying
Agent or agent for service of notices and demands.
SECTION 2.3. Registrar and Paying Agent. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar,
acting on behalf of and as agent for the Company, shall keep a register (the
"Securities Register") of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.4. Paying Agent To Hold Money in Trust. On or prior to
each due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent a sum sufficient to pay such principal and
interest when so becoming due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Securities and
shall notify the Trustee of any default by the Company in making any such
payment. If the Company or a Wholly Owned Subsidiary acts as Paying Agent, it
shall segregate the money held by it as Paying Agent and hold it as a separate
trust fund. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any
<PAGE>
22
funds disbursed by the Paying Agent. Upon complying with this Section, the
Paying Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders;
provided that as long as the Trustee is the Registrar, no such list need be
furnished.
SECTION 2.6. Transfer and Exchange. The Securities shall be issued
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Registrar shall record in the
Securities Register the transfer as requested if the requirements of Section
8-401(1) of the Uniform Commercial Code are met, and thereupon one or more new
Securities in the same aggregate principal amount shall be issued to the
designated assignee or transferee and the old Security will be returned to the
Company. When Securities are presented to the Registrar or a co-registrar with a
request to exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall make the exchange as requested, in the same
manner, if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-registrar's request. The Company may require
payment of a sum sufficient to pay all taxes, assessments or other governmental
charges in connection with any transfer or exchange pursuant to this Section.
The Company shall not be required to make and the Registrar need not register
transfers or exchanges of Securities selected for redemption (except, in the
case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before the making of a
notice of redemption of Securities to be redeemed or 15 days before an interest
payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
<PAGE>
23
With respect to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global
Security or a nominee thereof and deposited with such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) A Global Security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary. A Global Security is exchangeable for
certificated Securities only if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as a Depositary for such Global
Security or if at any time the Depositary ceases to be a clearing agency
registered under the Exchange Act, (ii) the Company executes and delivers
to the Trustee a notice that such Global Security shall be so
transferable, registrable, and exchangeable, and such transfers shall be
registrable or (iii) there shall have occurred and be continuing an Event
of Default or an event which, with the giving of notice or lapse of time
or both, would constitute an Event of Default with respect to the
Securities represented by such Global Security. Any Global Security that
is exchangeable for certificated Securities pursuant to the preceding
sentence will be transferred to, and registered and exchanged for,
certificated Securities in authorized denominations, without legends
applicable to a Global Security, and registered in such names as the
Depositary holding such Global Security may direct. Subject to the
foregoing, a Global Security is not exchangeable, except for a Global
Security of like denomination to be registered in the name of the
Depositary or its nominee. In the event that a Global Security becomes
exchangeable for certificated Securities, (i) certificated Securities will
be issued only in fully registered form in denominations of $1,000 or
integral multiples thereof, (ii) payment of principal, any repurchase
price, and interest on the certificated Securities will be payable, and
the transfer of the certificated Securities will be registrable, at the
office or agency of the Company maintained for such purposes, and (iii) no
service charge will be made for any registration or transfer or exchange
of the certificated Securities, although the Company may require payment
of a sum sufficient to cover any tax or governmental charge imposed in
connection therewith.
(3) Securities issued in exchange for a Global Security or any
portion thereof shall have an aggregate principal amount equal to that of
such Global Security or portion thereof to be so exchanged, shall be
registered in such names and be in such authorized denominations as the
Depositary shall designate and shall bear the applicable legends provided
for herein. Any Global Security to be exchanged in whole shall be
surrendered by the Depositary to the Trustee. With respect to any Global
Security to be exchanged in part, either such Global Security shall be so
surrendered for exchange or, if the Trustee is acting as custodian for the
Depositary or its nominee with respect to such Global Security, the
principal amount thereof shall be
<PAGE>
24
reduced, by an amount equal to the portion thereof to be so exchanged, by
means of an appropriate adjustment made on the records of the Trustee.
Upon any such surrender or adjustment, the Trustee shall authenticate and
deliver the Security issuable on such exchange to or upon the order of the
Depositary or an authorized representative thereof.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion mutilated thereof, whether pursuant to this Section, Section 2.7
or 2.9 or otherwise, shall be authenticated and delivered in the form of,
and shall be, a Global Security, unless such Security is registered in the
name of a Person other than the Depositary for such Global Security or a
nominee thereof.
Members of, or participants in, the Depositary ("Participants")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary or by the Trustee as the custodian of the
Depositary or under such Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Participants, the operation of
customary practices of such Depositary governing the exercise of the rights of a
holder of a beneficial interest in any Global Security.
SECTION 2.7. Replacement Securities. If a mutilated Security is
surrendered to the Trustee or Registrar or if the Holder of a Security claims
that the Security has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Security if the
requirements of Section 8-405 of the Uniform Commercial Code are met and the
Holder satisfies any other reasonable requirements of the Trustee and the
Company. Such Holder shall furnish an indemnity bond sufficient in the judgment
of the Company and the Trustee to protect the Company, the Trustee, the Paying
Agent, the Registrar and any co-registrar from any loss which any of them may
suffer if a security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an obligation of the Company under
this Indenture.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.8. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it
<PAGE>
25
for cancellation and those described in this Section as not outstanding. A
Security does not cease to be outstanding because the Company or an Affiliate of
the Company holds the security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date or, pursuant to
Section 8.1(a), within 91 days prior thereto, money sufficient to pay all
principal and interest payable on that redemption or maturity date with respect
to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, then on and after such date such Securities (or portions thereof) cease
to be outstanding and on and after such redemption or maturity date interest on
them ceases to accrue.
SECTION 2.9. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary securities.
SECTION 2.10. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver such canceled Securities to the Company. The Trustee
shall from time to time provide the Company a list of all Securities that have
been canceled as requested by the Company. The Company may not issue new
Securities to replace Securities it has redeemed, paid or delivered to the
Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP"
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26
numbers in notices of redemption as a convenience to Holders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of a redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE 3
Redemption
SECTION 3.1. Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, they shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply with
the provisions herein.
SECTION 3.2. Selection of Securities To Be Redeemed. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed. In the event the Company is required to make an offer
to redeem Securities pursuant to Sections 4.6 or 4.8 and the amount available
for such offer is not evenly divisible by $1,000, the Trustee shall promptly
refund to the Company any remaining funds, which in no event will exceed $1,000.
SECTION 3.3. Notice of Redemption. At least 30 days but not more
than 60 days before a date for redemption of securities, the Company shall mail
a notice of redemption by first-class mail to the registered address appearing
in the Security Register of each Holder of Securities to be redeemed.
<PAGE>
27
The notice shall identify the Securities (including CUSIP numbers,
if any) to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to
be redeemed;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities (or portion thereof) called for redemption
ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense. In such event, the Company shall
provide the Trustee with the information required by this Section.
SECTION 3.4. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date. Such
notice if mailed in the manner herein provided shall be conclusively presumed to
have been given, whether or not the Holder receives such notice. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 3.5. Deposit of Redemption Price. Prior to 10:00 a.m. (New
York City time) on the redemption date, the Company shall deposit with the
Trustee or Paying Agent (or, if the Company or a Subsidiary is the Paying Agent,
shall segregate and hold in trust) money sufficient to pay the redemption price
of and accrued interest (if any) on all Securities or portions thereof to be
redeemed on that date other than Securities or portions of
<PAGE>
28
Securities called for redemption which have been delivered by the Company to the
Trustee for cancellation.
SECTION 3.6. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered,
except that if a Global Security is so surrendered, the Company shall execute,
and the Trustee shall authenticate and deliver to the Depositary for such Global
Security, without service charge, a new Global Security in denomination equal to
and in exchange for the unredeemed portion of the principal of the Global
Security so surrendered.
ARTICLE 4
Covenants
SECTION 4.1. Payment of Securities. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.2. SEC Reports. The Company shall file with the Trustee
and provide Holders, as their names appear in the Security Register, within 15
days after it files them with the SEC, copies of the annual reports and the
information, documents and other reports which it is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that
the Company may not be required to be or remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
continue to file with the SEC and provide the Trustee and Holders with the
annual reports and the information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange Act. The Company also shall
comply with the other provisions of TIA ss. 314(a).
Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive
<PAGE>
29
notice of any information contained therein or determinable from information
contained therein, including the Company's compliance with any of its covenants
hereunder (as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 4.3. Limitation on Indebtedness and Preferred Stock. (a) (i)
The Company will not Incur, and will not permit any Restricted Subsidiary to
Incur, any Indebtedness (including Acquired Indebtedness) or issue Disqualified
Stock and (ii) the Company will not permit any of its Restricted Subsidiaries
that are not Subsidiary Guarantors to issue any shares of Preferred Stock;
provided, however, that the Company and any Subsidiary Guarantor may Incur
Indebtedness (including Acquired Indebtedness) or issue Disqualified Stock if on
the date thereof (and after giving effect to the application of proceeds
therefrom) the Consolidated Coverage Ratio would be greater than 2.50:1 if such
Incurrence shall occur prior to December 31, 1999 or greater than 2.75:1 if such
Incurrence shall occur thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company or any Restricted Subsidiary
(including any Guarantees thereof) under the New Credit Facility and
any Refinancing Indebtedness with respect thereto in an aggregate
principal amount outstanding at any time not to exceed $160 million,
less the aggregate amount of all proceeds from all Asset
Dispositions that have been applied since the Issue Date to
permanently reduce the outstanding amount of such Indebtedness
pursuant to Section 4.6 and less the aggregate amount of all
mandatory repayments of principal of term loans thereunder that have
been made since the Issue Date (other than repayments that are
immediately re-borrowed);
(ii) Indebtedness of the Company owing to and held by any
Wholly Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by the Company or any Wholly Owned Subsidiary;
provided, however, that (a) any such Indebtedness is made pursuant
to an intercompany note and (other than any such Indebtedness of the
Company to RIC or of RIC to the Company) is expressly subordinated
to the Securities or the applicable Subsidiary Guaranty, as the case
may be, and (b) any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or a Wholly
Owned Subsidiary) will be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(iii) Indebtedness represented by the Securities (including
Subsidiary Guarantees), any Indebtedness of the Company or any
Restricted Subsidiary (other than the Indebtedness described in
clauses (i)-(ii) above) outstanding on
<PAGE>
30
the Issue Date and any Refinancing Indebtedness Incurred in respect
of any Indebtedness described in this clause (iii);
(iv) (A) Indebtedness of a Restricted Subsidiary outstanding
on or prior to the date on which such Restricted Subsidiary was
acquired by the Company or a Restricted Subsidiary (other than
Indebtedness Incurred in connection with, or in contemplation of,
the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was
otherwise acquired by the Company or a Restricted Subsidiary);
provided, however, that at the time such Restricted Subsidiary is
acquired by the Company or a Restricted Subsidiary, the Company
would have been able to Incur $1.00 of additional Indebtedness
pursuant to paragraph (a) above after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (iv) and
such transaction or series of related transactions and (B)
Refinancing Indebtedness Incurred by a Restricted Subsidiary in
respect of Indebtedness Incurred by such Restricted Subsidiary
pursuant to this clause (iv);
(v) Indebtedness (A) represented by letters of credit (and
reimbursement obligations with respect thereto) to secure the
purchase price of inventory and/or equipment in the ordinary course
of business or to secure Indebtedness (including Capitalized Lease
Obligations) otherwise permitted to be incurred under the Indenture,
(B) in respect of performance bonds (and letters of credit in
respect thereof), bankers' acceptances, letters of credit for
workers' compensation claims, and surety or appeal bonds (and
letters of credit in respect thereof) provided by the Company or any
Restricted Subsidiary in the ordinary course of its business and
which do not secure other Indebtedness and (C) under Currency
Agreements, Interest Rate Agreements and Commodity Agreements
Incurred which, at the time of Incurrence, is in the ordinary course
of business; provided that such agreements are entered into for bona
fide hedging purposes, are not for speculation or trading purposes
and are designed to protect against fluctuations in interest rates,
currency exchange rates or commodity prices, as the case may be,
and, in the case of Interest Rate Agreements, any such Interest Rate
Agreement has a notional amount corresponding to the Indebtedness
being hedged thereby;
(vi) Indebtedness represented by Guarantees by the Company of
Indebtedness otherwise permitted to be Incurred pursuant to this
covenant and Indebtedness represented by Guarantees by a Restricted
Subsidiary of Indebtedness of the Company or of another Restricted
Subsidiary otherwise permitted to be Incurred pursuant to this
Section 4.3;
(vii) obligations with respect to customary provisions
regarding post-closing purchase price adjustments and
indemnification in agreements for
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31
the purchase or sale of a business or assets otherwise permitted by
the Indenture;
(viii) Guarantees of Indebtedness of franchisees of the
Company or a Restricted Subsidiary in an aggregate principal amount
at any one time outstanding not to exceed $20 million, provided that
any such Guarantees shall be deemed to be Incurred by the Company or
such Restricted Subsidiary at the time any such franchisee ceases to
be a franchisee of the Company or such Restricted Subsidiary;
(ix) Indebtedness Incurred by the Company or any Restricted
Subsidiary to finance the payment of property, casualty and
specialty insurance premiums in the ordinary course of the Company's
business which is repaid within 18 months of its Incurrence,
provided that such Indebtedness does not exceed $7.5 million in the
aggregate at any one time outstanding;
(x) Indebtedness of the Company Incurred to finance the
acquisition, construction or improvement of fixed or capital assets,
in an aggregate principal amount at any one time outstanding not to
exceed $15 million, provided that such Indebtedness is incurred
within 180 days after the date of such acquisition, construction or
improvement and does not exceed the fair market value of such
acquired, constructed or improved assets as determined in good faith
by the Board of Directors;
(xi) Indebtedness represented by Capitalized Lease Obligations
in respect of Sale/Leaseback Transactions involving the sale of
restaurants within 24 months of the purchase of the associated real
property, in an aggregate principal amount at any one time
outstanding not to exceed $20 million;
(xii) Indebtedness represented by Guarantees of loans to
employees of the Company or its Subsidiaries for the purpose of
paying withholding taxes incurred by such employees in connection
with the vesting of stock and/or stock options granted by the
Company, in an aggregate amount at any one time outstanding not to
exceed $3 million; and
(xiii) other Indebtedness in an aggregate principal amount at
any one time outstanding not to exceed $20 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to Section 4.3(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
new Indebtedness shall be subordinated to the Securities to at least the same
extent as such Subordinated Obligations being Refinanced. No Subsidiary
Guarantor shall incur any Indebtedness pursuant to Section 4.3(b) if the
proceeds thereof are used, directly or indirectly, to Refinance any subordinated
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32
obligation of such Subsidiary Guarantor unless such Indebtedness shall be
subordinated to the obligations of such Subsidiary Guarantor under the
Subsidiary Guaranty to at least the same extent as such Subordinated Obligation
of such Subsidiary Guarantor.
(d) The Company will not permit any Unrestricted Subsidiary to Incur
any Indebtedness other than Non-Recourse Debt, except that an Unrestricted
Subsidiary may incur Indebtedness Guaranteed by the Company or any of its
Restricted Subsidiaries to the extent such Guarantee is permitted by Section
4.4(b)(iv); provided, however, if any such Indebtedness ceases to be
Non-Recourse Debt, such event shall be deemed to constitute an Incurrence of
Indebtedness by the Company or a Restricted Subsidiary.
(e) For purposes of determining compliance with this Section 4.3,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company will classify, in
its sole discretion, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of the above clauses; (ii)
Indebtedness Incurred pursuant to the New Credit Facility prior to or on the
date of this Indenture shall be treated as Incurred pursuant to Section
4.3(b)(i) and (iii) Indebtedness permitted by this Section 4.3 need not be
permitted solely by reference to one provision permitting such Indebtedness but
may be divided and classified in more than one type and permitted in part by one
such provision and in part by one or more other provisions of this Section 4.3
permitting such Indebtedness.
SECTION 4.4. Limitation on Restricted Payments. (a) The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company) except dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase such Capital Stock and except dividends or
distributions payable to the Company or another Restricted Subsidiary (and, if
such Restricted Subsidiary making such dividend or distribution is not wholly
owned, to its other shareholders on a pro rata basis), (ii) purchase,
repurchase, redeem, retire or otherwise acquire or retire for value any Capital
Stock of the Company or any Restricted Subsidiary held by Persons other than the
Company or another Restricted Subsidiary, (iii) purchase, repurchase, redeem,
defease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of such purchase, repurchase or acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement, payment or Investment being herein referred to as a "Restricted
Payment") if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment:
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33
(1) a Default or Event of Default shall have occurred and be
continuing (or would result therefrom);
(2) the Company and its Restricted Subsidiaries could not Incur at
least $1.00 of additional Indebtedness under Section 4.3(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors of the Company, whose
determination will be evidenced by a resolution of such Board of Directors
certified in an Officers' Certificate to the Trustee) declared or made
subsequent to the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income with respect to the
period (treated as one accounting period) from the Issue Date to the
end of the most recent fiscal quarter ending at least 45 days prior
to the date of such Restricted Payment (or, in case such
Consolidated Net Income is a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of Capital Stock (other than Disqualified
Stock and other than the Common Stock issued in the Common Stock
Offering) subsequent to the Issue Date (other than an issuance or
sale to a Subsidiary);
(C) the amount by which Indebtedness of the Company is reduced
on the Company's balance sheet upon the conversion or exchange
(other than by a Restricted Subsidiary) subsequent to the Issue Date
of any Indebtedness of the Company convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company (less
the amount of any cash or other property distributed by the Company
upon such conversion or exchange); and
(D) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) repayments of the
principal of loans or advances or other transfers of assets to the
Company or any Restricted Subsidiary from Unrestricted Subsidiaries
or (ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Unrestricted Subsidiary, which
amount was previously included in the calculation of the amount of
Restricted Payments.
(b) The provisions of Section 4.4(a) will not prohibit:
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34
(i) any purchase, redemption, defeasance or other
acquisition of Capital Stock of the Company or Subordinated
Obligations made by exchange for, or out of the net proceeds
of the substantially concurrent sale of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary); provided, however, that
(A) such purchase, redemption, defeasance or other acquisition
will be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a)
above and (B) the Net Cash Proceeds from such sale will be
excluded from clause (3)(B) of paragraph (a) above;
(ii) any purchase, redemption, defeasance or other
acquisition of Subordinated Obligations made by exchange for,
or out of the net proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Company; provided,
however, that (A) the principal amount of such new
Indebtedness does not exceed the principal amount of the
Subordinated Obligations being so redeemed, repurchased,
acquired or retired for value (plus the amount of any premium
required to be paid under the terms of the instrument
governing the Subordinated Obligations being so redeemed,
repurchased, acquired or retired and related expenses), (B)
such new Indebtedness is subordinated to the Securities at
least to the same extent as such Subordinated Obligations so
purchased, exchanged, redeemed, repurchased, acquired or
retired for value, (C) such new Indebtedness has a final
scheduled maturity date later than the final scheduled
maturity date of the Securities and (D) such new Indebtedness
has an Average Life equal to or greater than the Average Life
of the Securities; provided further, however, that such
purchase, redemption, defeasance or other acquisition will be
excluded in the calculation of the amount of Restricted
Payments pursuant to clause (3) of paragraph (a) above;
(iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such
dividend would have complied with this Section; provided,
however, that the amount of such dividend will be included in
the calculation of the amount of Restricted Payments pursuant
to clause (3) of Section 4.4(a);
(iv) Investments in the form of Guarantees by the
Company or any of its Restricted Subsidiaries of Indebtedness
of an Unrestricted Subsidiary solely to the extent that the
Company or any such Restricted Subsidiary would then be
permitted to make an Investment in such Unrestricted
Subsidiary pursuant to clause (3) of Section 4.4(a); provided
that the amount of any such Investment will be included in the
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35
calculation of the amount of Restricted Payments pursuant to
clause (3) of Section 4.4(a);
(v) the repurchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company held
by any member of the Company's management pursuant to employee
benefit plans or agreements; provided that the aggregate price
paid for all such Capital Stock shall not exceed $2 million in
any 12-month period and $5 million in the aggregate; provided
further that such amounts will be included in the calculation
of the amount of Restricted Payments pursuant to clause (3) of
Section 4.4(a); and
(vi) other Restricted Payments in an aggregate amount
not to exceed $5 million; provided that such amounts will be
included in the calculation of the amount of Restricted
Payments pursuant to clause (3) of Section 4.4(a);
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted by clauses (v) and (vi), no Default or Event of
Default shall have occurred and be continuing.
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligation owed to the
Company, (ii) make any loans or advances to the Company or (iii) transfer any of
its property or assets to the Company or any Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date (including pursuant to the New
Credit Facility);
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company or a Restricted
Subsidiary and outstanding on such date (other than Indebtedness Incurred
in connection with, or in contemplation of, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company or a Restricted
Subsidiary);
(3) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this Section or contained in any
amendment to an agreement referred to in clause (1) or (2) of this
Section; provided, however, that the encumbrances and
<PAGE>
36
restrictions contained in any such refinancing agreement or amendment are
not materially less favorable to the Senior Noteholders than the
encumbrances and restrictions contained in any such agreement as
determined in good faith by the Company and evidenced by an Officers'
Certificate;
(4) in the case of clause (iii), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license or
similar contract, (B) by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture or (C) contained in security agreements securing Indebtedness of
a Restricted Subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to such security agreements;
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(6) any encumbrance or restriction arising under or by reason of
applicable law;
(7) any encumbrance or restriction contained in the Indenture;
(8) customary provisions in joint venture agreements relating solely
to the securities, assets and revenues of such joint venture or other
business venture;
(9) any encumbrance or restriction applicable to secured
Indebtedness otherwise permitted to be Incurred under the Indenture that
limits the right of the debtor to dispose of the assets securing such
Indebtedness;
(10) customary net worth provisions contained in leases and other
agreements entered into by a Restricted Subsidiary in the ordinary course
of business; and
(11) customary restrictions with respect to a Restricted Subsidiary
pursuant to an agreement that has been entered into for the sale or other
disposition of all of the Capital Stock or assets of such Restricted
Subsidiary.
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock. (a)
The Company will not, and will not permit any Restricted Subsidiary to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by senior management for Asset
Dispositions of less than $5 million and by the Board of Directors of the
Company in good faith for Asset Dispositions of $5 million or more
<PAGE>
37
(including in each case as to the value of all non cash consideration), of the
shares and assets subject to such Asset Disposition, (ii) at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or Temporary Cash Investments and (iii) an amount equal to
100% of the Net Available Cash from such Asset Disposition is applied by the
Company or such Restricted Subsidiary, as the case may be, (A) within 270 days
from the receipt of such Net Available Cash to the extent the Company or any
Restricted Subsidiary, as the case may be, elects (or is required by the terms
of the New Credit Facility or any Senior Indebtedness), to prepay, repay,
purchase or otherwise acquire Indebtedness under the New Credit Facility or
other Senior Indebtedness or Indebtedness (other than Disqualified Stock) of a
Wholly Owned Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company); (B) to the extent of any remaining
balance of Net Available Cash after any election in accordance with clause (A),
to the extent the Company or such Restricted Subsidiary, as the case may be,
elects, to the investment by the Company or any Wholly Owned Subsidiary in
Additional Assets within 360 days from the receipt of such Net Available Cash
(except that the Company shall be deemed to have so invested such Net Available
Cash within 360 days if, within such 360 days, it has entered into a binding
commitment to invest such Net Available Cash and such Net Available Cash is
actually invested within 90 days thereafter); (C) to the extent of any remaining
balance of such Net Available Cash after any election in accordance with clauses
(A) and (B), to make an Offer (as defined below) to purchase Securities pursuant
to and subject to the conditions set forth in paragraph (b) of this covenant
within 45 days from the application of Net Available Cash in accordance with
clauses (A) and (B); and (D) to the extent of any remaining balance of such Net
Available Cash after election or application in accordance with clauses (A), (B)
and (C), to (x) the acquisition by the Company or any Wholly Owned Subsidiary of
Additional Assets, (y) the prepayment, repayment, purchase or other acquisition
of Indebtedness of the Company (other than Indebtedness owed to an Affiliate of
the Company and other than Disqualified Stock of the Company) or Indebtedness of
any Restricted Subsidiary (other than Indebtedness owed to the Company or an
Affiliate of the Company) or (z) general corporate purposes; provided, however
that in connection with any prepayment, repayment, purchase or other acquisition
of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause any related
loan commitment or availability (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid, purchased or acquired, except
that pending the final application of any such Net Available Cash, the Company
or such Restricted Subsidiary may temporarily reduce Indebtedness under a
revolving credit facility or otherwise invest such Net Available Cash in
Temporary Cash Investments.
For the purposes of this Section 4.6, the following are deemed to be
cash: (x) the assumption by the transferee of Indebtedness of the Company or any
Restricted Subsidiary (other than Indebtedness that is subordinated to the
Securities or the Subsidiary Guarantees) and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition, (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the
<PAGE>
38
Company or such Restricted Subsidiary into cash and (z) Additional Assets
received in an exchange of assets transaction; provided that (i) in the event
such exchange of assets transaction or series of related exchange of assets
transactions (each an "Exchange Transaction") involves an aggregate value in
excess of $2,500,000, the terms of such Exchange Transaction shall have been
approved by a majority of the disinterested members of the Board of Directors,
(ii) in the event such Exchange Transaction involves an aggregate value in
excess of $5,000,000, the Company shall have received a written opinion from a
nationally recognized independent investment banking firm that the Company has
received consideration equal to the fair market value of the assets disposed of
and (iii) any assets to be received shall be comparable to those being exchanged
as determined in good faith by the Board of Directors, except that up to
$1,000,000 of consideration in any Exchange Transaction may consist of marketing
and similar credits in lieu of comparable assets.
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to Section 4.6(a)(iii)(C), the Company will be required
to purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Offer") at a purchase price of 100% of their principal amount
plus accrued interest to the date of purchase in accordance with the procedures
(including prorating in the event of oversubscription) set forth in this
Indenture. If the aggregate purchase price of Securities tendered pursuant to
the Offer is less than the Net Available Cash allotted to the purchase of the
Securities, the Company will apply the remaining Net Available Cash in
accordance with Section 4.6 (a)(iii)(D). Notwithstanding the foregoing
provisions, the Company and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this covenant exceeds $5,000,000. The Company shall
not be required to make an Offer for Securities pursuant to this covenant if the
Net Available Cash available therefor (after application of the proceeds as
provided in clauses (A) and (B)) is less than $7,500,000 (which lesser amounts
shall be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from subsequent Asset
Dispositions).
(c) (1) Promptly, and in any event within 30 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, at the address
appearing in the Security Register, a written notice stating that the Holder may
elect to have his Securities purchased by the Company either in whole or in part
(subject to prorationing as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date") and shall contain (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company, the most
recent subsequently filed Quarterly Report on Form 10-Q of the Company and any
Current Report on Form 8-K of any the Company filed subsequent to such Quarterly
Report, other than Current Reports describing Asset Dispositions otherwise
described in the offering materials (or corresponding successor reports), (ii) a
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39
description of material developments in the Company's business subsequent to the
date of the latest of such Reports, and (iii) if material, appropriate pro forma
financial information and all instructions and materials necessary to tender
Securities pursuant to the Offer, together with the information contained in
clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.6(a). Upon the expiration of
the period for which the Offer remains open (the "Offer Period"), the Company
shall deliver to the Trustee for cancellation the Securities or portions thereof
which have been properly tendered to and are to be accepted by the Company. Not
later than 10:00 a.m. (New York City time) on the Purchase Date, the Company
shall irrevocably deposit with the Trustee or with a paying agent (or, if the
Company is acting as Paying Agent, segregate and hold in trust) an amount in
cash sufficient to pay the Offer Amount for all Securities properly tendered to
and accepted by the Company. The Trustee shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price.
(3) Holders electing to have a Security purchased will be required
to surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the Purchase Date. Holders will
be entitled to withdraw their election in whole or in part if the Trustee or the
Company receives not later than one Business Day prior to the Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security (which shall be $1,000 or an integral multiple
thereof) which was delivered for purchase by the Holder, the aggregate principal
amount of such Security (if any) that remains subject to the original notice of
the Offer and that has been or will be delivered for purchase by the Company and
a statement that such Holder is withdrawing his election to have such Security
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(4) A Security shall be deemed to have been accepted for purchase at
the time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.6. To the extent that
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40
the provisions of any securities laws or regulations conflict with provisions of
this Section 4.6, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
this Section 4.6 by virtue thereof.
SECTION 4.7. Limitation on Transactions with Affiliates. (a) The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or conduct any transaction or series of transactions
(including the purchase, sale, lease or exchange of any property, or rendering
of any service) with any Affiliate of the Company (an "Affiliate Transaction")
unless (i) the terms of such transaction are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate; (ii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $2,500,000, the terms of such
transaction shall have been approved by a majority of the disinterested members
of the Board of Directors (and such majority determines that such Affiliate
Transaction satisfies the criteria in clause (i) above) and (iii) in the event
such Affiliate Transaction involves an aggregate amount in excess of $5,000,000,
the Company has received a written opinion from a nationally recognized
independent investment banking firm that such Affiliate Transaction is fair to
the Company from a financial point of view.
(b) The foregoing provision of Section 4.7(a) shall not apply to (i)
any Restricted Payment permitted to be made pursuant to Section 4.4, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii) any
fees, indemnities, loans or advances to employees in the ordinary course of
business, (iv) any transaction between the Company and a Restricted Subsidiary
or between Restricted Subsidiaries, (v) transactions with suppliers or other
purchasers of goods and services (including, without limitation, pursuant to
joint venture agreements and franchise agreements) and (vi) any agreement in
effect on the Issue Date or any amendment thereto or transaction contemplated
thereby (and any replacement or amendment of any such agreement so long as any
such amendment or replacement thereof is not materially less favorable to the
Holders than the original agreement in effect on the Issue Date).
SECTION 4.8. Change of Control. (a) Upon a Change of Control, each
Holder shall have the right to require that the Company repurchase all or any
part of such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date), in
accordance with the terms contemplated in Section 4.8(b).
(b) (i) Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder with a copy to the Trustee stating:
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41
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase any or all of such Holder's
Securities in denominations of $1,000 or any integral multiple thereof at
a purchase price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on a record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts and pro forma financial
information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its Securities
purchased by the Company.
(c) Holders electing to have a Security purchased will be required
to surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the purchase date. Holders will
be entitled to withdraw their election if the Trustee or the Company receives
not later than one Business Day prior to the purchase date, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security which was delivered for purchase by the Holder as to
which such notice of withdrawal is being submitted and a statement that such
Holder is withdrawing his election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered to the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this Section 4.8(e) by virtue thereof.
(f) Notwithstanding the occurrence of a Change of Control, the
Company shall not be obligated to repurchase the Securities or otherwise comply
with this Section if the Company has irrevocably elected to redeem all the
Securities in accordance with Article 3; provided that the Company does not
default in its redemption obligations pursuant to such election.
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SECTION 4.9. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or permit to
exist any Lien on any of its property or assets (including Capital Stock),
whether owned on the Issue Date or thereafter acquired, securing any obligation,
other than Permitted Liens, unless contemporaneously therewith effective
provision is made to secure the Securities equally and ratably with (or on a
senior basis to, in the case of Subordinated Obligations) such obligation for so
long as such obligation is so secured by a Lien on property or assets of the
Company or a Restricted Subsidiary.
SECTION 4.10. Limitation on Sale of Subsidiary Capital Stock. The
Company (i) will not, and will not permit any Restricted Subsidiary of the
Company to, transfer, convey, sell, lease or otherwise dispose of any Capital
Stock of any Restricted Subsidiary to any Person (other than to the Company or a
Wholly Owned Subsidiary) and (ii) will not permit any Restricted Subsidiary to
issue any of its Capital Stock (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Subsidiary, unless (a) after any such transfer,
conveyance, sale, lease, disposition or issuance, such Subsidiary constitutes a
Restricted Subsidiary and (b) the net cash proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.6; provided, however, that this provision shall not prohibit the
transfer, conveyance lease or other disposition of all of the Capital Stock of
any Restricted Subsidiary.
SECTION 4.11. Future Guarantors. The Company shall cause each new
Subsidiary (other than (i) a new Subsidiary designated as an Unrestricted
Subsidiary and (ii) Foreign Subsidiaries) to become a Subsidiary Guarantor under
this Indenture and thereby Guarantee the Securities on the terms and conditions
set forth in Article 10 (each a "Future Guarantor").
SECTION 4.12. Compliance Certificate. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate, one of the signers of which shall be the principal
executive, financial or accounting officer of the Company, stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA ss. 314(a)(4).
SECTION 4.13. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
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SECTION 4.14. Maintenance of Office or Agency. The Company shall
maintain the office or agency required under Section 2.3. The Company shall give
prior written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 11.2.
SECTION 4.15. Corporate Existence. Except as otherwise permitted by
Article 5, the Company shall do or cause to be done, at its own cost and
expense, all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate existence of each of its Subsidiaries in
accordance with the respective organizational documents of each such Subsidiary
and the material rights (charter and statutory) and franchises of the Company
and each such Subsidiary; provided, however, that the Company shall not be
required to preserve, with respect to itself, any material right or franchise
and, with respect to any of its Subsidiaries, any such existence, material right
or franchise, if the Board of Directors of the Company shall determine in good
faith that the preservation thereof is no longer desirable in the conduct of the
business of the Company and the Subsidiaries, taken as a whole.
SECTION 4.16. Payment of Taxes and Other Claims. The Company shall
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all material taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to taxes)
levied or imposed upon it or any of its Subsidiaries or properties of it or any
of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a Lien upon the property of it or any of
its Subsidiaries; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings properly instituted and diligently
conducted for which adequate reserves, to the extent required under GAAP, have
been taken.
SECTION 4.17. Maintenance of Properties and Insurance. (a) The
Company shall, and shall cause each of its Subsidiaries to, maintain its
material properties in good working order and condition (subject to ordinary
wear and tear) and make all necessary repairs, renewals, replacements,
additions, betterments and improvements thereto and actively conduct and carry
on its business; provided, however, that nothing in this Section 4.17 shall
prevent the Company or any of its Subsidiaries from discontinuing the operation
and maintenance of any of its properties, if such discontinuance is, in the good
faith judgment of the Board of Directors of the Company or the Subsidiary, as
the case may be, desirable in the conduct of their respective businesses and is
not disadvantageous in any material respect to the Holders.
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44
(b) The Company shall provide or cause to be provided, for itself
and each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the good faith judgment of the
Board of Directors of the Company, are adequate and appropriate for the conduct
of the business of the Company and such Subsidiaries in a prudent manner, with
reputable insurers or with the government of the United States of America or any
agency or instrumentality thereof, in such amounts, with such deductibles, and
by such methods as shall be customary, in the good faith judgment of the Board
of Directors of the Company, for companies similarly situated in the industry.
SECTION 4.18. Compliance with Laws. The Company shall comply, and
shall cause each of its Subsidiaries to comply, with all applicable statutes,
rules, regulations, orders and restrictions of the United States of America, all
states and municipalities thereof, and of any governmental department,
commission, board, regulatory authority, bureau, agency and instrumentality of
the foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except for such noncompliances as are
not in the aggregate reasonably likely to have a material adverse effect on the
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
ARTICLE 5
Successor Company
SECTION 5.1. When the Company May Merge or Transfer Assets. The
Company will not consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) will expressly
assume, by supplemental indenture, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company
under the Securities and the Indenture;
(ii) immediately after giving pro forma effect to such transaction
(and treating any Indebtedness which becomes an obligation of the
Successor Company or any Restricted Subsidiary as a result of such
transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default or
Event of Default will have occurred and be continuing;
(iii) immediately after giving pro forma effect to such transaction,
the Successor Company would be able to Incur an additional $1.00 of
Indebtedness under Section 4.3(a);
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45
(iv) immediately after giving effect to such transaction, the
Successor Company will have a Consolidated Net Worth in an amount which is
not less than the Consolidated Net Worth of the Company immediately prior
to such transaction; and
(v) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture, as set forth in the Indenture.
The Successor Company will succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture, but the
predecessor Company in the case of a lease of all its assets or a conveyance,
transfer or lease of substantially all its assets will not be released from the
obligation to pay the principal of and interest on the Securities.
Notwithstanding the foregoing clauses (iii) and (iv), any Wholly
Owned Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
SECTION 5.2. When Subsidiary Guarantor May Merge or Transfer Assets.
No Subsidiary Guarantor may consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all of its assets to any Person unless (i) the resulting,
surviving or transferee Person (if not such Subsidiary Guarantor) shall be a
Person organized and existing under the laws of the jurisdiction under which
such Subsidiary Guarantor was organized or under the laws of the United States
of America, or any State thereof or the District of Columbia, and, subject to
Section 10.8, such Person shall expressly assume, by a supplement to the
Indenture, in a form satisfactory to the Trustee, all the obligations of such
Subsidiary Guarantor under its Subsidiary Guaranty; (ii) immediately after
giving effect to such transaction or transactions on a pro forma basis (and
treating any Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction as having been
incurred by such Person at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing; and (iii) the Company delivers to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer, if any, complies with this
Indenture;
ARTICLE 6
Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, and such default continues for a
period of 30 days;
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(2) the Company (i) defaults in the payment of the principal or
premium, if any, of any Security when the same becomes due and payable at
its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise or (ii) fails to redeem or purchase
Securities when required pursuant to this Indenture or the Securities;
(3) the Company fails to comply with Article 5;
(4) the Company fails to comply with Section 4.2, 4.3, 4.4, 4.5,
4.6, 4.7, 4.8, 4.9, 4.10 or 4.11 (other than a failure to purchase
Securities when required under Section 4.6 or 4.8) and such failure
continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (1), (2),
(3) or (4) above) and such failure continues for 60 days after the notice
specified below;
(6) the Company or any Significant Subsidiary of the Company fails
to pay any Indebtedness within any applicable grace period after final
maturity or the acceleration of any such Indebtedness by the holders
thereof because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $10,000,000 or its foreign currency
equivalent at the time;
(7) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case in which it is the debtor;
(C) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case;
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47
(B) appoints a Custodian of the Company or any Significant
Subsidiary of the Company or for any substantial part of the
property of the Company or Significant Subsidiary; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the order or
decree remains unstayed and in effect for 60 days; or
(9) any final, non-appealable judgment or decree for the payment of
money in excess of $10,000,000 or its foreign currency equivalent at the
time is entered against the Company or any Significant Subsidiary of the
Company and such judgment or decree remains unpaid and outstanding for a
period of 60 days following such judgment and is not discharged, waived or
stayed; or
(10) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of this Indenture) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guarantee.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, as
amended, or any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default until
the Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (4),
(5) or (9), its status and what action the Company is taking or proposes to take
with respect thereto.
SECTION 6.2. Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.1(7) or (8) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in aggregate
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48
principal amount of the outstanding Securities by notice to the Company and the
Trustee, may declare the principal of and accrued but unpaid interest on all the
Securities to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default specified
in Section 6.1(7) or (8) with respect to the Company occurs and is continuing,
the principal of and accrued interest on all the Securities shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders. The Holders of a majority in
aggregate principal amount of the outstanding Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are, to the extent
permitted by law, cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the Securities then outstanding by notice to the
Trustee may waive any past or existing Default and its consequences except (i) a
Default in the payment of the principal of or interest on a Security or (ii) a
Default in respect of a provision that under Section 9.2 cannot be amended
without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, and any Event of Default arising therefrom shall be deemed
to have been cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.5. Control by Majority. The Holders of a majority in
aggregate principal amount of the Securities then outstanding may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.1, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification from the Securityholders
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49
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.6. Limitation on Suits. A Holder may not pursue any remedy
with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in aggregate principal amount of the
Securities then outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7. Rights of Holders To Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event of Default
specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such
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judicial proceeding is hereby authorized by each Holder to make payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and its counsel, and any other amounts due the Trustee under
Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order, subject to applicable law:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
THIRD: to the Company.
The Trustee may, upon prior written notice to the Company, fix a
record date and payment date for any payment to Securityholders pursuant to this
Section. At least 15 days before such record date, the Company shall mail to
each Securityholder and the Trustee a notice that states the record date, the
payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by
Holders of more than 10% in aggregate principal amount of the outstanding
Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
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51
ARTICLE 7
Trustee
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to the Trustee,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties
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hereunder or in the exercise of any of its rights or powers, if it shall have
reasonable grounds to believe that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its respective Affiliates with the
same rights it would have if it were not Trustee. Any Paying Agent, Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it
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shall not be responsible for any statement of the Company in this Indenture or
in any document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within the earlier of 90 days after it
occurs or 30 days after it is known to a Trust Officer or written notice of it
is received by the Trustee. Except in the case of a Default in payment of
principal of, premium (if any) or interest on any Security (including payments
pursuant to the mandatory redemption provisions of such Security, if any), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
SECTION 7.6. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of May 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
The Trustee shall promptly deliver to the Company a copy of any report it
delivers to Holders pursuant to this Section 7.6.
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time such compensation for its services as the Company
and the Trustee shall from time to time agree in writing. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to such compensation for its services, except any such
expense, disbursement or advance as may arise from its negligence, wilful
misconduct or bad faith. Such expenses shall include the reasonable compensation
and expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Trustee shall provide the Company reasonable notice
of any expenditure not in the ordinary course of business; provided that prior
approval by the Company of any such expenditure shall not be a requirement for
the making of such expenditure nor for reimbursement by the Company thereof. The
Company shall indemnify each of the Trustee and any predecessor Trustees against
any and all loss, damage, claim, liability or expense (including attorneys' fees
and expenses) (other than taxes applicable to the Trustee's compensation
hereunder) incurred by it in connection with the acceptance or administration of
this trust and the performance of its duties hereunder. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. Failure by
the Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the
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54
claim and the Trustee may have separate counsel, which counsel must be
reasonably acceptable to the Company and the Company will pay the reasonable
fees and expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities then outstanding, may remove the Trustee by so notifying the
Trustee and may appoint a successor Trustee. The Company shall remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
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55
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition at the expense of the
Company any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appoint- ment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company, obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee, provided that such corporation shall
be eligible under this Article Seven and TIA Section 3.10(a).
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); provided, however, that there shall be excluded from the operation
of TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with ss. TIA 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
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56
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.7) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof or
the Securities will become due and payable at their Maturity within 91 days, or
the securities are to be called for redemption within 91 days under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company, and, in each case of
this clause (ii), the Company irrevocably deposits or causes to be deposited
with the Trustee funds sufficient to pay at maturity or upon redemption all
outstanding Securities, including interest thereon to maturity or such
redemption date (other than Securities replaced pursuant to Section 2.7), and if
in either case the Company pays all other sums payable hereunder by the Company,
then this Indenture shall, subject to Section 8.1(c), cease to be of further
effect. The Trustee shall acknowledge satisfaction and discharge of this
Indenture on demand of the Company accompanied by an Officers' Certificate and
an Opinion of Counsel from the Company that all conditions precedent provided
herein for relating to satisfaction and discharge of this Indenture have been
complied with and at the cost and expense of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.2, 4.3,
4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12 and 4.13 and the operation of
Sections 6.1(4), 6.1(5), 6.1(6), 6.1(7) (but only with respect to a Significant
Subsidiary), 6.1(8) (but only with respect to a Significant Subsidiary), 6.1(9)
and 5.1(iii) and 5.1(iv) ("covenant defeasance option"). The Company may
exercise its legal defeasance option notwithstanding its prior exercise of its
covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Section 6.1(4), 6.1(5),
6.1(6), 6.1(7) (but only with respect to a Significant Subsidiary), 6.1(8) (but
only with respect to a Significant Subsidiary) or 6.1(9) or because of the
failure of the Company to comply with Sections 5.1(iii) and 5.1(iv). If the
Company exercises its legal defeasance option, each Subsidiary Guarantor will be
released from all of its obligations under its Subsidiary Guarantee.
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
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(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.14, 4.15, 4.16, 4.17, 4.18,
7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the Securities have been paid in
full. Thereafter, the Company's obligations in Sections 7.7, 8.4 and 8.5 shall
survive.
SECTION 8.2. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits or causes to be deposited in
trust with the Trustee money or U.S. Government Obligations which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide cash at such times and in such
amounts as will be sufficient to pay principal and interest when due on
all outstanding Securities (except Securities replaced pursuant to Section
2.7) to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all outstanding Securities (except Securities replaced pursuant to
Section 2.7) to maturity or redemption, as the case may be;
(3) 91 days pass after the deposit is made and during the 91-day
period no Default specified in Section 6.1(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
material agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company have received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such deposit
and defeasance had not occurred;
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(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such deposit and covenant
defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Opinions of Counsel required to be delivered under this Section may
have qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.3. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations either directly or through the Paying Agent (including the Company
acting as its own Paying Agent as the Trustee may determine) and in accordance
with this Indenture to the payment of principal of and interest on the
Securities.
SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.5. Indemnity for Government Obligations. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations other than any such
tax, fee or other charge which by law is for the account of the Holders of the
defeased Securities; provided that the Trustee shall be entitled to charge any
such tax, fee or other charge to such Holder's account.
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SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, (a) if
the Company has made any payment of interest on or principal of any Securities
following the reinstatement of their obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent and (b) unless otherwise required by any legal proceeding or any
order or judgment of any court or governmental authority, the Trustee or Paying
Agent shall return all such money and U.S. Government Obligations to the Company
promptly after receiving a written request therefor at any time, if such
reinstatement of the Company's obligations has occurred and continues to be in
effect.
ARTICLE 9
Amendments
SECTION 9.1. Without Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are as described in Section 163(f)(2)(B) of the Code;
(4) to add additional guarantees with respect to the Securities;
including any new Subsidiary Guarantees;
(5) to secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
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(7) to make any change that does not adversely affect the rights of
any Securityholder; or
(8) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this section.
SECTION 9.2. With Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities then outstanding. However, without the consent of each
Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security
or change the time at which any Security may be redeemed in accordance
with Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Securities on or after the due dates
therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Securities; or
(7) make any change in Section 6.4 or 6.7 or the second sentence of
this Section; or
(8) make any change in any Subsidiary Guarantee that would adversely
affect the Holders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
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61
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. After an
amendment or waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determine, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment complies with the provisions of this Article 9.
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62
ARTICLE 10
Subsidiary Guarantees
SECTION 10.1. Subsidiary Guarantees. Each Subsidiary Guarantor
hereby unconditionally and irrevocably Guarantees, jointly and severally, to
each Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture and the Securities
(including obligations to the Trustee) and (b) the full and punctual performance
within applicable grace periods of all other obligations of the Company under
this Indenture and the Securities (all the foregoing being hereinafter
collectively called the "Obligations"). Each Subsidiary Guarantor further agrees
that the Obligations may be extended or renewed, in whole or in part, without
notice or further assent from such Subsidiary Guarantor, and that such
Subsidiary Guarantor will remain bound under this Article 10 notwithstanding any
extension or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waives notice
of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any Obligation; (c) any rescission, waiver, amendment, modification or
supplement of any of the terms or provisions of this Indenture (other than this
Article 10), the Securities or any other agreement; (d) the release of any
security held by any Holder or the Trustee for the Obligations or any of them;
(e) the failure of any Holder or Trustee to exercise any right or remedy against
any other guarantor of the Obligations; or (f) any change in the ownership of
the Company or such Guarantor.
Each Subsidiary Guarantor further agrees that its Guarantee herein
constitutes a guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waives any right to require that any resort be
had by any Holder or the Trustee to any security held for payment of the
Obligations.
Except as expressly set forth in Sections 8.1(b), 10.2 and 10.8, the
obligations of each Subsidiary Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense, setoff, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Subsidiary Guarantor herein shall not be discharged or
impaired or otherwise affected by the failure of any Holder or the Trustee to
assert any claim
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63
or demand or to enforce any remedy under this Indenture, the Securities or any
other agreement, by any waiver or modification of any thereof, by any default,
failure or delay, willful or otherwise, in the performance of the Obligations,
or by any other act or thing or omission or delay to do any other act or thing
which may or might in any manner or to any extent vary the risk of such
Subsidiary Guarantor or would otherwise operate as a discharge of such
Subsidiary Guarantor as a matter of law or equity.
Each Subsidiary Guarantor further agrees that its Guarantee herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal of or interest on any Obligation
is rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
principal of or interest on any Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Obligation, each Subsidiary Guarantor hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid principal amount of such Obligations, (ii) accrued
and unpaid interest on such Obligations (but only to the extent not prohibited
by law) and (iii) all other monetary Obligations of the Company to the Holders
and the Trustee.
Each Subsidiary Guarantor agrees that, as between such Subsidiary
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article 6 for the purposes of such Subsidiary Guarantor's Guarantee
herein, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such Obligations as provided in
Article 6, such Obligations (whether or not due and payable) shall forthwith
become due and payable by such Subsidiary Guarantor for the purposes of this
Section.
Each Subsidiary Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
SECTION 10.2. Limitation on Liability. Any term or provision of this
Indenture to the contrary notwithstanding, the maximum aggregate amount of the
obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed
the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally (taking into account, for
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purposes of such determination, the full amount, without any reduction, of such
Subsidiary Guarantor's liability under its guarantee of the New Credit
Facility).
SECTION 10.3. Successors and Assigns. This Article 10 shall be
binding upon each Subsidiary Guarantor and its successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
SECTION 10.4. No Waiver. Neither a failure nor a delay on the part
of either the Trustee or the Holders in exercising any right, power or privilege
under this Article 10 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 10 at law,
in equity, by statute or otherwise.
SECTION 10.5. Right of Contribution. Each Subsidiary Guarantor
agrees that to the extent that such Subsidiary Guarantor shall have paid more
than its proportionate share of any payment made hereunder, such Subsidiary
Guarantor shall be entitled to seek and receive contribution from and against
any other Subsidiary Guarantor hereunder who has not paid its proportionate
share of such payment. Each Subsidiary Guarantor's right of contribution shall
be subject to the terms and conditions of Section 10.6. The provisions of this
Section shall in no respect limit the obligations and liabilities of any
Subsidiary Guarantor to the Trustee and the Holders and each Subsidiary
Guarantor shall remain liable to the Trustee and the Holders for the full amount
guaranteed by such Subsidiary Guarantor hereunder.
SECTION 10.6. No Subrogation. Notwithstanding any payment or
payments made by any Subsidiary Guarantor hereunder, no Subsidiary Guarantor
shall be entitled to be subrogated to any of the rights of the Trustee or any
Holders against the Company or any collateral security or guarantee or right of
offset held by the Trustee or any Holder for the payment of the Obligations, nor
shall any Subsidiary Guarantor seek or be entitled to seek any contribution or
reimbursement from the Company in respect of payments made by such Subsidiary
Guarantor hereunder, until all amounts owing to the Trustee and the Holder by
the Company on account of the Obligations are paid in full. If any amount shall
be paid to any Subsidiary Guarantor on account of such subrogation rights at any
time when all of the Obligations shall not have been paid in full, such amount
shall be held by such Subsidiary Guarantor in trust for the Trustee and the
Holders, segregated from other funds of such Subsidiary Guarantor, and shall,
forthwith upon receipt by such Subsidiary Guarantor, be turned over to the
Trustee in the exact form received by such Subsidiary Guarantor (duly indorsed
by such Subsidiary Guarantor to the Trustee, if required), to be applied against
the Obligations.
<PAGE>
65
SECTION 10.7. Modification. No modification, amendment or waiver of
any provision of this Article 10, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
SECTION 10.8. Release of Subsidiary Guarantor. Upon the sale or
other disposition (including by way of consolidation or merger) of a Subsidiary
Guarantor or the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor (in each case other than to the Company or an Affiliate of
the Company), such Subsidiary Guarantor shall be deemed released and relieved
from all its obligations under its Subsidiary Guarantee; provided that such sale
or disposition shall constitute an Asset Disposition under, and the Net
Available Cash from such sale or disposition shall be applied in accordance
with, Section 4.6. At the request of the Company, the Trustee shall execute and
deliver an appropriate instrument evidencing such release.
ARTICLE 11
Miscellaneous
SECTION 11.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control. If this Indenture excludes any provision of the TIA that is
required to be included, such provision shall be deemed included herein.
SECTION 11.2. Notices. Any notice or communication shall be in
writing and delivered in person, by overnight courier or facsimile (if to the
Company, with receipt confirmed by an Officer) or mailed by first-class mail
addressed as follows:
if to the Company or any Subsidiary Guarantor:
Friendly Ice Cream Corporation
1855 Boston Road
Wilbraham, Massachusetts 01095
Attention: Aaron B. Parker
<PAGE>
66
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed or sent by overnight courier or
facsimile to a Securityholder shall be sent to the Securityholder at the
Securityholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so sent within the time prescribed.
Failure to send a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is sent in the manner provided
above, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice.
SECTION 11.3. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, each the Company shall furnish to
the Trustee:
(1) an Officers' Certificate (which in connection with the original
issuance of the Securities need only be executed by one Officer for the
Company) in form and substance reasonably satisfactory to the Trustee
stating that, in the opinion of the signers, all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
<PAGE>
67
SECTION 11.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.6. When Securities Disregarded. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which a Trust Officer of the Trustee actually knows are so owned
shall be so disregarded. Also, subject to the foregoing, only Securities
outstanding at the time shall be considered in any such determination.
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Trustee shall provide the Company reasonable notice of such rules; provided
that neither prior notice to the Company of such rules nor prior approval by the
Company of such rules shall be a requirement for their effectiveness. The
Registrar and the Paying Agent may make reasonable rules for their functions.
SECTION 11.8. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in the
State of New York. If a payment date is a Legal Holiday, payment shall be made
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period. If a regular record date is a Legal Holiday,
the record date shall not be affected.
SECTION 11.9. Governing Law. This Indenture and the Securities shall
be governed by, and construed in accordance with, the laws of the State of New
York but
<PAGE>
68
without giving effect to applicable principles of conflict of laws to the extent
that the application of the laws of another jurisdiction would be required
thereby.
SECTION 11.10. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company or any Subsidiary Guarantor
shall not have any liability for any obligations of the Company or any
Subsidiary Guarantor under the Securities or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. By
accepting a Security, each Securityholder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company and the
Subsidiary Guarantor in this Indenture and the Securities and Subsidiary
Guarantees shall bind their respective successors. All agreements of the Trustee
in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 11.14. Severability Clause. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
<PAGE>
69
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
FRIENDLY ICE CREAM CORPORATION
By: /s/ George G. Roller
-----------------------
Name: George G. Roller
Title:
FRIENDLY'S RESTAURANTS FRANCHISE,
INC.
By: /s/ George G. Roller
-----------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By: /s/ Van K. Brown
-----------------------
Name: Van K. Brown
Title: Assistant Vice President
<PAGE>
EXHIBIT A
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
No. 1 $200,000,000
10 1/2% Senior Notes Due 2007
CUSIP No. _________
FRIENDLY ICE CREAM CORPORATION, a Massachusetts corporation,
promises to pay to [ ], or registered assigns, the principal sum of Two
Hundred Million Dollars on December 1, 2007.
Interest Payment Dates: June 1 and December 1
Record Dates:
<PAGE>
2
Additional provisions of this Security are set forth on the other
side of this Security.
FRIENDLY ICE CREAM CORPORATION
By: __________________________
Name:
Title:
Dated: November , 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the within-mentioned
Indenture.
By: _________________________
Authorized Signatory
<PAGE>
REVERSE OF SECURITY
10 1/2% Senior Note Due 2007
1. Interest
FRIENDLY ICE CREAM CORPORATION, a Massachusetts corporation (such
entity, and its successors and assigns under the Indenture hereinafter referred
to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The Company
will pay interest semiannually on June 1 and December 1 of each year commencing
June 1, 1998. Interest on the Securities will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from
_____________. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. The Company shall pay interest on overdue principal at the
rate borne by the Securities, and it shall pay interest on overdue installments
of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the _______ or ___________ next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money and may mail an interest check to a Holder's
registered address. All payments of principal of, premium, if any, and interest
on the Securities will be made by the Company in immediately available funds.
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
November __, 1997 (the "Indenture"), among the Company, Friendly's Restaurants
Franchise, Inc. and the Trustee. The terms of the Securities include those
stated in the Indenture and those made part
<PAGE>
2
of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms. Any conflict between this Note and the Indenture will be governed
by the Indenture.
The Securities are general unsecured senior obligations of the
Company limited to $200,000,000 aggregate principal amount (subject to Section
2.7 of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the
existence of liens, the payment of dividends on, and redemption of, the Capital
Stock of the Company and its Subsidiaries and the redemption of certain
subordinated obligations of the Company and its Subsidiaries, restricted
payments, the sale or transfer of assets and Subsidiary stock, the issuance or
sale of Capital Stock of Restricted Subsidiaries, the investments of the Company
and its Restricted Subsidiaries, consolidations, mergers and transfers of all or
substantially all the assets of the Company, and transactions with Affiliates.
In addition, the Indenture limits the ability of the Company and certain of its
Subsidiaries to restrict distributions and dividends from Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to December 1, 2002. On and after that date, the Company may
redeem as provided in, and subject to the terms of, the Indenture the Securities
in whole at any time or in part from time to time at the following redemption
prices (expressed in percentages of principal amount), plus accrued interest to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date):
if redeemed during the 12-month period beginning ________________,
Period Percentage
- ------ ----------
2002.......................................
2003.......................................
2004.......................................
2005 and thereafter........................
In addition, at any time and from time to time prior to December 1,
2000, the Company may redeem in the aggregate up to $70 million principal amount
of the Securities with the proceeds of one or more Qualified Equity Offerings,
at a redemption price (expressed as a percentage of principal amount) of 110.50%
plus accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive
<PAGE>
3
interest due on the relevant interest payment date) as provided in, and subject
to the terms of, the Indenture; provided, however, that at least $130 million
principal amount of the Securities must remain outstanding after each such
redemption.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued interest
on all Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to accrue
on such Securities (or such portions thereof) called for redemption. If a notice
or communication is sent in the manner provided in the Indenture, it is duly
given, whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company
will be required to make an offer to purchase Securities at a purchase price of
100% of their principal amount plus accrued interest to the date of purchase
(subject to the rights of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price in cash equal to 101% of the principal amount
of the Securities to be repurchased plus accrued interest to the date of
repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. Guarantees
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, Friendly's Restaurant Franchise, Inc.
has unconditionally guaranteed such obligations on an unsecured, senior basis
pursuant to the terms of the Indenture. In addition, the Company shall cause
each new
<PAGE>
4
Subsidiary (other than (i) a new Subsidiary designated as an Unrestricted
Subsidiary and (ii) Foreign Subsidiaries) to become a Subsidiary Guarantor under
the Indenture and thereby Guarantee the Securities on the terms and conditions
set forth in the Indenture.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before the making of a notice of
redemption of Securities to be redeemed or 15 days before an interest payment
date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
<PAGE>
5
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to add guarantees with respect to the Securities, or to secure the
Securities, or to add additional covenants or surrender rights and powers
conferred on the Company, or to make any change that does not adversely affect
the rights of any Securityholder or to comply with any request of the SEC in
connection with qualifying the Indenture under the TIA.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraphs
5 or 6 above, upon acceleration or otherwise, or failure by the Company to
redeem or purchase Securities when required; (iii) failure by the Company to
comply with other agreements in the Indenture or the Securities, in certain
cases subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company and any Significant Subsidiary if the amount
accelerated (or so unpaid) exceeds $10 million; (v) certain events of bankruptcy
or insolvency with respect to the Company and its Significant Subsidiaries; (vi)
certain judgments or decrees for the payment of money is in excess of $10
million; and (vii) any Subsidiary Guaranty by a Significant Subsidiary ceases to
be in full force and effect (except as contemplated in the Indenture) or any
Subsidiary Guarantor that is a Significant Subsidiary denies or disaffirms its
obligations under the Indenture or its Subsidiary Guaranty.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then outstanding
may declare all the Securities to be due and payable. Certain events of
bankruptcy or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust
<PAGE>
6
or power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders.
14. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
15. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
16. Governing Law
The Indenture and the Securities shall be governed by, and construed
in accordance with, the laws of the State of New York but without giving effect
to applicable principles of conflict of laws to the extent that the application
of the laws of another jurisdiction would be required thereby.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Legal Holidays
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York. If a payment
date is a Legal Holiday, payment shall be made on the next succeeding day that
is not a Legal Holiday, and no interest shall accrue for the intervening period.
If a regular record date is a Legal Holiday, the record date shall not be
affected.
<PAGE>
7
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture which has in it
the text of this Security in larger type. Requests may be made as follows:
Friendly Ice Cream Corporation
1855 Boston Road
Wilbraham, Massachusetts 01095
Attention: Aaron B. Parker
-----------------------------------------------
<PAGE>
8
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: _________________________ Your Signature: _______________________________
Signature Guarantee: ___________________________________________________________
(Signature must be guaranteed)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE>
9
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: _________________ Your Signature: ________________________________________
(Sign exactly as your name appears on the other side of the Security)
Signature Guarantee: ___________________________________________________________
(Signature must be guaranteed)
<PAGE>
Exhibit 10.5
LIMITED STOCK COMPENSATION AWARD AGREEMENT
THIS AGREEMENT, dated as of the date of the closing of the "Offerings"
(the "Award Date") as defined in the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on August 29, 1997 by Friendly Ice
Cream Corporation (the "Company") and entered into by and between the Company
and [FULL_NAME] (the "Employee"),
WITNESSETH THAT:
WHEREAS, in recognition of services the Employee has performed for the
Company and is expected to perform in the future, the Company wishes to award
shares of common stock of the Company ("Stock") to the Employee, subject to
certain restrictions;
NOW, THEREFORE, IT IS AGREED between the Company and the Employee as
follows:
1. Restricted Shares. Subject to the terms of this Agreement, the Company
hereby awards the Employee [ADJ_NEW_SHARES] shares of Stock (the "Restricted
Shares").
2. Restrictions on Shares. During the Restricted Period (as defined in
paragraph 4):
(a) the Restricted Shares may not be sold, assigned, transferred,
pledged or otherwise encumbered except by laws of descent and
distribution;
(b) the certificate representing such shares shall be registered in the
name of the Employee and shall be deposited with the Company,
together with stock power (in such form as the Company may
determine); and
(c) the Employee shall be treated as a shareholder with respect to the
Restricted Shares, including the right to vote such shares.
3. Transfers at Termination of Restricted Period. At the end of the
Restricted Period with respect to any one or more of the Restricted Shares, the
certificate or certificates representing such shares shall be transferred to the
Employee (or the Employee's legal representative or heir) free of all
restrictions. If the Employee's employment with the Company and its affiliates
terminates for any reason prior to the end of the Restricted Period with respect
to any of the shares awarded hereunder, it shall not affect such Employee's
rights in or to the Restricted Shares. For notice purposes, the Company shall be
entitled to rely on the most recent address provided in writing to the Company
by the Employee (or the Employee's legal representative or heir) and the Company
shall have no responsibility or obligation to locate a missing Employee (or
legal representative or heir).
4. Restricted Period. The "Restricted Period" shall be the period
commencing on the Award Date and ending with respect to 25 percent of the shares
awarded on each of the first through fourth anniversaries of the Award Date.
<PAGE>
5. Withholding. This Award is subject to withholding of all applicable
taxes.
6. Agreement Not Contract of Employment. This Agreement does not
constitute a contract of employment, and does not give the Employee the right to
be retained in the employ of the Company or an affiliate or the right to
continue as a director of the Company.
7. Successors and Assigns. This Agreement shall be binding upon, and inure
to the benefit of, the Company and its successors and assigns, and upon any
person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
8. Applicable Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Massachusetts, without giving effect to
choice of law principles. Notwithstanding any other provision of this Agreement
to the contrary, the Company may subject shares of stock transferred pursuant to
this Agreement to such conditions, limitations or restrictions as the Company
determines to be necessary or desirable to comply with any applicable law or
regulation.
9. Amendment. This Agreement may be amended by written agreement of the
Employee and the Company, without the consent of any other person.
IN WITNESS WHEREOF, the Employee has hereunto set his hand and the Company
has caused these presents to be executed in its name and on its behalf, all as
of the date first above written.
____________________________________
Employee
FRIENDLY ICE CREAM CORPORATION
By__________________________________
Its_________________________________
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 5, 1998 for Friendly Ice Cream Corporation
included in this Form 10-K into Friendly Ice Cream Corporation's previously
filed Registration Statements (File Nos. 333-40195, 333-40197 and 333-40199)
on Form S-8.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March __, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 16,465
<SECURITIES> 0
<RECEIVABLES> 9,146
<ALLOWANCES> 224
<INVENTORY> 15,671
<CURRENT-ASSETS> 56,289
<PP&E> 507,893
<DEPRECIATION> 223,949
<TOTAL-ASSETS> 371,871
<CURRENT-LIABILITIES> 72,080
<BONDS> 299,084
0
0
<COMMON> 74
<OTHER-SE> (86,435)
<TOTAL-LIABILITY-AND-EQUITY> 371,871
<SALES> 665,172
<TOTAL-REVENUES> 667,547
<CGS> 197,627
<TOTAL-COSTS> 197,627
<OTHER-EXPENSES> 357,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,303
<INCOME-PRETAX> (9,738)
<INCOME-TAX> 3,993
<INCOME-CONTINUING> (5,745)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,236
<NET-INCOME> (3,509)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
