<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 6, 1999.
FILE NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVADO BRANDS, INC.
(Exact name of issuer as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 5812 59-2778983
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
HANCOCK AT WASHINGTON, MADISON, GEORGIA 30650
(706) 342-4552
(Address, including zip code, and telephone number, including area code, of
issuer's principal executive offices)
ERICH J. BOOTH
TREASURER AND CHIEF FINANCIAL OFFICER
AVADO BRANDS, INC.
HANCOCK AT WASHINGTON, MADISON, GEORGIA 30650
(706) 342-4552
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
DENNIS J. STOCKWELL, ESQUIRE
KILPATRICK STOCKTON LLP
1100 PEACHTREE STREET, SUITE 2800, ATLANTA, GEORGIA 30309-4530
TELEPHONE: (404) 815-6500
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT (1) PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
11 3/4% Senior Subordinated Notes due 2009....... $100,000,000 100% $100,000,000 $27,800
Subsidiary Guarantees............................ (2) (2) (2) (3)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Not applicable.
(3) No fee is payable under Rule 457(n).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD IRS EMPLOYER
STATE OR OTHER INDUSTRIAL CLASSIFICATION IDENTIFICATION
NAME JURISDICTION OF FORMATION CODE NUMBER NUMBER
- -------------------------------------------- --------------------------- ------------------------- --------------------
<S> <C> <C> <C>
Don Pablo's Holding Corp.................... DE 5812 58-2426293
Don Pablo's Operating Corp.................. OH 5812 75-2594685
Don Pablo's Limited Inc..................... OH 5812 75-2596732
Don Pablo's of Texas, L.P................... TX 5812 75-2596160
Canyon Cafe Operating Corp.................. GA 5812 58-2426275
Canyon Cafe TX General, Inc................. GA 5812 58-2426278
Canyon Cafe Limited, Inc.................... GA 5812 58-2426280
Canyon Cafe of Texas, LP.................... TX 5812 58-2429105
Avado Ventures, Inc......................... GA 5812 58-2432774
Avado Properties, Inc....................... GA 5812 58-2432775
McCormick & Schmick Holding Corp............ DE 5812 13-3785940
McCormick & Schmick Operating Corp.......... GA 5812 58-2407429
McCormick & Schmick TX General, Inc......... GA 5812 58-2416018
McCormick & Schmick Limited, Inc............ GA 5812 58-2416016
McCormick & Schmick of Texas, LP............ TX 5812 58-2416027
McCormick & Schmick's SCP VIII, Inc......... OR 5812 93-1210432
McCormick & Schmick's RMP III, Inc.......... OR 5812 86-0880020
Hops Grill & Bar, Inc....................... FL 5812 58-2292652
Cypress Coast Construction Corporation...... FL 5812 59-3276893
Hops Marketing, Inc......................... FL 5812 59-2995892
Hops of Southwest Florida, Inc.............. FL 5812 59-3281398
Hops of Southwest Florida, LTD.............. FL 5812 59-3294325
Hops of Bradenton, LTD...................... FL 5812 59-3294329
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED __________
- --------------------------------------------------------------------------------
PROSPECTUS
$100,000,000
AVADO BRANDS, INC.
OFFER TO EXCHANGE
11 3/4% SENIOR SUBORDINATED NOTES DUE 2009
FOR
ALL OUTSTANDING 11 3/4% SENIOR SUBORDINATED NOTES DUE 2009
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. ATLANTA, GEORGIA TIME
ON , 1999, UNLESS EXTENDED.
- -------------------------------------------------------------------------
THE COMPANY:
- - We are a leading full service, casual dining restaurant company which
acquires, develops and operates growth oriented niche-leading restaurant
brands.
- - Avado Brands, Inc.
Hancock at Washington
Madison, Georgia 30650
(706) 342-4552
http://www.avado.com
OUTSTANDING NOTES:
- - 11 3/4% Senior Subordinated Notes due 2009 sold by us in an unregistered
offering to initial purchasers who have placed the notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
EXCHANGE NOTES:
- - 11 3/4% Senior Subordinated Notes due 2009
EXCHANGE OFFER:
- - We are offering to exchange our Exchange Notes for your Outstanding Notes.
- - We will not receive any proceeds from the exchange offer.
- - If you fail to tender your Outstanding Notes, then you will continue to hold
unregistered securities, the transfer of which will continue to be restricted.
ATTRIBUTES OF THE EXCHANGE NOTES:
- - The Exchange Notes will be identical to the Outstanding Notes, except that the
Exchange Notes will be registered under the Securities Act and will not
contain transfer restrictions.
- - Maturity: June 15, 2009.
- - Interest Payments: Semi-annually in cash on June 15 and December 15,
commencing December 15, 1999.
- - Guarantees: The Exchange Notes will be guaranteed on a senior subordinated
basis by our wholly-owned principal subsidiaries on the issue date. Not all of
our subsidiaries will guarantee the Exchange Notes.
- - Redemption: We may redeem the Exchange Notes at any time on or after June 15,
2004. In addition, until June 15, 2002 we may redeem up to 35% of the Exchange
Notes with the proceeds of one or more public equity offerings. If we undergo
a change of control or sell certain of our assets, then we may be required to
offer to purchase Exchange Notes from holders.
- - Ranking: The Exchange Notes and the guarantees will be unsecured and
subordinated to all of our and the guarantors' existing and future senior
debt.
INVESTING IN THE EXCHANGE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 14.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Exchange Notes or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The date of this Prospectus is , 1999
<PAGE>
(COVER PAGE CONTINUED)
We are offering the Exchange Notes to satisfy certain of our obligations
contained in the Registration Rights Agreement dated June 22, 1999 (the
"Registration Rights Agreement") by and among us, the Guarantors and BancBoston
Robertson Stephens Inc., J.P. Morgan Securities Inc. and Wachovia Securities,
Inc., as the initial purchasers (the "Initial Purchasers"), with respect to the
initial sale of the Outstanding Notes. Based on interpretations by the staff of
the Securities and Exchange Commission (the "Commission"), the Exchange Notes
issued in the Exchange Offer described in this Prospectus may be offered for
resale, resold and otherwise transferred by the holders thereof (other than by
an "affiliate" of ours within the meaning of Rule 405 under the Securities Act
of 1933, as amended (the "Securities Act"), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder acquires the Exchange Notes in the ordinary course of business,
has no arrangement with any person to participate in the distribution of the
Exchange Notes, and is not engaged in and does not intend to engage in a
distribution of the Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account in the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes, but
by so acknowledging and delivering a prospectus, a broker-dealer will not be
deemed to have admitted that it is an "underwriter" within the meaning of the
Securities Act. A broker-dealer may use this Prospectus, as it may be amended or
supplemented from time to time, in connection with resales of the Exchange Notes
received in exchange for Outstanding Notes if such Exchange Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. We agree that, for a period of 180 days after the Expiration Date,
we will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. We cannot assure you that any liquid market may develop for the
Exchange Notes, nor that you will be able to sell the Exchange Notes, at any
particular price. Future trading prices of the Exchange Notes will depend on
many factors, including, among other things, prevailing interest rates, our
operating results and the market for similar securities. Historically, the
market for securities similar to the Exchange Notes, including non-investment
grade debt, has been subject to disruptions that have caused substantial
volatility in the prices of such securities. We can offer no assurance that any
market for the Exchange Notes that might develop would not be subject to similar
disruptions. Certain of the Initial Purchasers have advised us that they
currently intend to make a market in the Exchange Notes we are offering, but
they are not obligated to do so, and they may stop market making at any time
without notice.
We prepared this Prospectus based on information we have or we obtained from
sources we believe to be reliable. Summaries of documents we have provided in
this Prospectus may not be complete. We will make copies of the actual documents
available to you upon request. We do not represent that the information herein
is complete. The information in this Prospectus is current only as of the date
on the cover, and our business or financial condition and other information in
this Prospectus may change after that date. You should consult your own legal,
tax and business advisors regarding an investment in the Exchange Notes.
Information in this Prospectus is not legal, tax or business advice.
You should base your decision to invest in the Exchange Notes solely on
information contained in this Prospectus. We have not authorized anyone to
provide you with any different information.
Contact us with any questions you have concerning this offering or to obtain
documents or additional information to verify the information in this
Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Exchange Notes or determined if
this Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER, OR A SOLICITATION IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY DISTRIBUTION
OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Where You Can Find More Information........................................................................ i
Forward Looking Statements................................................................................. ii
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 14
Use of Proceeds............................................................................................ 21
Capitalization............................................................................................. 22
The Exchange Offer......................................................................................... 23
Pro Forma Financial Information............................................................................ 30
Selected Consolidated Historical Financial Data............................................................ 39
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 41
Business................................................................................................... 50
Management................................................................................................. 61
Security Ownership of Management and Principal Holders..................................................... 64
Certain Relationships and Related Transactions............................................................. 66
Description of Certain Indebtedness........................................................................ 67
Description of the Exchange Notes.......................................................................... 70
Certain United States Federal Income Tax Considerations.................................................... 111
Plan of Distribution....................................................................................... 116
Legal Matters.............................................................................................. 117
Independent Accountants.................................................................................... 117
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a Registration Statement on Form S-4 (the
"Registration Statement," which term shall include all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the Exchange Notes being offered by
this Prospectus. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. We file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). You may read and copy any document we
file at the Commission's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at 7 World Trade Center, Suite 1300, New York, New York
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 (1-800-732-0330)
for further information on the public reference rooms. You can also obtain
copies of these materials from the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (http://www.sec.gov). Our common stock and Preferred
Securities are quoted on the Nasdaq National Market. You also may read and copy
reports and other information we file at the office of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
We incorporate by reference into this Prospectus the information we file
with the Commission, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference contains important business and financial information about us and is
an important part of this Prospectus. Information that we file subsequently with
the
i
<PAGE>
Commission will automatically update this Prospectus. We have filed the
following documents with the Commission, and they are incorporated herein by
reference:
(1) our Annual Report on Form 10-K for the fiscal year ended January 3,
1999;
(2) our Quarterly Report on Form 10-Q for the period ended April 4, 1999;
(3) our Current Reports on Form 8-K dated May 17, June 4 and June 23, 1999;
and
(4) all documents subsequently filed by us with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to termination of this Offering.
THIS INFORMATION IS AVAILABLE TO YOU WITHOUT CHARGE UPON YOUR WRITTEN OR
ORAL REQUEST. ANY SUCH REQUEST SHOULD BE MADE OR DELIVERED TO AVADO BRANDS,
INC., HANCOCK AT WASHINGTON, MADISON, GA 30650, ATTENTION: TONY SHAFFER,
DIRECTOR OF INVESTOR RELATIONS; TELEPHONE: (706) 342-4552, FACSIMILE: (706)
342-9283; E-MAIL: [email protected].
TO OBTAIN TIMELY DELIVERY OF THIS INFORMATION, YOU MUST REQUEST IT NO LATER
THAN FIVE (5) BUSINESS DAYS BEFORE , 1999, THE EXPIRATION DATE OF
THE EXCHANGE OFFER.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements. Words such as
"believes," "anticipates," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements principally appear in the following sections of the Prospectus:
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Various economic and
competitive factors could cause actual results or events to differ materially
from those discussed in such forward-looking statements, including our degree of
leverage, future acquisitions, changes in key personnel, competition, changes in
economic conditions, changes in consumer tastes, our continued ability to find
suitable restaurant locations and finance new restaurant development, labor and
benefit costs, weather conditions, consumer perceptions of food safety and the
other factors discussed in this Prospectus, including those set forth under
"Risk Factors."
ii
<PAGE>
PROSPECTUS SUMMARY
"WE," "US," "OUR" AND SIMILAR TERMS, AS WELL AS REFERENCES TO "AVADO",
"AVADO BRANDS" OR THE "COMPANY" REFER TO AVADO BRANDS, INC. AND ITS SUBSIDIARIES
EXCEPT WHERE IT IS CLEAR THAT SUCH TERMS MEAN ONLY AVADO BRANDS, INC. THE
FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS OFFERING. IT LIKELY DOES
NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
UNDERSTANDING OF THIS OFFERING, WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT
AND THE DOCUMENTS WE HAVE REFERRED TO IN THIS PROSPECTUS. THE COMPANY'S FISCAL
YEAR IS A 52- OR 53-WEEK YEAR ENDING ON THE SUNDAY CLOSEST TO DECEMBER 31.
THE COMPANY
Avado Brands, Inc. (formerly Apple South, Inc.) is a leading full service,
casual dining restaurant company, which acquires, develops and operates growth
oriented niche-leading restaurant brands. As of April 4, 1999, we owned four
niche-leading restaurant brands operating 220 restaurants, which consisted of
129 Don Pablo's Mexican Kitchen restaurants, 51 Hops Restaurant Bar & Brewery
restaurants, 22 McCormick & Schmick's seafood dinner houses and 18 Canyon Cafe
restaurants (collectively, the "Core Brands"). In addition, we operated 23
Applebee's Neighborhood Grill & Bar restaurants, which were divested subsequent
to April 4, 1999. We also own a 20% equity interest in Belgo Group PLC, a
thirteen-unit United Kingdom restaurant company, a 50% equity interest in Belgo
Americas, LLC, and a 50% equity interest in San Marzano, LLC. Since acquiring
the Core Brands, we have significantly increased pro forma restaurant sales and
EBITDA, with increases of approximately 44% and 55%, respectively, for fiscal
1998 as compared to fiscal 1997 (as if we owned these brands at the beginning of
the period). For the latest twelve-month period ("LTM period") ended April 4,
1999, we generated pro forma restaurant sales and EBITDA of $558.1 million and
$70.1 million, respectively, from our Core Brands.
We operate multi-concept, niche-leading restaurant brands using a
decentralized organizational structure in order to enhance growth and
profitability. Since 1986, we have developed a strong track record of acquiring
and growing leading casual dining concepts, beginning with Applebee's, where we
became the leading Applebee's operator and franchisee with 264 restaurants and
approximately $454.0 million in annual sales, prior to the divestiture of our
Applebee's restaurants in fiscal years 1998 and 1999. More recently, we have
continued this strong growth trend, more than doubling the number of our
niche-leading Core Brand restaurants from 94 at the time of acquisition during
1995 through 1997 to 220 as of April 4, 1999. For the thirteen weeks ended April
4, 1999, we have improved restaurant operating margins from 14.9% to 15.6% for
our Core Brands, calculated on a pro forma basis, as compared to the thirteen
weeks ended March 30, 1997. For the LTM period ended April 4, 1999, we have
improved EBITDA margins to 12.6% from 11.4% for our Core Brands, calculated on a
pro forma basis, as compared to fiscal 1997. We intend to continue to execute
this successful operating strategy which emphasizes decentralized operating
management and the benefits of centralized economies of scale in the areas of
finance, accounting, human resource services and selective purchasing
opportunities.
CORE BRAND CONCEPTS
- DON PABLO'S--Known as "The Real Enchilada," Don Pablo's is the leading
casual dining Mexican restaurant brand in the United States and generates
among the highest operating margins in the casual dining industry. The
restaurants feature traditional Mexican dishes served in a distinctive,
festive dining atmosphere reminiscent of a Mexican village plaza. Each
restaurant is staffed with an experienced management team that is visible
in the dining area and interacts with customers and staff to ensure
attentive customer service and consistent food quality. Don Pablo's
relatively low priced menu items are prepared fresh on-site using
high-quality ingredients. The diverse menu, generous portions and
attractive price/value relationship appeal to a broad customer base.
1
<PAGE>
The Don Pablo's concept was initiated in 1985, with the opening of the
first Don Pablo's restaurant in Lubbock, Texas. We acquired this brand in
November 1995, including 44 then-existing restaurants, and have since
opened 86 additional restaurants and closed one restaurant as of April 4,
1999. We believe the build-out potential for this concept is approximately
400 restaurants. For the LTM period ended April 4, 1999, this brand
generated sales of approximately $285.5 million, representing 51% of the
sales of our Core Brands. Average sales volume per unit was $2.4 million
for the LTM period ended April 4, 1999. Don Pablo's is based in Bedford,
Texas.
- HOPS--Hops is the nation's largest restaurant brand with an on-premise
brewery. Unlike many traditional brewpub concepts, Hops emphasizes a high
quality restaurant menu, which is complemented by fresh microbrewed beer.
Each restaurant offers an American-style menu that includes top choice
steaks and prime rib, baby-back ribs, fresh fish, chicken and pasta
dishes, deluxe burgers and sandwiches, hand-tossed salads with homemade
dressings, appetizers, soups and desserts-all of which are freshly
prepared in a display kitchen. The Hops concept was initiated in 1989,
with the opening of the first Hops restaurant in Clearwater, Florida. We
acquired this brand in March 1997, including 21 then-existing restaurants,
and have since opened 30 additional restaurants. We believe the build-out
potential for this concept is approximately 400 restaurants. For the LTM
period ended April 4, 1999, this brand generated sales of $115.5 million,
representing 21% of the sales of our Core Brands. Average sales volume per
unit was $2.6 million for the LTM period ended April 4, 1999. Hops is
based in Tampa, Florida.
- MCCORMICK & SCHMICK'S--McCormick & Schmick's is the leading upper-end
casual dining seafood group in the United States with 22 traditional,
classic restaurants specializing in fresh seafood. The success of the
McCormick & Schmick's brand is evidenced by its average sales volumes per
unit, which were $5.0 million for the LTM period ended April 4, 1999,
which management believes are among the highest in the industry. It is
recognized for its traditional-style full service bar, regional taste and
superior service. The restaurants are designed to capture the distinctive
attributes of each local market, and vary in design from a traditional,
New England-style fish house to a more contemporary dinner house with
spectacular waterfront views. Many of the restaurants are located in
historical buildings. The same philosophy of distinctiveness and quality
applies equally to the bar operation and the dining rooms. The McCormick &
Schmick's concept was initiated in 1972, with the acquisition of its first
restaurant in Portland, Oregon. We acquired this brand in March 1997,
including 16 then-existing restaurants, and have since opened seven
additional restaurants and closed one restaurant as of April 4, 1999. We
believe the build-out potential for this concept is approximately 125
restaurants. For the LTM period ended April 4, 1999, this brand generated
sales of approximately $109.0 million, representing 19% of the sales of
our Core Brands. McCormick & Schmick's is based in Portland, Oregon.
- CANYON CAFE--Canyon Cafe is the leader in the emerging concept of
Southwestern cuisine, with 18 locations that bring the flavors of the
Southwest to life with a convergence of great creative food, a visually
entertaining environment and a soothing yet invigorating ambiance. This
brand combines three distinct cultures, Native American, Spanish and
Mexican, to create a unique upscale casual dining experience. Canyon Cafe
restaurants offer a wide variety of unique items such as "Desert Fire
Pasta," "Chile-Rubbed Grilled Tuna" and "Chipotle Chicken," along with
some more traditional items including chicken tacos and grilled chicken
salad. In addition to the set items that appear on each restaurant's menu,
the executive chefs at each location offer their original recipes. The
Canyon Cafe concept was initiated in 1989, with the opening of the first
restaurant in Dallas, Texas. We acquired this brand in July 1997,
including 13 then-existing restaurants, and have since opened eight
additional restaurants and closed three restaurants as of April 4, 1999.
Canyon Cafe is the only brand in this niche that has a broad geographic
2
<PAGE>
presence, and we believe the build-out potential for this concept is
approximately 125 restaurants. For the LTM period ended April 4, 1999,
this brand generated sales of $48.1 million, representing 9% of the sales
of our Core Brands. Average sales volume per unit was $2.6 million for the
LTM period ended April 4, 1999. Canyon Cafe is based in Dallas, Texas.
STRATEGY
Our strategy is to continue to acquire, develop and operate growth oriented
niche-leading restaurant brands using a decentralized organizational structure
to enhance growth and profitability. Our key strategies are to:
- CONTINUE TO DEVELOP AND GROW CORE BRANDS--Since the mid 1980's, we have
grown to become a leading multi-concept operator of niche-leading
restaurant brands. Our first success was with Applebee's, where we grew
from one restaurant in 1986 to become the largest operator in the
Applebee's system, with 264 restaurants and approximately $454.0 million
in annual sales in fiscal 1997. Since the acquisition of our four Core
Brands, we have grown the total number of Core Brand restaurants from 94
to 220 and total Core Brand restaurant sales to approximately $558.1
million, creating niche-leading market positions for each of our Core
Brands. For fiscal 1999, we plan to open approximately 40 new restaurants,
consisting of 15 Don Pablo's, 20 Hops, four McCormick & Schmick's and, if
an appropriate site is located, one Canyon Cafe.
- BENEFIT FROM DECENTRALIZED BRAND MANAGEMENT--Each brand functions on a
decentralized basis with its own executive management, real estate
development, purchasing, recruiting, training, marketing and restaurant
operations. This strategy provides our Core Brands a competitive advantage
by tailoring the management of each brand to its respective market, while
allowing each brand to share best practices and leverage centralized
corporate functions such as finance, accounting, human resource services
and selective purchasing opportunities. In addition, this decentralized
management structure encourages entrepreneurial decision making on the
part of brand level management by placing decisions closer to the
customer. Each brand's performance is also monitored by strict financial
targets including returns on investment and restaurant level growth and
profitability.
- CONTINUE TO IMPROVE MARGINS AND PROFITABILITY--In connection with our
Applebee's divestitures, we undertook a strategic review of our corporate
operations, resulting in the identification of significant opportunities
for cost savings. We expect these initiatives to reduce corporate level
expenses by approximately $2.2 million annually. In addition, each of the
Core Brands focuses on improving restaurant level operating margins by
benefiting from the Company's economies of scale in areas such as finance,
accounting, human resource services and selective purchasing
opportunities, as well as leveraging the best practices of each of the
four Core Brands. For the thirteen weeks ended April 4, 1999, we have
improved restaurant operating margins from 14.9% to 15.6% for our Core
Brands, calculated on a pro forma basis, as compared to the thirteen weeks
ended March 30, 1997. For the LTM period ended April 4, 1999, we have
improved EBITDA margins to 12.6% from 11.4% for our Core Brands,
calculated on a pro forma basis, as compared to fiscal 1997.
- CONSISTENTLY PROVIDE HIGH QUALITY PRODUCTS AND SUPERIOR CUSTOMER
SERVICE--We believe that food quality, attentive service and dining
atmosphere all contribute to customer satisfaction. As such, each of our
Core Brands continually evaluates new initiatives that will improve food
presentation and taste and customer service. Additionally, as we expand
the market presence of our brands, we strive to create a consistent brand
image for each concept that our customers will find appealing. To achieve
and maintain a consistently rewarding dining experience for our customers,
each of our brands has implemented stringent operational controls and
extensive employee training.
3
<PAGE>
- PURSUE SELECTIVE OPPORTUNITIES TO GROW INTERNATIONALLY--We are selectively
seeking opportunities to export one or more of our brands to other
countries through joint ventures or strategic alliances. Additionally, we
may selectively make equity investments in strategic international
partners. For example, in fiscal 1998, we made an equity investment in
Belgo Group PLC, which resulted in two joint ventures, Belgo Americas, LLC
and Belgo Ventures Limited. A leading restaurant guide has rated two of
the restaurants in the Belgo portfolio to be among the top three in
London. We also established San Marzano, LLC, a joint venture with
PizzaExpress PLC, to develop upscale pizza restaurants in the United
States. PizzaExpress PLC owns and operates more than 200 upper-end pizza
restaurants in the United Kingdom and other countries in Europe and Asia.
These equity ownership positions and joint ventures provide us with
several potential growth vehicles, which are designed to allow for
development outside our current geographic and industry niches.
- OPPORTUNISTICALLY PURSUE STRATEGIC ACQUISITIONS--While we are not
currently contemplating any significant additional acquisitions or
investments, we will continue to evaluate opportunities to expand our
operations by making strategic acquisitions of innovative concepts which
can be developed into niche-leading brands and established concepts with
potential for growth. Currently, however, our primary focus is to continue
developing our four niche-leading Core Brand concepts and our Belgo and
San Marzano joint ventures.
------------------------
We are a Georgia corporation. Our common stock is publicly traded on the
Nasdaq National Market under the symbol "AVDO". Our principal executive offices
are located at Hancock at Washington, Madison, Georgia 30650, and our telephone
number is (706) 342-4552. Our web site address is www.avado.com.
RECENT DEVELOPMENTS
In December 1997, we announced our decision to divest our franchised
Applebee's restaurants in order to focus on the continued development of our
higher margin Core Brands, which offered significantly greater growth potential
and returns on investment. At the time of the decision to divest, we were the
largest Applebee's operator in the world. We operated 264 restaurants generating
approximately $454.0 million in annual sales during fiscal 1997. As of April 4,
1999, we had completed the divestiture of 254 of 279 of our Applebee's
restaurants. Subsequent to April 4, 1999, we divested our remaining Applebee's
restaurants. Gross proceeds from the divestiture of all of our Applebee's
restaurants totaled approximately $514.0 million, including approximately $11.3
million in notes. With the divestiture of our Applebee's restaurants complete,
we are now well positioned to continue to execute our successful multi-concept,
niche-leading brand strategy.
To reflect the divestiture of our Applebee's franchised restaurants and our
strategy of becoming the leading operator of multi-concept, niche-leading casual
dining brands, we changed our corporate name from "Apple South, Inc." to "Avado
Brands, Inc." on October 13, 1998.
4
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Notes........................... The forms and terms of the Exchange Notes are
identical in all material respects to the
terms of the Outstanding Notes for which they
may be exchanged pursuant to the Exchange
Offer, except for certain transfer
restrictions and registration rights relating
to the Outstanding Notes and except for
certain interest provisions relating to the
Outstanding Notes described below under "--
Interest on the Exchange Notes."
The Exchange Offer........................... We are offering to exchange up to
$100,000,000 aggregate principal amount of
11 3/4% Senior Subordinated Notes due 2009
(the "Exchange Notes") for up to $100,000,000
aggregate principal amount of our outstanding
11 3/4% Senior Subordinated Notes due 2009
(the "Outstanding Notes" and collectively
with the Exchange Notes, the "Notes"). You
may exchange Outstanding Notes only in
integral multiples of $1,000.
Expiration Date; Withdrawal of Tender........ The Exchange Offer will expire at 5:00 p.m.,
Atlanta, Georgia time, on, , 1999, or
such later date and time as we might extend
it. You may withdraw your tender of
Outstanding Notes in the Exchange Offer at
any time prior to the Expiration Date. If we
do not accept any of your Outstanding Notes
for exchange for any reason, then we will
return them to you without expense as
promptly as practicable after the expiration
or termination of the Exchange Offer.
Certain Conditions to the Exchange Offer..... The Exchange Offer is subject to certain
customary conditions, which we may waive. See
"The Exchange Offer--Certain Conditions to
the Exchange Offer."
Procedures for Tendering Outstanding Notes... If you hold Outstanding Notes and wish to
accept the Exchange Offer, then you must
complete, sign and date the Letter of
Transmittal provided to you, or a facsimile
thereof, in accordance with the instructions
contained in the Letter of Transmittal and in
this Prospectus, and mail or otherwise
deliver the Letter of Transmittal, or such
facsimile, together with your Outstanding
Notes and any other required documentation to
the Exchange Agent (as defined) at the
address set forth herein. By executing the
Letter of Transmittal, you will represent to
us that, among other things, any Exchange
Notes you receive will be acquired in the
ordinary course of business,
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
and that you have no arrangement with any
person to participate in the distribution of
the Exchange Notes.
Interest on the Exchange Notes............... The Exchange Notes will bear interest at the
rate of 11 3/4% per annum, payable
semiannually on June 15 and December 15,
commencing December 15, 1999 to holders of
record on the immediately preceding June 1
and December 1, respectively. If you are the
record owner of Exchange Notes on December 1,
1999, then you will receive interest on
December 15, 1999 calculated from the date of
initial issuance of the Exchange Notes, plus
an amount equal to the accrued interest on
the Outstanding Notes that were exchanged
calculated from the date of their initial
issuance to the date of the exchange.
Interest on the Outstanding Notes accepted
for exchange will cease to accrue upon
issuance of the Exchange Notes.
Special Procedures for Beneficial Owners..... If you are a beneficial owner whose
Outstanding Notes are registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender your Outstanding Notes in the Exchange
Offer, then you should contact your
registered holder promptly and instruct such
registered holder to tender on your behalf.
If you wish to tender on your own behalf,
then you must, before completing and
executing the Letter of Transmittal and
delivering your Outstanding Notes, either
make appropriate arrangements to register
ownership of the Outstanding Notes in your
name or obtain a properly completed bond
power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date.
Registration Requirements.................... We have agreed to use our best efforts to
consummate a registered Exchange Offer to
offer holders of the Outstanding Notes an
opportunity to exchange their Outstanding
Notes for the Exchange Notes which will be
issued without legends restricting their
transfer. Your receipt of this Prospectus
indicates that we have accomplished that
registration with respect to your Outstanding
Notes. We also have agreed to file a shelf
registration statement (the "Shelf
Registration Statement") under certain
circumstances to cover resales of Outstanding
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Notes that are not covered by this registered
Exchange Offer and to use our best efforts to
cause the Shelf Registration Statement to be
declared effective under the Securities Act.
We also have agreed in that case and, subject
to certain exceptions, to keep the Shelf
Registration Statement effective until the
time when all of the Outstanding Notes
registered under the Shelf Registration
Statement are sold or two years after its
effective date.
Certain Federal Income Tax Considerations.... For a discussion of certain federal income
tax considerations relating to the Exchange
Notes, see "Certain United States Federal
Income Tax Consequences."
Use of Proceeds.............................. There will be no proceeds to the Company from
the exchange of notes pursuant to the
Exchange Offer.
Exchange Agent............................... SunTrust Bank, Atlanta is the Exchange Agent.
The address and telephone number of the
Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent."
</TABLE>
7
<PAGE>
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The following summary is provided solely for your convenience. This summary
is not intended to be complete. You should read the full text and more specific
details contained elsewhere in this Prospectus. For a more detailed description
of the Exchange Notes, see "Description of the Exchange Notes".
<TABLE>
<S> <C>
Issuer.................. Avado Brands, Inc.
Securities Offered...... $100,000,000 aggregate principal amount of 11 3/4% Senior
Subordinated Notes due 2009 (the "Exchange Notes").
Maturity Date........... June 15, 2009.
Interest Rate........... 11 3/4% per year.
Interest Payment June 15 and December 15, commencing December 15, 1999. Interest
Dates................. will accrue from the issue date of the Exchange Notes.
Subsidiary Guarantees... Each of our wholly-owned principal subsidiaries on the issue date
will guarantee the Exchange Notes on a senior subordinated basis,
other than certain of our subsidiaries where it is expected that
a portion of the ownership interests of such subsidiaries will be
acquired by management of such subsidiaries. Not all of our
subsidiaries will guarantee the Exchange Notes.
Ranking................. The Exchange Notes and the guarantees will be senior subordinated
obligations of the Company and the guarantors, respectively, and
will be subordinated in right of payment to any existing and
future senior indebtedness of the Company and the guarantors,
respectively. As of April 4, 1999, on a pro forma basis, the
Company and the guarantors would have had approximately $163.4
million of indebtedness that would have been senior in right of
payment to the Exchange Notes and the guarantees, excluding
unused commitments of approximately $78.6 million under our New
Credit Facility (as defined herein).
Optional Redemption..... We may redeem the Exchange Notes, in whole or in part, at any
time on or after June 15, 2004 at specified redemption prices. In
addition, at any time prior to June 15, 2002, we may redeem up to
35% of the original aggregate principal amount of the Exchange
Notes with net proceeds of one or more public equity offerings at
a redemption price in cash equal to 111.75% of the principal
amount thereof.
Change of Control....... If we experience specific kinds of changes of control, we must
offer to repurchase the Exchange Notes.
Certain Covenants....... The indenture governing the Exchange Notes contains certain
covenants, including limitations and restrictions on our ability
to:
- incur additional indebtedness;
- make dividend payments or other restricted payments;
- create liens;
- sell assets;
- enter into transactions with shareholders or affiliates; and
- enter into mergers, consolidations, or sales of all or
substantially all of our assets.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
These covenants are subject to important exceptions and
qualifications, which are described below in "Description of the
Exchange Notes" under the heading "Certain Covenants."
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that you should
carefully consider before investing in the Exchange Notes.
9
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
We derive the summary unaudited pro forma financial information presented
below in part from the unaudited Pro Forma Financial Information included
elsewhere in this Prospectus. The summary unaudited pro forma statements of
earnings for the fiscal year ended January 3, 1999 and the LTM period ended
April 4, 1999 reflect the operations of our Core Brands only and give effect to
(i) the divestiture of our Applebee's restaurants, (ii) the sale of the
Outstanding Notes and the application of the estimated net proceeds therefrom,
(iii) expected initial borrowings under the New Credit Facility and (iv) the
full year effect of the termination of employees in the fourth quarter of fiscal
1998 on general and administrative expenses, as if each had occurred at the
beginning of the respective periods (collectively, the "Transactions"). The pro
forma statement of earnings for the fiscal year ended December 28, 1997 gives
effect to the Transactions as if the Company owned all of the Core Brands at the
beginning of that fiscal year. The summary unaudited pro forma balance sheet as
of April 4, 1999, gives effect to the Transactions and the settlement of our two
remaining equity forward contracts.
The summary unaudited pro forma financial information does not purport to
present the actual financial position or results of operations of the Company
had the transactions and events assumed therein in fact occurred on the dates
specified, nor are they necessarily indicative of the results of operations that
may be achieved in the future. The summary unaudited pro forma financial
information is based on certain assumptions and adjustments described in the
notes to the unaudited Pro Forma Financial Information and should be read in
conjunction therewith. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
and the notes thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA FOR TWELVE-MONTH PERIODS
ENDED
---------------------------------------
<S> <C> <C> <C>
DEC. 28, JAN. 3, APRIL 4,
1997 1999 1999
------------ ----------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA-CORE BRANDS ONLY:
Restaurant sales:
Don Pablos's........................................................ $ 196,457 $ 270,399 $ 285,508
Hops................................................................ 57,351 106,329 115,534
McCormick & Schmick's............................................... 78,518 102,489 108,952
Canyon Cafe......................................................... 34,057 48,187 48,105
------------ ----------- ------------
Total restaurant sales................................................ 366,383 527,404 558,099
Total restaurant operating expenses................................... 311,106 448,522 473,796
------------ ----------- ------------
Income from restaurant operations..................................... 55,277 78,882 84,303
General and administrative expenses................................... 28,140 32,002 33,015
Operating income...................................................... 27,137 44,718 49,126
OTHER DATA-CORE BRANDS ONLY:
EBITDA (l)............................................................ $ 41,825 $ 64,710 $ 70,072
EBITDA margin (2)..................................................... 11.4% 12.3% 12.6%
Depreciation and amortization (3)..................................... $ 15,337 $ 19,289 $ 19,920
Capital expenditures:
Restaurant construction and other................................... 109,788 110,771 103,799
Restaurant remodeling and refurbishments............................ 6,187 10,036 11,141
Same-store sales...................................................... 5.1% 2.6% 1.7%
Number of restaurants (at end of period).............................. 155 212 220
Cash interest expense (4)............................................. $ 24,941
Dividends on Preferred Securities (5)................................. 8,205
Ratio of EBITDA to cash interest expense.............................. 2.8x
Ratio of EBITDA to cash interest expense including dividends on
Preferred Securities................................................ 2.1x
Ratio of total debt to EBITDA......................................... 3.7x
Pro forma ratio of earnings to fixed charges.......................... 0.9x 1.0x
</TABLE>
(SEE FOOTNOTES ON THE FOLLOWING PAGE)
10
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF APRIL 4, 1999
------------------------
<S> <C> <C>
ACTUAL PRO FORMA
----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital (excluding assets held for sale) (6)................................... $ (212,205) $ (79,196)
Premises and equipment, net............................................................ 382,539 382,539
Total assets........................................................................... 642,149 612,978
Total debt............................................................................. 254,448 261,948
Preferred Securities (7)............................................................... 115,000 115,000
Shareholders' equity................................................................... 116,833 116,319
</TABLE>
- ------------------------
(1) "EBITDA" is defined as operating income before depreciation and amortization
expenses and asset revaluation and other special charges, which are included
in operating income, less miscellaneous expenses (income) included in
non-operating expenses. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles, or as a measure of profitability
or liquidity, management understands that it is widely used by certain
investors as one measure to evaluate the financial performance of companies
in the restaurant industry.
(2) "EBITDA margin" is EBITDA stated as a percentage of restaurant sales.
(3) Includes depreciation and amortization related to restaurant operations and
corporate facilities and excludes amortization of goodwill, which is
included in non-operating expenses.
(4) Cash interest expense is interest expense less amortization of deferred
financing costs.
(5) We currently pay cash dividends of 7% on the Preferred Securities (as
defined below); however, we have the right to defer payments of these
dividends for periods not exceeding 20 consecutive quarters. Upon deferral,
these dividends would continue to accrue on a quarterly basis. The period
ended April 4, 1999 is a 53-week fiscal period.
(6) We operate with negative working capital due to the fact that substantially
all sales in our restaurants are for cash and accounts payable are due in 15
to 45 days.
(7) Represents the Company-obligated mandatorily redeemable preferred securities
of Avado Financing I (the "Preferred Securities"), a subsidiary holding
solely Avado Brands, Inc. 7% convertible subordinated debentures due March
1, 2027.
11
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
We derive the summary consolidated historical financial data presented below
from our audited Consolidated Financial Statements and the notes thereto for the
fiscal years ended December 29, 1996, December 28, 1997 and January 3, 1999 and
the unaudited interim Consolidated Financial Statements and the notes thereto
for the thirteen-week periods ended March 29, 1998 and April 4, 1999. You should
read the financial data presented below together with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Selected
Consolidated Historical Financial Data" and our Consolidated Financial
Statements and the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THIRTEEN-WEEK
FISCAL YEARS ENDED PERIODS ENDED
------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 29, DECEMBER 28, JANUARY 3, MARCH 29, APRIL 4,
1996 1997 1999 1998 1999
------------ ------------ ------------ -------------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA(1):
Restaurant sales:
Don Pablo's......................... $133,261 $196,457 $ 270,399 $ 59,263 $ 74,372
Hops................................ -- 49,511 106,329 23,327 32,532
McCormick & Schmick's............... -- 67,373 102,489 21,342 27,805
Canyon Cafe......................... -- 18,577 48,187 11,981 11,899
Applebee's.......................... 379,042 454,127 335,288 125,763 17,467
Other (2)........................... 33,719 22,275 -- -- --
------------ ------------ ------------ -------------- ------------
Total restaurant sales................ 546,022 808,320 862,692 241,676 164,075
Total restaurant operating expenses... 460,397 693,880 740,971 206,627 138,425
------------ ------------ ------------ -------------- ------------
Income from restaurant operations..... 85,625 114,440 121,721 35,049 25,650
General and administrative expenses... 26,329 39,617 46,150 12,915 9,840
Asset revaluation and other special
charges............................. 27,700 -- 2,940 -- --
------------ ------------ ------------ -------------- ------------
Operating income...................... 31,596 74,823 72,631 22,134 15,810
Net earnings.......................... 11,674 28,448 66,283 37,078 5,952
OTHER DATA:
EBITDA (3)............................ $ 83,522 $108,961 $ 93,151 $ 26,477 $ 21,170
EBITDA margin (4)..................... 15.3% 13.5% 10.8% 11.0% 12.9%
Depreciation and amortization (5)..... $ 26,250 $ 39,972 $ 23,221 $ 5,665 $ 6,332
Capital expenditures.................. 124,623 172,963 142,841 40,088 22,173
Number of restaurants (at end of
period)............................. 316 430 256 419 243
Ratio of earnings to fixed
charges(6).......................... 1.92x(7) 2.05x 3.37x(7) 6.06x 1.86x
SELECTED BALANCE SHEET DATA:
Working capital (excluding assets held
for sale)(8)........................ $(21,439) $(33,989) $ (210,947) $ (58,623)(9) $(212,205)
Premises and equipment, net........... 380,523 283,839 367,587 307,199 382,539
Total assets.......................... 457,827 804,289 670,597 903,186 642,149
Total debt............................ 216,177 382,049 257,478 414,962 254,448
Preferred Securities.................. -- 115,000 115,000 115,000 115,000
Shareholders' equity.................. 191,429 220,782 112,029 257,742 116,833
</TABLE>
(SEE FOOTNOTES ON THE FOLLOWING PAGE)
12
<PAGE>
NOTES TO SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
(1) Includes franchised Applebee's restaurants. In December 1997, we announced
our decision to sell our franchised Applebee's restaurants and focus on the
development of our four Core Brands and our Belgo and San Marzano joint
ventures. As of April 4, 1999, we had completed the divestiture of 254 of
our 279 Applebee's restaurants. Subsequent to April 4, 1999, we divested our
remaining Applebee's restaurants. Gross proceeds from the divestiture of our
Applebee's restaurants totaled approximately $514.0 million, including
approximately $11.3 million in notes.
(2) Represents sales from previously divested and/or closed non Core Brand
restaurants.
(3) "EBITDA" is defined as operating income before depreciation and amortization
expenses and asset revaluation and other special charges, which are included
in operating income, less miscellaneous expenses (income) included in
non-operating expenses. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles, or as a measure of profitability
or liquidity, management understands that it is widely used by certain
investors as one measure to evaluate the financial performance of companies
in the restaurant industry.
(4) "EBITDA margin" is EBITDA stated as a percentage of restaurant sales.
(5) Includes depreciation and amortization related to restaurant operations and
corporate facilities and includes amortization of goodwill, which is
included in non-operating expenses.
(6) Earnings represent income from continuing operations before income taxes and
fixed charges, net of capitalized interest. Fixed charges consist of
interest expense before reduction for capitalized interest, debt
amortization costs and one-third (the portion deemed representative of the
interest factor) of total restaurant lease payments.
(7) The ratio of earnings to fixed charges excluding the fiscal year 1996 and
fiscal 1998 revaluations and other special charges would have been 3.44x and
3.44x, respectively.
(8) We operate with negative working capital due to the fact that substantially
all sales in our restaurants are for cash and accounts payable are due in 15
to 45 days.
(9) Excludes proceeds due from the sale of assets of $94.7 million related to
the divestiture of certain of our Applebee's restaurants, which we completed
on March 29, 1998.
13
<PAGE>
RISK FACTORS
YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS BEFORE INVESTING IN THE
EXCHANGE NOTES. AMONG THE FACTORS THAT MAY AFFECT AN INVESTMENT IN THE EXCHANGE
NOTES ARE THE FOLLOWING:
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
EXCHANGE NOTES.
We have now and, after the offering will continue to have, a significant
amount of indebtedness. The following chart shows certain important credit
statistics and is presented assuming we had completed the offering of the
Outstanding Notes and the New Credit Facility (as defined herein) as of the
dates or at the beginning of the periods specified below and applied the
proceeds as intended:
<TABLE>
<CAPTION>
AT APRIL 4, 1999
--------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
Long-term debt, including current portion............................... $ 261,948
Preferred Securities.................................................... 115,000
Shareholders' equity.................................................... 116,319
</TABLE>
<TABLE>
<CAPTION>
LTM PERIOD ENDED
APRIL 4, 1999
---------------------
<S> <C>
Pro forma ratio of earnings to fixed charges............................... 1.0x
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the Exchange Notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund capital expenditures and other
general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the restaurant industry;
- place us at a competitive disadvantage with regard to competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
RESTRICTIVE DEBT COVENANTS--OUR ABILITY TO ENGAGE IN CERTAIN TYPES OF
TRANSACTIONS WILL BE LIMITED.
The New Credit Facility, the indenture governing the Exchange Notes (the
"Indenture"), and the indenture (the "Senior Notes Indenture") governing our
9 3/4% Senior Notes Due 2006 (the "Senior Notes") contain a number of
significant covenants. These covenants will limit our ability to, among other
things:
- borrow additional money;
- make certain investments;
- pay dividends;
- merge, consolidate, or dispose of our assets;
- enter into transactions with our affiliates; and
- grant liens on our assets.
14
<PAGE>
The occurrence of certain events would, in certain cases, result in events
of default under the Senior Notes Indenture, the Indenture and the New Credit
Facility and permit acceleration of the indebtedness represented by the Senior
Notes Indenture, the Indenture and the New Credit Facility. These events
include, among other things:
- the failure to comply with our covenants;
- certain defaults under our other indebtedness; and
- events of bankruptcy or insolvency.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES IS
SUBORDINATED TO OUR EXISTING INDEBTEDNESS AND POSSIBLY OUR FUTURE
INDEBTEDNESS.
The Exchange Notes and the guarantees are unsecured and will be
contractually subordinated to all of our and the guarantors' existing and future
senior indebtedness (including all indebtedness under the New Credit Facility
and the Senior Notes). As a result, upon any distribution to our creditors or
the creditors of the guarantors in a bankruptcy, liquidation or reorganization
or similar proceeding relating to us or the guarantors or our or their property,
the holders of our senior debt and senior debt of the guarantors will be
entitled to be paid in full in cash before any payment may be made with respect
to the Exchange Notes or the guarantees.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the Exchange Notes will
participate with trade creditors and all other holders of subordinated
indebtedness of us or the guarantors in the assets remaining after we and the
guarantors have paid all senior debt. However, because the Indenture requires
that amounts otherwise payable to holders of the Exchange Notes in a bankruptcy
or similar proceeding be paid to holders of senior debt instead, holders of the
Exchange Notes may receive less, ratably, than holders of trade payables in any
such proceeding. In any of these cases, we and the guarantors may not have
sufficient funds to pay all of our creditors, and holders of Exchange Notes may
receive ratably less than the holders of senior debt.
Assuming we had completed the offering of the Outstanding Notes and entered
into the New Credit Facility on April 4, 1999, the Outstanding Notes (and
therefore the Exchange Notes) and the guarantees would have been subordinated to
approximately $163.4 million of total senior debt. In addition, the New Credit
Facility provides for up to approximately $78.6 million of additional
borrowings, for a total availability of $125.0 million. Please refer to the
section in this Prospectus entitled "Description of the Exchange
Notes--Subordination."
NOT ALL SUBSIDIARIES ARE GUARANTORS--YOUR RIGHT TO RECEIVE PAYMENTS ON THE
EXCHANGE NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR NON-GUARANTOR
SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE OR REORGANIZE.
Some but not all of our subsidiaries will guarantee the Exchange Notes. In
the event of a bankruptcy, liquidation or reorganization of any of the
non-guarantor subsidiaries, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us. Assuming we had completed the offering of the Outstanding Notes on April 4,
1999, the Outstanding Notes (and therefore the Exchange Notes) would have been
effectively junior to $3.5 million of liabilities of these non-guarantor
subsidiaries. The non-guarantor subsidiaries generated approximately 9.0% and
14.6%, respectively, of our consolidated sales in the fiscal year ended January
3, 1999 and the thirteen week period ended April 4, 1999, and held 13.7% of our
consolidated assets as of April 4, 1999.
15
<PAGE>
TRANSITION TO PROPRIETARY BRANDS--WE WILL FACE CHALLENGES IN GROWING OUR OWN
CONCEPTS.
From 1986 until the second quarter of fiscal 1998, the majority of our sales
were derived from the operation of franchised Applebee's restaurants. Menus,
methods of operation and restaurant design for these restaurants were specified
by the franchisor, or to the extent developed by us, were subject to the
approval of the franchisor. We sold the last of our Applebee's restaurants in
May 1999. Consequently, our profitability and growth is now dependent
exclusively upon the success of our proprietary restaurant concepts and the
ability of our management to continue the successful development and expansion
of these concepts. Because of our decentralized management structure, this means
that the management of each brand will be substantially responsible for the
evolution and growth of the brand. Thus, it is very important that we be able to
maintain and attract highly qualified, brand level executives. Operating a
multi-concept company will continue to challenge our executive management team.
Failure to successfully complete the transition from a company that was
primarily a franchise concept operator to a multi-concept proprietary company
could adversely affect our financial condition and results of operations.
RELIANCE ON KEY MANAGEMENT--LOSS OF EXECUTIVE SERVICES COULD IMPACT OUR SUCCESS.
Our business is managed, and its business strategies formulated, by a
relatively small number of key executive officers and managers. The loss of key
management persons, including Tom E. DuPree, Jr., our Chief Executive Officer,
and our brand level chief executive officers, could adversely affect our
business.
COMPETITION--OUR SUCCESS DEPENDS ON OUR ABILITY TO COMPETE WITH OTHER
RESTAURANTS.
The food service industry is intensely competitive with respect to the
quality and value of food products offered, concept, service, price, dining
experience, location and other factors. Our competitors include a variety of
casual-dining, full service, health oriented and other mid-price restaurants. We
compete with many well-established national, regional and locally owned
restaurant companies, some of which have substantially greater financial,
marketing and other resources than we have. Those resources may allow them to
respond to changes in pricing, marketing and the food industry better than we
can. We compete in attracting guests, obtaining premium locations for our
restaurants and attracting and retaining employees. Many of our restaurants are,
and will be, located in areas of high concentration with our competitors. As our
competitors expand operations, we expect competition to intensify. Such
increased competition could have a material adverse effect on our financial
condition and results of operations.
THE FOOD SERVICE INDUSTRY--CONSUMER PREFERENCES AND PERCEPTIONS, SEASONALITY AND
GENERAL ECONOMIC CONDITIONS MAY HAVE SIGNIFICANT EFFECTS ON OUR BUSINESS.
Food service businesses are often affected by changes in consumer tastes,
national, regional, and local economic conditions and demographic trends. The
performance of individual restaurants may be adversely affected by traffic
patterns, demographics and the type, number and location of competing
restaurants. Restaurant performance may also be impacted by adverse weather
conditions. Multi-unit food service businesses such as ours can also be
adversely affected by publicity resulting from poor food quality, illness,
injury or other health concerns or operating issues stemming from one or a
limited number of restaurants. In addition, our dependence on frequent
deliveries of food and other supplies subjects our restaurants to the risk that
shortages or interruptions in supply, caused by adverse weather or other
conditions, could adversely affect the availability, quality and cost of
ingredients. Unfavorable trends or developments concerning factors such as
inflation, increased food, competitive labor and employee benefit costs,
regional weather conditions and the availability of experienced management and
hourly employees may also adversely affect our financial condition and results
of operations. Changes in economic conditions affecting our customers could
reduce traffic in some or all of our
16
<PAGE>
restaurants or impose practical limits on pricing, either of which could have a
material adverse effect on our financial condition and results of operations.
Our continued success will depend in part on our ability to anticipate, identify
and respond to changing conditions.
REGULATION--GOVERNMENT REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
All of our operations are subject to federal, state and local laws that
affect our business, including laws and regulations relating to employment,
health, sanitation, alcoholic beverage control and safety standards. To date,
federal and state environmental regulations have not had a material effect on
our operations, but more stringent and varied requirements of local government
with respect to zoning, building codes, land use and environmental factors have
in the past increased, and can be expected in the future to increase, the cost
of, and the time required for, opening new restaurants. Difficulties or failures
in obtaining required licenses or approvals could delay or prohibit the opening
of new restaurants. In some instances, we may have to obtain zoning variances
and land use permits for new restaurants.
Alcoholic beverage control regulations require each of our restaurants to
apply to a state authority and, in certain locations, county or municipal
authorities for a license to sell alcoholic beverages. Generally, our licenses
to sell alcoholic beverages must be renewed annually and may be suspended or
revoked at any time for cause, including violation by our employees of any law
or regulation pertaining to alcoholic beverage control, such as those regulating
the minimum age of patrons or employees, advertising, wholesale purchasing and
inventory control. In addition, each restaurant requires licenses from local
health authorities, and the development and construction of additional
restaurants will be subject to compliance with applicable zoning, land use and
environmental regulations. Difficulty or failure in obtaining or retaining the
required licenses or approvals could adversely affect our business, financial
condition and results of operations, including the delay or prevention of the
opening of a new restaurant in a particular location.
We may be subject in certain states to "dram-shop" statutes which generally
provide a person injured by an intoxicated person the right to recover damages
from an establishment that wrongfully served alcoholic beverages to such
intoxicated person. The Company carries liquor liability insurance as part of
its existing comprehensive general liability insurance.
Our Hops restaurants are subject to additional regulations as a result of
the microbrewery in each restaurant. For state liquor law purposes these
restaurants are classified as "brewpubs", and are required to comply with state
brewpub laws in order to obtain necessary state operating licenses and permits.
Certain states limit the number of brewpubs that may be owned by one company.
Our ability to own and operate Hops restaurants in any state is and will
continue to be dependent upon our ability to operate within the brewpub
regulatory schemes of the state.
POTENTIAL FUTURE ACQUISITIONS--ACQUIRING RESTAURANT BUSINESSES INVOLVES SPECIAL
RISKS.
We obtained our four Core Brands through acquisitions. We are not currently
contemplating any significant acquisitions. However, we will continue to
evaluate acquisition opportunities. Acquisitions involve the following risks
that could adversely affect our operating results:
- the assimilation of the operations and personnel of the acquired
companies;
- the diversion of management's attention; and
- the potential loss of key employees of the acquired companies.
We cannot assure you that any of our acquisitions or investments will not
materially or adversely affect us or that any such acquisition or investment
will enhance our business.
17
<PAGE>
MINIMUM WAGE LEGISLATION--OUR LABOR COSTS ARE SUBSTANTIAL AND WE MAY NOT BE ABLE
TO OFFSET INCREASED LABOR COSTS WITH INCREASED REVENUES.
Additional increases in the federal minimum wage rate have recently been
proposed by the President of the United States and appear likely to be adopted.
Current federal minimum wage laws set the minimum wage for tipped employees at
$2.13 per hour and allow the difference between that rate and the standard
minimum wage to be made up by tips. The majority of our hourly employees are
tipped employees, and the non-tipped employees have generally earned more than
the federal minimum wage. However, if federal or state minimum wage rates do
increase as expected, we may need to increase not only the wage rates of our
minimum wage employees, but also the wages paid to the employees at wage rates
which are above the minimum wage. Although an increase in the minimum wage could
be offset by pricing and cost control efforts, we cannot assure you that we will
be able to do so.
YEAR 2000 ISSUES--SOFTWARE FAILURES COULD AFFECT OUR BUSINESS.
We rely on various information systems to manage our restaurant operations
by means of financial controls through a centralized accounting system at each
brand's headquarters and a point-of-sale reporting system in each restaurant. We
have completed reviews of the ability of our hardware and software serving
critical internal functions in our restaurants and in our corporate offices to
accurately handle data involving the transition of dates from 1999 to 2000 and,
as a result, have made modifications to our computer systems. We believe that
these modifications are sufficient, but we cannot assure you that we have found
and corrected all non-compliant programs. A disruption in the operation of our
computer systems could result in additional expenses and reduced profitability
because of the need for additional personnel time to acquire necessary
information, additional record keeping costs and less efficient purchasing and
distribution. We have contacted our vendors who supply significant amounts of
goods and services to us to determine the status of their Year 2000 compliance
plans. We believe that our significant vendors will be Year 2000 compliant;
however, our vendors' operations could be adversely affected by the failure of
their suppliers, particularly food and beverage suppliers, to be compliant. Any
failure on the part of us, our vendors, their suppliers or providers of
utilities, telephone service or similar services to ensure compliance with Year
2000 requirements could have a material adverse effect on our financial
condition and results of operations.
FRAUDULENT CONVEYANCE--UNDER SPECIFIC CIRCUMSTANCES, THE GUARANTEES MAY BE
VOIDED.
Federal and state statutes allow courts, under specific circumstances, to
void guarantees and require noteholders to return payments received from the
guarantors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the guarantees could be voided, or claims in respect
of the guarantees could be subordinated to all other debts of any guarantor if,
among other things, the guarantor, at the time it incurred the indebtedness
evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness;
- was insolvent or rendered insolvent by reason of the incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
18
<PAGE>
In addition, any payment by the guarantor pursuant to a guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets;
- the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all Notes. However, it is possible
that we will not have sufficient funds at the time of the change of control to
make the required repurchase of Notes or that restrictions in the New Credit
Facility or the Senior Notes Indenture will not allow such repurchases. In
addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a "Change of Control" under the Indenture. Please refer to the
section in this Prospectus entitled "Description of the Exchange
Notes--Repurchase of Exchange Notes upon a Change of Control."
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
Exchange Notes in the Exchange Offer will continue to be subject to the
restrictions on transfer of their Outstanding Notes as set forth in the legend
on the Outstanding Notes as a consequence of the issuance of the Outstanding
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Outstanding Notes may not be offered or sold unless
registered under or exempted from the Securities Act and applicable state laws.
Subject to our obligation to file a Shelf Registration Statement covering
resales of Outstanding Notes in certain circumstances, we do not intend to
register the Outstanding Notes under the Securities Act and, after consummation
of the Exchange Offer, will not be obligated to do so. In addition, any holders
of Outstanding Notes who tender in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Additionally, as a result of the
Exchange Offer, it is expected that a substantial decrease in the aggregate
principal amount of Outstanding Notes outstanding will occur. As a result, it is
unlikely that a liquid trading market will exist for the Outstanding Notes at
any time. This lack of liquidity will make transactions more difficult and may
reduce the trading price of the Outstanding Notes. See "The Exchange Offer" and
"Description of the Exchange Notes--Registration Rights Agreement; Penalty
Interest."
ABSENCE OF A PUBLIC MARKET--AN ACTIVE TRADING MARKET FOR THE EXCHANGE NOTES MAY
NOT DEVELOP.
The Exchange Notes will be new securities for which there is currently no
trading market. We do not intend to apply for listing of the Exchange Notes, on
any securities exchange or for quotation
19
<PAGE>
through the National Association of Securities Dealers Automated Quotation (the
"Nasdaq") system. The Initial Purchasers have informed us that they currently
intend to make a market in the Exchange Notes. However, the Initial Purchasers
are not obligated to do so and may discontinue any such market making at any
time without notice.
The liquidity of any market for the Exchange Notes will depend upon various
factors, including:
- the number of holders of the Exchange Notes;
- the interest of securities dealers making a market in the Exchange Notes;
- the overall market for high yield securities;
- our financial performance or prospects; and
- the prospects for companies in our industry generally.
Accordingly, we cannot assure you that a market or liquidity will develop for
the Exchange Notes.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Exchange Notes. We cannot assure you that the market for the
Exchange Notes, if any, will not be subject to similar disruptions. Any such
disruptions may adversely affect you as a holder of the Exchange Notes.
20
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of our obligations under
the Registration Rights Agreement. We will not receive any proceeds from the
issuance of the Exchange Notes. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, we will receive, in exchange, Outstanding
Notes in the same principal amount. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Outstanding
Notes, except as otherwise described herein under "The Exchange Offer--Terms of
the Exchange Offer." The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase in our
outstanding debt.
21
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth our historical capitalization and pro forma
capitalization as of April 4, 1999 after giving effect to (i) the proceeds from
the divestiture of our Applebee's restaurants, which was completed on May 3,
1999, (ii) the offering of the Outstanding Notes and the application of the
estimated net proceeds therefrom, (iii) expected initial borrowings under the
New Credit Facility and (iv) settlement of our two remaining equity forward
contracts. You should read this table in conjunction with the information
contained in "Pro Forma Financial Information" and our Consolidated Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF APRIL 4, 1999
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Debt:
Existing Credit Facility (1)....................................... $ 137,491 $ --
New Credit Facility (2)............................................ -- 46,430
Other long-term debt (3)........................................... 457 457
9 3/4% Senior Notes due 2006....................................... 116,500 116,500
Senior Subordinated Notes due 2009 (4)............................. -- 98,561
---------- -----------
Total debt..................................................... 254,448 261,948
Preferred Securities (5)........................................... 115,000 115,000
Temporary equity, net (6).......................................... 39,849 --
Total shareholders' equity (7)..................................... 116,833 116,319
---------- -----------
Total capitalization........................................... $ 526,130 $ 493,267
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The Existing Credit Facility consists of two senior, unsecured revolving
credit lines which mature on June 15, 1999 and June 30, 1999, respectively.
The Existing Credit Facility was reduced by proceeds from the divestiture of
our Applebee's restaurants, which was completed on May 3, 1999, and has been
replaced by the New Credit Facility.
(2) Concurrently with the closing of the offering of the Outstanding Notes, we
entered into the New Credit Facility, which consists of a revolving credit
facility with total availability of $125.0 million and a term of three
years.
(3) Represents capitalized leases and other senior obligations.
(4) Reflects the issuance of $100.0 million of Outstanding Notes, net of
original issue discount.
(5) Represents the Company-obligated mandatorily redeemable preferred securities
of Avado Financing I, a subsidiary holding solely Avado Brands, Inc. 7%
convertible subordinated debentures due March 1, 2027.
(6) Represents our two remaining equity forward contracts pending settlement for
approximately $40.0 million, net of collateral deposits of approximately
$10.5 million and other transaction costs of approximately $1.7 million.
These contracts represent the Company's remaining agreements with two
financial institutions which the Company plans to settle by purchasing a
total of 3.8 million shares of our common stock. The two equity forward
contracts expire on June 30, 1999 and July 31, 1999, respectively.
(7) Represents the impact of (i) the divestiture of our remaining Applebee's
restaurants on May 3, 1999 and (ii) the settlement of our two remaining
equity forward contracts by acquiring the related shares of common stock.
22
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We sold the Outstanding Notes on June 22, 1999 to the Initial Purchasers,
who sold the Outstanding Notes to certain institutional investors in reliance on
Rule 144A promulgated by the Commission under the Securities Act. In connection
with the sale of the Outstanding Notes, we, the Guarantors and the Initial
Purchasers entered into the Registration Rights Agreement, pursuant to which we
agreed:
(i) to file a registration statement within 60 days after the date of
original issuance of the Outstanding Notes to register our offer to
exchange for the Outstanding Notes our senior subordinated debt
securities with terms substantially identical to the Outstanding Notes
(except that the Exchange Notes will not contain terms with respect to
transfer restrictions); and
(ii) to use our best efforts to cause the registration statement to become
effective under the Securities Act within 150 days after the issue date
of the Outstanding Notes.
If any holders of the Outstanding Notes notify us prior to the 20th day
following consummation of the Exchange Offer that:
(i) it is prohibited by law or Commission policy from participating in
the Exchange Offer;
(ii) it may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement
is not appropriate or available; or
(iii) it is a broker-dealer and owns Outstanding Notes acquired directly
from us or one of our affiliates,
then we will use our best efforts to cause to become effective a Shelf
Registration Statement with respect to the resale of the Outstanding Notes and
to keep the Shelf Registration Statement effective until the Outstanding Notes
registered under the Shelf Registration Statement have been sold or two years
after the effective date thereof, whichever occurs first. The interest rate on
the Outstanding Notes is subject to increase under certain circumstances if we
are not in compliance with our obligations under the Registration Rights
Agreement. See "Description of the Exchange Notes--Registration Rights
Agreement; Penalty Interest."
Each holder of Outstanding Notes who wishes to exchange such Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, and (ii)
it has no arrangement with any person to participate in the distribution of the
Exchange Notes. See "--Registration Rights Agreement; Penalty Interest" below.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, we believe that, except as described
below, Exchange Notes issued pursuant to the Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred by
any holder thereof (other than a holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and such holder does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. Any holder who tenders in the Exchange Offer with the
intention or for the purpose of
23
<PAGE>
participating in a distribution of the Exchange Notes cannot rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the selling security
holders information required by Item 507 of Regulation S-K under the Securities
Act. This Prospectus may be used for an offer to resell, resale or other
retransfer of Exchange Notes only as specifically set forth herein. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, we will accept for exchange any and all
Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
Atlanta, Georgia time, on the Expiration Date. We will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding Notes
may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes except the Exchange Notes will be registered
under the Securities Act for their offer and sale, and hence they will not bear
legends restricting their transfer. The Exchange Notes will evidence the same
debt as the Outstanding Notes. The Exchange Notes will be issued under and
entitled to the benefits of the Indenture, which also authorized the issuance of
the Outstanding Notes, such that both series will be treated as a single class
of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. Holders of Outstanding
Notes do not have any appraisal or dissenters' rights in connection with the
Exchange Offer.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Outstanding Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Outstanding
Notes. There will be no fixed record date for determining registered holders of
Outstanding Notes entitled to participate in the Exchange Offer.
We intend to conduct the Exchange Offer in accordance with the provisions of
the Registration Rights Agreement and the applicable requirements of the
Exchange Act, and the rules and regulations of the Commission. Outstanding Notes
which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the Indenture and the Registration Rights
Agreement.
We are deemed to have accepted for exchange properly tendered Exchange Notes
when we give oral or written notice thereof to the Exchange Agent and comply
with the applicable provisions of the Registration Rights Agreement. The
Exchange Agent will act as agent for the tendering holders for the purposes of
receiving the Exchange Notes from us. We expressly reserve the right to amend or
terminate the Exchange Offer, and not to accept for exchange any Outstanding
Notes not already accepted for exchange, upon the occurrence of any of the
conditions specified below under "--Certain Conditions to the Exchange Offer."
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will
24
<PAGE>
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "--Fees and Expenses" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., Atlanta, Georgia time on
, 1999, unless we, in our sole discretion, extend the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, we will notify the Exchange Agent of
any extension by oral or written notice and will mail to the registered holders
of Outstanding Notes an announcement thereof, each prior to 9:00 a.m., Atlanta,
Georgia time on the next business day after the then Expiration Date.
We reserve the right, in our sole discretion:
(i) to delay accepting for exchange any Exchange Notes, or to extend the
Exchange Offer if any of the conditions set forth below under "--Certain
Conditions To The Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay or extension to the Exchange
Agent; or
(ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension or amendment will be followed as
promptly as practicable by oral or written notice thereof to the registered
holders of Outstanding Notes. If the Exchange Offer is amended in a manner
determined by us to constitute a material change, we will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and we will extend the Exchange Offer, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 11 3/4% per annum,
payable semi-annually, on each June 15 and December 15, commencing December 15,
1999. Holders of Exchange Notes will receive interest on December 15, 1999 from
the date of initial issuance of the Exchange Notes, plus an amount equal to the
accrued interest on the Outstanding Notes from the date of initial issuance to
the date of exchange thereof for Exchange Notes. Interest on the Outstanding
Notes accepted for exchange will cease to accrue upon issuance of the Exchange
Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any Outstanding Notes, by giving oral or written
notice of such extension to the holders thereof. During any such extensions, all
Outstanding Notes previously tendered will remain subject to the Exchange Offer
and may be accepted for exchange by us. Any Outstanding Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
We expressly reserve the right to amend the Exchange Offer. We will give
oral or written notice of any extension, amendment or non-acceptance to the
holders of the Outstanding Notes as promptly as practicable, such notice in the
case of any extension to be issued no later than 9:00 a.m., Atlanta, Georgia
time on the next business day after the previously scheduled Expiration Date.
25
<PAGE>
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. The failure by us at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any Outstanding Notes tendered,
and no Exchange Notes will be issued in exchange for any such Outstanding Notes,
if at such time any stop order shall be threatened or in effect with respect to
the Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., Atlanta, Georgia time on the Expiration Date. In
addition, either Outstanding Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or a timely confirmation of book-entry transfer
(a "Book-Entry Confirmation") of such Outstanding Notes, if such procedure is
available, into the Exchange Agent's account at the Depository Trust Company
(the "Depository") pursuant to the procedure for book-entry transfer described
below must be received by the Exchange Agent prior to the Expiration Date. To be
tendered effectively, the Letter of Transmittal and other required documents
must be received by the Exchange Agent at the address set forth below under
"--Exchange Agent" prior to 5:00 p.m., Atlanta, Georgia time on the Expiration
Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO US. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Outstanding Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Outstanding Notes, either make appropriate arrangements
to register ownership of the Outstanding Notes in such owner's name or obtain a
properly completed bond power from the registered holder of Outstanding Notes.
The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Outstanding Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box
26
<PAGE>
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantor must be a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is
a member of one of the recognized signature guarantee programs identified in the
Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Outstanding Notes listed therein, such Outstanding Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Outstanding
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by us,
evidence satisfactory to us of their authority to so act must be submitted with
the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all Outstanding Notes not properly tendered or any Outstanding Notes our
acceptance of which would, in the opinion of our counsel be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular Outstanding Notes. Our interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Outstanding Notes must
be cured within such time as we shall determine. Although we intend to notify
holders of defects or irregularities with respect to tenders of Outstanding
Notes, we will not, nor will the Exchange Agent any other person incur any
liability for failure to give such notification. Tenders of Outstanding Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Outstanding Notes received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Exchange Notes or a timely Book-Entry
Confirmation of such Outstanding Notes into the Exchange Agent's account at the
Depository, a properly completed and duly executed Letter of Transmittal and all
other required documents. If any tendered Outstanding Notes are not accepted for
exchange for any reason set forth in the terms and conditions of the Exchange
Offer or if Outstanding Notes are submitted for a greater principal amount than
the holder desires to exchange, such unaccepted or non-exchanged Outstanding
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Outstanding Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depository pursuant to the book-entry transfer procedures
described below, such non-exchanged Exchange Notes will be credited to an
account maintained with such Depository) as promptly as practicable after the
expiration or termination of the Exchange Offer.
27
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's system may make book-entry
delivery of Outstanding Notes by causing the Depository to transfer such
Outstanding Notes into the Exchange Agent's account at the Depository in
accordance with such Depository's procedures for transfer. However, although
delivery of Exchange Notes may be effected through book-entry transfer at the
Depository, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth below
under "--Exchange Agent" on or prior to the Expiration Date or, if the
guaranteed delivery procedures described below are to be complied with, within
the time period provided under such procedures. Delivery of documents to the
Depository does not constitute delivery to the Exchange Agent. For a further
discussion of book-entry procedures see "Description of the Exchange
Notes--Book-Entry, Delivery and Form" and "--Depository Procedures."
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., Atlanta, Georgia time on the
Expiration Date.
For a withdrawal to be effective, the Exchange Agent must receive a written
notice of withdrawal at one of the addresses set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Outstanding Notes to be withdrawn, identify the Outstanding Notes
to be withdrawn (including the principal amount of such Outstanding Notes), and
(where certificates for Outstanding Notes have been transmitted) specify the
name in which such Outstanding Notes were registered, if different from that of
the withdrawing holder. If certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Depository to
be credited with the withdrawn Outstanding Notes and otherwise comply with the
procedures of such facility. We will determine all questions as to the validity,
form and eligibility (including time of receipt) of such notices, and our
determination will be final and binding on all parties. Any Outstanding Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Outstanding Notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Outstanding Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Depository pursuant to the book-entry transfer procedures described above, such
Outstanding Notes will be credited to an account maintained with such Depository
for the Outstanding Notes) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Outstanding
Notes may be re-tendered by following one of the procedures described under
"--Procedures for Tendering" above at any time on or prior to the Expiration
Date.
EXCHANGE AGENT
SunTrust Bank, Atlanta has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance or requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent at SunTrust Bank, Atlanta, 25 Park Place, 24th
28
<PAGE>
Floor, Atlanta, GA 30303-2900, Attn: Corporate Trust Department, Telephone:
(404) 588-7296, Telecopy: (404) 588-7335.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are making the principal
solicitation by mail, however, we may make additional solicitations by
telegraph, telephone or in person through our officers and regular employees or
through our affiliates.
We have not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to broker-dealers or others soliciting
acceptances of the Exchange Offer. We will, however, pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the Exchange
Offer, which we estimate in the aggregate to be approximately $ .
Such expenses include registration fees, fees and expenses of the Exchange Agent
and Trustee, accounting and legal fees and printing costs, and related fees and
expenses.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register Exchange Notes in the name of, or request
that Outstanding Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Outstanding Notes, as set forth in the legend
thereon as a consequence of the issuance of the Outstanding Notes pursuant to
the exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act. Based on interpretations by the
staff of the Commission, Exchange Notes issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with respect to
the distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange Notes may
not be offered or sold by a holder in a resale transaction unless they have been
registered under applicable state law or the requirements of an exemption from
registration have been complied with. We have agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Exchange Notes for offer or sale under
29
<PAGE>
the securities or blue sky laws of such jurisdictions as any holder of the
Exchange Notes reasonably requests in writing.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is based on our
audited Consolidated Financial Statements and the notes thereto for the fiscal
year ended January 3, 1999 and our unaudited interim Consolidated Financial
Statements and the notes thereto for the thirteen-week periods ended March 29,
1998 and April 4, 1999, respectively, included elsewhere in this Prospectus. The
unaudited pro forma statements of earnings for the LTM period ended April 4,
1999, the fiscal year ended January 3, 1999 and the thirteen-week period ended
April 4, 1999 reflect the operations of our Core Brands only and give effect to
the Transactions. The unaudited pro forma balance sheet as of April 4, 1999
gives effect to the Transactions and the settlement of our two remaining equity
forward contracts.
The pro forma financial information is not necessarily indicative of the
Company's financial position or results of operations had the Transactions
occurred on the dates assumed, or of the Company's future financial position or
results of operations.
The pro forma financial information is based on, and should be read in
conjunction with, the assumptions set forth in the notes to the unaudited Pro
Forma Financial Information and our Consolidated Financial Statements and notes
thereto, included elsewhere in this Prospectus.
30
<PAGE>
AVADO BRANDS, INC.
PRO FORMA BALANCE SHEET
AS OF APRIL 4, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS(2) PRO FORMA
--------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 794 $ 39,894 (a) $ 637
98,561 (b)
(7,500) (b)
(91,061) (c)
(40,051) (d)
Short-term investments.................................... 53 -- 53
Accounts receivable....................................... 8,049 -- 8,049
Inventories............................................... 8,960 (407) (a) 8,553
Prepaid expenses and other................................ 6,740 (226) (a) 6,514
Assets held for sale...................................... 39,481 (35,881) (a) 3,600
--------- ---------- -----------
Total current assets.................................... 64,077 (36,671) 27,406
Premises and equipment, net................................. 382,539 -- 382,539
Goodwill, net............................................... 137,127 -- 137,127
Investments in and advances to unconsolidated affiliates.... 17,095 -- 17,095
Other assets................................................ 41,311 7,500 (b) 48,811
--------- ---------- -----------
$ 642,149 $ (29,171) $ 612,978
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 32,367 $ -- $ 32,367
Accrued liabilities....................................... 34,714 2,888 (a) 37,602
Current installments of long-term debt.................... 137,491 (91,061) (c) --
(46,430) (b)
Income taxes.............................................. 32,229 804 (a) 33,033
--------- ---------- -----------
Total current liabilities............................... 236,801 (133,799) 103,002
Long-term debt.............................................. 116,957 98,561 (b) 261,948
46,430 (b)
Deferred income taxes....................................... 8,200 -- 8,200
Other long-term liabilities................................. 8,509 -- 8,509
--------- ---------- -----------
Total liabilities....................................... 370,467 11,192 381,659
Preferred Securities........................................ 115,000 -- 115,000
Temporary equity, net....................................... 39,849 (39,849) (d) --
Shareholders' equity:
Preferred stock, $0.01 par value.......................... -- -- --
Common stock, $0.01 par value............................. 405 -- 405
Additional paid-in capital................................ 94,588 50,388 (d) 144,976
Retained earnings......................................... 167,985 1,313 (a) 169,298
Accumulated other comprehensive income.................... (317) -- (317)
Treasury stock at cost.................................... (145,828) (52,215) (d) (198,043)
--------- ---------- -----------
Total shareholders' equity.............................. 116,833 (514) 116,319
--------- ---------- -----------
$ 642,149 $ (29,171) $ 612,978
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
(SEE FOOTNOTES ON THE FOLLOWING PAGES)
31
<PAGE>
AVADO BRANDS, INC.
PRO FORMA STATEMENT OF EARNINGS
FOR THE TWELVE-MONTH PERIOD ENDED APRIL 4, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS(3) PRO FORMA(4)
--------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Restaurant sales:
Don Pablo's............................................... $ 285,508 $ -- $ 285,508
Hops...................................................... 115,534 -- 115,534
McCormick & Schmick's..................................... 108,952 -- 108,952
Canyon Cafe............................................... 48,105 -- 48,105
Applebee's................................................ 226,992 (226,992) (a) --
--------- ---------- ----------
Total restaurant sales.................................. 785,091 (226,992) 558,099
Restaurant operating expenses:
Food and beverage......................................... 220,016 (63,877) (a) 156,139
Payroll and benefits...................................... 251,813 (81,684) (a) 170,129
Depreciation and amortization............................. 17,702 -- (a) 17,702
Other operating expenses.................................. 183,238 (53,412) (a) 129,826
--------- ---------- ----------
Total restaurant operating expenses..................... 672,769 (198,973) 473,796
--------- ---------- ----------
Income from restaurant operations........................... 112,322 (28,019) 84,303
General and administrative expenses......................... 43,075 (8,457) (a) 33,015 (a)
(1,603) (b)
Asset revaluation and other special charges................. 2,940 (778) (a) 2,162
--------- ---------- ----------
Operating income............................................ 66,307 (17,181) 49,126
Other income (expense):
Interest expense, net..................................... (23,115) (3,177) (c) (26,292)
Dividends on Preferred Securities......................... (8,205) -- (8,205)
Gain (loss) on disposal of assets......................... 24,897 (35,712) (d) (10,815)
Income from investments carried at equity................. 189 -- 189
Other, primarily goodwill amortization.................... (5,291) 187 (e) (5,104) (b)
--------- ---------- ----------
Total other income (expense)............................ (11,525) (38,702) (50,227)
--------- ---------- ----------
Earnings before income taxes................................ 54,782 (55,883) (1,101)
Income taxes................................................ 19,625 (20,425) (f) (800)
--------- ---------- ----------
Net earnings................................................ $ 35,157 $ (35,458) $ (301)
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
(SEE FOOTNOTES ON THE FOLLOWING PAGES)
32
<PAGE>
AVADO BRANDS, INC.
PRO FORMA STATEMENT OF EARNINGS
FOR THE YEAR ENDED JANUARY 3, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS(3) PRO FORMA(4)
--------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Restaurant sales:
Don Pablo's............................................... $ 270,399 $ -- $ 270,399
Hops...................................................... 106,329 -- 106,329
McCormick & Schmick's..................................... 102,489 -- 102,489
Canyon Cafe............................................... 48,187 -- 48,187
Applebee's................................................ 335,288 (335,288) (a) --
--------- ---------- ----------
Total restaurant sales.................................. 862,692 (335,288) 527,404
Restaurant operating expenses:
Food and beverage......................................... 241,689 (93,803) (a) 147,886
Payroll and benefits...................................... 279,274 (119,189) (a) 160,085
Depreciation and amortization............................. 17,014 -- (a) 17,014
Other operating expenses.................................. 202,994 (79,457) (a) 123,537
--------- ---------- ----------
Total restaurant operating expenses..................... 740,971 (292,449) 448,522
--------- ---------- ----------
Income from restaurant operations........................... 121,721 (42,839) 78,882
General and administrative expenses......................... 46,150 (11,908) (a) 32,002 (a)
(2,240) (b)
Asset revaluation and other special charges................. 2,940 (778) (a) 2,162
--------- ---------- ----------
Operating income............................................ 72,631 (27,913) 44,718
Other income (expense):
Interest expense, net..................................... (25,313) (1,311) (c) (26,624)
Dividends on Preferred Securities......................... (8,205) -- (8,205)
Gain (loss) on disposal of assets......................... 72,547 (81,286) (d) (8,739)
Income from investments carried at equity................. 1,025 -- 1,025
Other, primarily goodwill amortization.................... (5,641) 250 (e) (5,391) (b)
--------- ---------- ----------
Total other income (expense)............................ 34,413 (82,347) (47,934)
--------- ---------- ----------
Earnings before income taxes................................ 107,044 (110,260) (3,216)
Income taxes................................................ 39,300 (40,750) (f) (1,450)
--------- ---------- ----------
Earnings before cumulative effect of change in accounting
principle................................................. 67,744 (69,510) (1,766)
Cumulative effect of change in accounting principle, net of
tax benefit............................................... 1,461 (570) (g) 891
--------- ---------- ----------
Net earnings................................................ $ 66,283 $ (68,940) $ (2,657)
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
(SEE FOOTNOTES ON THE FOLLOWING PAGES)
33
<PAGE>
AVADO BRANDS, INC.
PRO FORMA STATEMENT OF EARNINGS
FOR THE THIRTEEN WEEKS ENDED APRIL 4, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS(3) PRO FORMA(4)
--------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Restaurant sales:
Don Pablo's............................................... $ 74,372 $ -- $ 74,372
Hops...................................................... 32,532 -- 32,532
McCormick & Schmick's..................................... 27,805 -- 27,805
Canyon Cafe............................................... 11,899 -- 11,899
Applebee's................................................ 17,467 (17,467) (a) --
--------- ----------- ----------
Total restaurant sales.................................. 164,075 (17,467) 146,608
Restaurant operating expenses:
Food and beverage......................................... 45,644 (4,813) (a) 40,831
Payroll and benefits...................................... 51,187 (6,047) (a) 45,140
Depreciation and amortization............................. 4,892 -- (a) 4,892
Other operating expenses.................................. 36,702 (3,782) (a) 32,920
--------- ----------- ----------
Total restaurant operating expenses..................... 138,425 (14,642) 123,783
--------- ----------- ----------
Income from restaurant operations........................... 25,650 (2,825) 22,825
General and administrative expenses......................... 9,840 (503) (a) 9,337 (a)
--------- ----------- ----------
Operating income............................................ 15,810 (2,322) 13,488
Other income (expense):
Interest expense, net..................................... (4,941) (924) (c) (5,865)
Dividends on Preferred Securities......................... (2,012) -- (2,012)
Gain (loss) on disposal of assets......................... 1,350 (3,426) (d) (2,076)
Income (loss) from investments carried at equity.......... (133) -- (133)
Other, primarily goodwill amortization.................... (972) 8 (e) (964) (b)
--------- ----------- ----------
Total other income (expense)............................ (6,708) (4,342) (11,050)
--------- ----------- ----------
Earnings before income taxes................................ 9,102 (6,664) 2,438
Income taxes................................................ 3,150 (2,400) (f) 750
--------- ----------- ----------
Net earnings................................................ $ 5,952 $ (4,264) $ 1,688
--------- ----------- ----------
--------- ----------- ----------
</TABLE>
(SEE FOOTNOTES ON THE FOLLOWING PAGES)
34
<PAGE>
AVADO BRANDS, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION:
The unaudited pro forma statements of earnings for the LTM period ended
April 4, 1999, the fiscal year ended January 3, 1999 and the thirteen-week
period ended April 4, 1999 reflect the operations of our Core Brands only and
give effect to the Transactions. The unaudited pro forma balance sheet as of
April 4, 1999, gives effect to the Transactions and the settlement of our two
remaining equity forward contracts.
The divestiture of our Applebee's restaurants was executed through 16
separate transactions beginning in March of 1998. Fifteen of the transactions
were completed prior to the period ending April 4, 1999 and the final
divestiture transaction was completed on May 3, 1999. During the divestiture
period, the operations of the unsold Applebee's restaurants were included in the
consolidated operating results of Avado Brands, Inc. When we announced the
decision to divest the Applebee's restaurants in December of 1997, the related
non-current assets were reclassified to "Assets held for sale" within the
current assets section of the consolidated balance sheet. Accordingly, no
depreciation and amortization was recorded during the divestiture period due to
the "held for sale" status of these assets. Each separate divestiture
transaction was recorded as an asset sale with corresponding gain or loss
recognition in the period the transaction was completed.
2. PRO FORMA BALANCE SHEET:
The unaudited pro forma balance sheet reflects the Transactions as though
each had occurred on April 4, 1999, and gives effect to the following:
(a) The divestiture of our remaining Applebee's restaurants on May 3, 1999
is recorded as follows:
<TABLE>
<S> <C>
Gross proceeds from divestiture.................................... $ 43,794
Less:
Assets held for sale............................................. 35,881
Inventory adjustments............................................ 407
Prepaid expenses and other adjustments........................... 226
Accrued transaction costs........................................ 2,888
Reserve for notes receivable from purchaser...................... 2,275
---------
Gain on divestiture................................................ 2,117
Income taxes....................................................... 804
---------
Net gain........................................................... $ 1,313
---------
---------
Gross proceeds received as follows:
Cash proceeds.................................................... $ 39,894
Notes receivable from purchaser.................................. 3,900
---------
$ 43,794
---------
---------
</TABLE>
35
<PAGE>
AVADO BRANDS, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
2. PRO FORMA BALANCE SHEET: (CONTINUED)
(b) The refinancing includes:
(i) The issuance of $100.0 million of the Outstanding Notes net of
original issue discount of $1.4 million, estimated issuance costs of
$3.5 million and fees of $2.5 million related to consents obtained
from the holders of our 9 3/4% Senior Notes to permit issuance of
the Outstanding Notes.
(ii) The $125.0 million New Credit Facility, after giving effect to the
Transactions and settlement of our remaining equity forward
contracts, will have approximately $46.4 million outstanding,
including related estimated issuance costs of $1.5 million.
(c) Net proceeds from the New Credit Facility and the Notes are used to
repay $137.5 million of indebtedness under the Existing Credit Facility
at April 4, 1999.
(d) Represents the settlement of our two remaining equity forward contracts
for approximately $40.0 million net of collateral deposits of
approximately $10.5 million and other transaction costs of approximately
$1.7 million.
3. PRO FORMA STATEMENTS OF EARNINGS:
The pro forma statements of earnings reflect the Transactions as though each
had occurred at the beginning of the periods, and give effect to the following:
(a) Elimination of all sales, operating expenses, and general and
administrative expenses related to the divestiture of our Applebee's
restaurants:
<TABLE>
<CAPTION>
TWELVE-MONTH YEAR ENDED THIRTEEN-WEEK
PERIOD ENDED JANUARY 3, PERIOD ENDED
APRIL 4, 1999 1999 APRIL 4, 1999
------------- -------------- -------------
<S> <C> <C> <C>
Restaurant sales................................................... $ 226,992 $ 335,288 $ 17,467
Restaurant operating expenses:
Food and beverage................................................ 63,877 93,803 4,813
Payroll and benefits............................................. 81,684 119,189 6,047
Depreciation and amortization (i)................................ -- -- --
Other operating expenses......................................... 53,412 79,457 3,782
------------- -------------- -------------
Total restaurant operating expenses............................ 198,973 292,449 14,642
------------- -------------- -------------
Income from restaurant operations.................................. 28,019 42,839 2,825
General and administrative expenses................................ 8,457 11,908 503
Asset revaluation and other special charges........................ 778 778 --
------------- -------------- -------------
Operating income................................................... $ 18,784 $ 30,153 $ 2,322
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
- ------------------------
(i) Depreciation and amortization on these long-lived assets were suspended in
December 1997, when management finalized the decision to dispose of these
restaurants.
36
<PAGE>
AVADO BRANDS, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
3. PRO FORMA STATEMENTS OF EARNINGS: (CONTINUED)
(b) Adjustments to general and administrative expenses to give a full-year
effect to salary, benefits and other costs associated with termination of
employees in the fourth quarter of fiscal 1998 totaling $1,603 for the
twelve-month period ended April 4, 1999 and $2,240 for the fiscal year
ended January 3, 1999.
(c) Pro forma adjustments to interest expense are as follows:
<TABLE>
<CAPTION>
TWELVE-MONTH YEAR ENDED THIRTEEN-WEEK
PERIOD ENDED JANUARY 3, PERIOD ENDED
APRIL 4, 1999 1999 APRIL 4, 1999
--------------- -------------- -------------
<S> <C> <C> <C>
Existing Credit Facility (i)..................................... $ (11,665) $ (13,531) $ (2,787)
New Credit Facility (ii)......................................... 1,741 1,741 435
The Notes........................................................ 11,750 11,750 2,938
Amortization of deferred financing costs (iii)................... 1,351 1,351 338
--------------- -------------- -------------
Total pro forma interest adjustment............................ $ 3,177 $ 1,311 $ 924
--------------- -------------- -------------
--------------- -------------- -------------
</TABLE>
- ------------------------
(i) Represents interest expense savings on average outstandings under the
Existing Credit Facility for the respective periods.
(ii) Represents interest expense of 7.50% per annum on average outstanding
balance.
(iii) Represents non-cash amortization of deferred financing costs, including
original issue discount.
A 1/4 of 1% change in the interest rate on the New Credit Facility would
increase annual interest expense by $58.
(d) Pro forma adjustments to eliminate gains on disposal of assets generated
by the divestiture of our Applebee's restaurants as follows:
<TABLE>
<CAPTION>
TWELVE-MONTH YEAR ENDED THIRTEEN-WEEK
PERIOD ENDED JANUARY 3, PERIOD ENDED
APRIL 4, 1999 1999 APRIL 4, 1999
--------------- -------------- -------------
<S> <C> <C> <C>
Gross proceeds from divestiture.................................. $ 375,426 $ 426,259 $ 43,871
Less:
Assets held for sale........................................... 265,466 273,875 31,338
Other assets................................................... 51,144 45,801 6,255
Transaction costs.............................................. 23,104 25,297 2,852
--------------- -------------- -------------
Gain on divestiture.............................................. 35,712 81,286 3,426
Income taxes..................................................... 13,570 30,888 1,302
--------------- -------------- -------------
Net gain......................................................... $ 22,142 $ 50,398 $ 2,124
--------------- -------------- -------------
--------------- -------------- -------------
</TABLE>
- ------------------------
(e) Pro forma adjustments to "Other, primarily goodwill amortization" to
eliminate Applebee's related amounts.
37
<PAGE>
AVADO BRANDS, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
3. PRO FORMA STATEMENTS OF EARNINGS: (CONTINUED)
(f) Income tax effects at a blended rate of 34% on operations and 38% on the
gain on disposal of assets.
(g) Pro forma adjustments to "Cumulative effect of change in accounting
principle, net of tax benefit" to eliminate the after-tax impact of
Applebee's related amounts.
4. OTHER:
(a) General and administrative expenses includes depreciation and
amortization expense related to corporate facilities as follows:
<TABLE>
<CAPTION>
TWELVE-MONTH THIRTEEN-WEEK
PERIOD ENDED YEAR ENDED PERIOD ENDED
APRIL 4, 1999 JANUARY 3, 1999 APRIL 4, 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Depreciation and amortization expense............................ $ 2,218 $ 2,275 $ 421
------ ------ -----
------ ------ -----
</TABLE>
- ------------------------
(b) Other, primary goodwill amortization expense includes certain expenses
(income) incurred by the Core Brands as follows:
<TABLE>
<CAPTION>
TWELVE-MONTH THIRTEEN-WEEK
PERIOD ENDED YEAR ENDED PERIOD ENDED
APRIL 4, 1999 JANUARY 3, 1999 APRIL 4, 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Miscellaneous expense (income)................................... $ 1,136 $ 1,459 $ (47)
------ ------ ---
------ ------ ---
</TABLE>
38
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
We derived the selected consolidated historical financial data presented below
from our audited Consolidated Financial Statements and the notes thereto, except
for the financial data for the thirteen-week periods ended March 29, 1998 and
April 4, 1999, which we derived from our unaudited interim Consolidated
Financial Statements and the notes thereto. You should read the financial data
presented below together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our Consolidated Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THIRTEEN-WEEK
FISCAL YEARS ENDED PERIODS ENDED
---------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DEC. 31, DEC. 31, DEC. 29, DEC. 28, JAN. 3, MAR. 29, APR. 4,
1994 1995 1996 1997 1999 1998 1999
-------- -------- -------- -------- --------- -------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Restaurant sales:
Don Pablo's........................... $57,192 $ 88,820 $133,261 $196,457 $ 270,399 $ 59,263 $ 74,372
Hops.................................. -- -- -- 49,511 106,329 23,327 32,532
McCormick & Schmick's................. -- -- -- 67,373 102,489 21,342 27,805
Canyon Cafe........................... -- -- -- 18,577 48,187 11,981 11,899
Applebee's............................ 201,359 300,928 379,042 454,127 335,288 125,763 17,467
Other................................. 42,008 50,442 33,719 22,275 -- -- --
-------- -------- -------- -------- --------- -------- ---------
Total restaurant sales.............. 300,559 440,190 546,022 808,320 862,692 241,676 164,075
Restaurant operating expenses:
Food and beverage..................... 84,910 120,630 150,090 225,302 241,689 67,317 45,644
Payroll and benefits.................. 87,236 129,424 162,017 249,356 279,274 78,648 51,187
Depreciation and amortization......... 11,119 17,662 22,509 31,441 17,014 4,204 4,892
Other operating expenses.............. 69,483 98,850 125,781 187,781 202,994 56,458 36,702
-------- -------- -------- -------- --------- -------- ---------
Total restaurant operating
expenses.......................... 252,748 366,566 460,397 693,880 740,971 206,627 138,425
-------- -------- -------- -------- --------- -------- ---------
Income from restaurant operations....... 47,811 73,624 85,625 114,440 121,721 35,049 25,650
General and administrative expenses..... 15,359 22,298 26,329 39,617 46,150 12,915 9,840
Merger, asset revaluation and other
special charges....................... -- 9,997(1) 27,700(2) -- 2,940(3) -- --
-------- -------- -------- -------- --------- -------- ---------
Operating income........................ 32,452 41,329 31,596 74,823 72,631 22,134 15,810
Other income (expense):
Interest expense, net................... (2,342) (5,551) (11,348) (20,504) (25,313) (7,139) (4,941)
Dividends on Preferred Securities....... -- -- -- (6,412) (8,205) (2,012) (2,012)
Gain on disposal of assets.............. -- -- -- -- 72,547 49,000 1,350
Income (loss) from investments carried
at equity............................. -- -- -- -- 1,025 703 (133)
Other, primarily goodwill
amortization.......................... (150) (1,349) (2,024) (5,834) (5,641) (1,322) (972)
-------- -------- -------- -------- --------- -------- ---------
Total other income (expense)........ (2,492) (6,900) (13,372) (32,750) 34,413 39,230 (6,708)
-------- -------- -------- -------- --------- -------- ---------
Earnings before income taxes and
cumulative effect of change in
accounting principle.................. 29,960 34,429 18,224 42,073 107,044 61,364 9,102
Income taxes............................ 10,900 14,150 6,550 13,625 39,300 22,825 3,150
-------- -------- -------- -------- --------- -------- ---------
Earnings before cumulative effect of
change in accounting principle........ 19,060 20,279(1) 11,674(2) 28,448 67,744(3) 38,539 5,952
Cumulative effect of change in
accounting principle, net of tax
benefit............................... -- -- -- -- 1,461 1,461 --
-------- -------- -------- -------- --------- -------- ---------
Net earnings............................ $19,060 $ 20,279 $ 11,674 $ 28,448 $ 66,283 $ 37,078 $ 5,952
-------- -------- -------- -------- --------- -------- ---------
-------- -------- -------- -------- --------- -------- ---------
</TABLE>
39
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN-WEEK
FISCAL YEARS ENDED PERIODS ENDED
---------------------------------------------------------- ------------------------
DEC. 31, DEC. 31, DEC. 29, DEC. 28, JAN. 3, MAR. 29, APR. 4,
1994 1995 1996 1997 1999 1998 1999
-------- -------- -------- -------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (4).............................. $43,421 $ 69,923 $ 83,522 $108,961 $ 93,151 $ 26,477 $ 21,170
EBITDA margin (5)....................... 14.4% 15.9% 15.3% 13.5% 10.8% 11.0% 12.9%
Depreciation and amortization (6)....... $11,119 $ 19,946 $ 26,250 $ 39,972 $ 23,221 $ 5,665 $ 6,332
Capital expenditures.................... 99,391 124,066 124,623 172,963 142,841 40,088 22,173
Number of restaurants (at end of
period)............................... 188 274 316 430 256 419 243
Ratio of earnings to fixed charges
(7)................................... 5.04x 3.83x(8) 1.92x(8) 2.05x 3.37x(8) 6.06x 1.86x
SELECTED BALANCE SHEET DATA:
Working capital (excluding assets held
for sale) (9)......................... $ 2,200 $(17,778) $(21,439) $(33,989) $(210,947) $(58,623)(10) $(212,205)
Premises and equipment, net............. 188,009 303,077 380,523 283,839 367,587 307,199 382,539
Total assets............................ 226,087 369,138 457,827 804,289 670,597 903,186 642,149
Total debt.............................. 75,561 121,933 216,177 382,049 257,478 414,962 254,448
Preferred Securities (11)............... -- -- -- 115,000 115,000 115,000 115,000
Shareholders' equity.................... 120,341 203,221 191,429 220,782 112,029 257,742 116,833
</TABLE>
- ------------------------------
(1) Reflects a one-time charge for merger expenses of $10.0 million before tax
($6.6 million after tax).
(2) Reflects asset revaluation charges of $27.7 million before tax ($18.3
million after tax).
(3) Reflects other special charges associated with termination of employees.
(4) "EBITDA" is defined as operating income before depreciation and amortization
expenses and merger, asset revaluation and other special charges, which are
included in operating income, less miscellaneous expenses (income) included
in non-operating expenses. While EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with generally accepted accounting principles, or as a measure of
profitability or liquidity, management understands that it is widely used by
certain investors as one measure to evaluate the financial performance of
companies in the restaurant industry.
(5) "EBITDA margin" is EBITDA stated as a percentage of restaurant sales.
(6) Includes depreciation and amortization related to restaurant operations and
corporate facilities and includes amortization of goodwill, which is
included in non-operating expenses.
(7) Earnings represent income from continuing operations before income taxes and
fixed charges, net of capitalized interest. Fixed charges consist of
interest expense before reduction for capitalized interest, debt
amortization costs and one-third (the portion deemed representative of the
interest factor) of total restaurant lease payments.
(8) The ratio of earnings to fixed charges excluding the asset revaluation and
other special charges would have been 4.67x, 3.44x and 3.44x for fiscal
1995, fiscal 1996 and fiscal 1998, respectively.
(9) We operate with negative working capital since substantially all sales in
our restaurants are for cash and our accounts payable are due in 15 to 45
days.
(10) Excludes proceeds from the sales of assets of $94.7 million related to the
divestiture of certain of our Applebee's restaurants, which closed on March
29, 1998.
(11) Represents the Company-obligated mandatorily redeemable preferred
securities of Avado Financing I, a subsidiary holding solely Avado Brands,
Inc. 7% convertible subordinated debentures due March 1, 2027.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In December 1997, we announced our decision to divest our franchised
Applebee's restaurants in order to focus on the continued development of our
four higher margin Core Brands, which offered significantly greater growth
potential. At the time of the decision to divest, we were the largest Applebee's
operator in the world. We operated 264 Applebee's restaurants generating
approximately $454.0 million in annual sales during the fiscal year ended
December 28, 1997. As of April 4, 1999, we had completed the divestiture of 254
of our 279 Applebee's restaurants. Subsequent to April 4, 1999, we divested our
remaining Applebee's restaurants. Gross proceeds from the divestiture of all of
our Applebee's restaurants totaled approximately $514.0 million, including
approximately $11.3 million in notes. With the divestiture of our Applebee's
restaurants complete, we are now well positioned to continue to execute our
successful multi-concept, niche-leading brand strategy. To reflect the
divestiture of our Applebee's franchised restaurants and our strategy of
becoming the leading operator of multi-concept, niche-leading casual dining
brands, we changed our corporate name from "Apple South, Inc." to "Avado Brands,
Inc." in October, 1998. As a result, our financial condition and results of
operations after the divestiture will not be directly comparable to our
historical financial results of operations. See "Capitalization" and "Pro Forma
Financial Information."
You should read the following discussion in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus to understand some significant factors that influenced our
performance during the periods indicated.
RESULTS OF OPERATIONS
The following table sets forth certain historical operations data as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
THIRTEEN-WEEK
FISCAL YEARS ENDED PERIODS ENDED
------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
DEC. 29, DEC. 28, JAN. 3, MAR. 29, APR. 4,
1996 1997 1999 1998 1999
----------- ----------- ----------- ----------- -----------
Restaurant sales:
Don Pablo's.................................................. 24.4% 24.3% 31.3% 24.5% 45.3%
Hops......................................................... -- 6.1 12.3 9.7 19.8
McCormick & Schmick's........................................ -- 8.3 11.9 8.8 17.0
Canyon Cafe.................................................. -- 2.3 5.6 5.0 7.3
Applebee's................................................... 69.4 56.2 38.9 52.0 10.6
Other........................................................ 6.2 2.8 -- -- --
----- ----- ----- ----- -----
Total restaurant sales................................... 100.0 100.0 100.0 100.0 100.0
Restaurant operating expenses.................................. 84.3 85.8 85.9 85.5 84.4
General and administrative expenses............................ 4.8 4.9 5.4 5.3 6.0
Asset revaluation and other special charges.................... 5.1 -- 0.3 -- --
----- ----- ----- ----- -----
Operating income............................................... 5.8% 9.3% 8.4% 9.2% 9.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
COMPARISON OF HISTORICAL RESULTS-THIRTEEN-WEEK PERIODS ENDED APRIL 4, 1999 AND
MARCH 29, 1998
RESTAURANT SALES. Consolidated restaurant sales for the thirteen weeks ended
April 4, 1999 were $164.1 million as compared to $241.7 million for the same
period of fiscal 1998, reflecting fewer units in the Applebee's brand which
comprised 11% of sales in the thirteen weeks ended April 4, 1999 as compared to
52% in the same period of fiscal 1998. Sales from Core Brands increased by 26%
to
41
<PAGE>
$146.6 million in the thirteen weeks ended April 4, 1999 as compared to $115.9
million for the same period in fiscal 1998. Increases in Core Brand sales were
primarily attributable to a full quarter's sales from 59 restaurants opened
during fiscal 1998 and a partial quarter's sales from 11 restaurants opened in
fiscal 1999. On a Core Brand only basis, same-store sales for the thirteen weeks
ended April 4, 1999 were 1% positive as compared to the same period in fiscal
1998 (same-store sales comparisons include all restaurants open for 18 months as
of the beginning of the quarter). Adjusted for the impact of the Easter holiday,
same-store sales comparisons were positive for the thirteen weeks ended April 4,
for three of the four Core Brands, which represent approximately 92% of Core
Brand sales in thirteen weeks ended April 4, 1999.
RESTAURANT OPERATING EXPENSES. Consolidated restaurant operating expenses
decreased to 84.4% of sales in the thirteen weeks ended April 4, 1999 as
compared to 85.5% for the comparable period in fiscal 1998. The decrease was
primarily a result of a decrease in payroll and benefits expense at Applebee's
during the thirteen weeks ended April 4, 1999. This decrease was partially
offset by an increase in depreciation and amortization expense due primarily to
a decrease in the impact of Applebee's fixed assets which were not depreciated
due to their "held for sale" status.
Our Core Brand restaurant operating expenses for the thirteen weeks ended
April 4, 1999 decreased by 0.5% to 84.5% as compared to the same period of
fiscal 1998. The resulting increase in Core Brand income from restaurant
operations was primarily attributable to:
(i) a 0.5% decrease in other operating expenses resulting from lower manager
training costs associated with Don Pablo's reduced fiscal 1999
development schedule and lower preopening costs at McCormick & Schmick's
and Canyon Cafe as a result of no openings in the thirteen weeks ended
April 4, 1999 as compared to two openings for each brand in the thirteen
weeks ended March 29, 1998; and
(ii) a 0.2% decrease in food and beverage expenses generated primarily by
cost reductions at Hops associated with centralized distribution and
purchasing.
These expense decreases were partially offset by a 0.5% increase in payroll and
benefit expenses related primarily to initiatives to increase guest
satisfaction, which included increased management staffing at Hops and Don
Pablo's.
GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated general and administrative
expenses increased to 6.0% of sales in the first quarter of fiscal 1999 as
compared to 5.3% for the comparable period in fiscal 1998. The increase was
primarily attributable to an increase in the percentage of total restaurant
sales generated by Core Brands, which have higher expenses due primarily to
lower leverage on the fixed costs required to support these smaller,
higher-growth concepts. These increases were partially offset by initiatives
begun in the fourth quarter of fiscal 1998 to reorganize management and reduce
overhead costs as well as leverage gained from increased sales in Core Brand
restaurants. Core Brand general and administrative expenses for thirteen weeks
ended April 4, 1999 as compared to the thirteen weeks ended March 29, 1998,
decreased by 1.3% to 6.4%.
INTEREST EXPENSE. Our interest expense was $4.9 million in the thirteen
weeks ended April 4, 1999 as compared to $7.1 million for the thirteen weeks
ended March 29, 1998. The decrease was primarily attributable to lower average
borrowings under revolving credit agreements which were somewhat offset by
higher average borrowing rates.
LOSS FROM INVESTMENTS CARRIED AT EQUITY. Our loss from investments carried
at equity for thirteen weeks ended April 4, 1999 primarily reflects income from
the Company's 20% equity interest in Belgo Group PLC which was more than offset
by preopening expenses associated with the opening of a Belgo restaurant in New
York under the Company's joint venture agreement with Belgo Americas, LLC.
42
<PAGE>
INCOME TAXES. Our income tax expense as a percent of earnings before income
taxes was 34.6% in thirteen weeks ended April 4, 1999 as compared to 37.2% in
the thirteen weeks ended March 29, 1998. Income tax expense reflects, for each
period, the blend of income taxes on operating income provided for at 34.0% and
taxes on the gain on disposal of assets held for sale provided for at 38.0%.
NET EARNINGS. Net earnings for the thirteen weeks ended April 4, 1999 were
$6.0 million and included a $0.8 million after-tax gain on disposal of assets
held for sale. Net earnings for the thirteen weeks ended March 29, 1998 were
$37.1 million and included a $30.4 million after-tax gain on disposal of assets
held for sale and a $1.5 million after-tax charge related to a change in an
accounting principle which required the expensing of preopening costs as
incurred.
COMPARISON OF HISTORICAL RESULTS-FISCAL YEARS 1998, 1997 AND 1996
RESTAURANT SALES. Restaurant sales for fiscal 1998 increased by 7% to $862.7
million from $808.3 million in fiscal 1997 reflecting increased Core Brand
restaurant sales which were partially offset by declining revenues associated
with the divestitures of the Applebee's and Harrigans brands. For the Core Brand
restaurants, sales increased by 59% to $527.4 million in fiscal 1998 from $331.9
million in fiscal 1997. A full-year's sales attributable to the Core Brand
restaurants acquired in fiscal 1997, new unit growth, increased average unit
volumes in Hops and McCormick & Schmick's and a 53-week fiscal 1998 compared to
a 52-week fiscal 1997 contributed to the increase in Core Brand restaurant
sales. The number of operating weeks increased by 60% in Core Brand restaurants
due to a full-year's operations from 50 acquired restaurants and 41 restaurants
opened in fiscal 1997 and a partial-year's operations from 59 restaurants opened
in fiscal 1998, partially offset by two Canyon Cafe restaurants which we closed
in fiscal 1998. Same-store sales were approximately 6% higher at Hops, 4% higher
at Canyon Cafe, 2% higher at McCormick & Schmick's and 1% higher at Don Pablo's
as compared with fiscal 1997. On a pro forma basis (assuming the acquisitions of
Hops, McCormick & Schmick's and Canyon Cafe in fiscal 1997 were completed at the
beginning of the fiscal year), Core Brand restaurant sales increased by 44% and
operating weeks increased by 47% over fiscal 1997.
Restaurant sales for fiscal 1997 increased by 48% to $808.3 million from
$546.0 million in fiscal 1996 primarily due to increases in the number of
restaurant operating weeks through both restaurant openings and acquisitions, as
well as increases in average weekly sales over the prior year. For fiscal 1997,
operating weeks increased by 19% at Applebee's and 47% at Don Pablo's as
compared to the prior year. The increase in operating weeks was due to a
full-year's operations from 45 Applebee's and 19 Don Pablo's restaurants opened
in fiscal 1996 and a partial-year's operations from 34 Applebee's and 28 Don
Pablo's restaurants opened in fiscal 1997. In addition, fiscal 1997 sales
included ten months of operations related to McCormick & Schmick's and Hops and
six months of operations related to Canyon Cafe. The sales increases resulting
from the opening of new restaurants and acquisitions were slightly offset by the
absence of sales related to 21 Tomato Rumba's restaurants which we closed in
fiscal 1996. In addition, in fiscal 1997 we completed the sale of our ten-unit
Hardee's brand and closed one Harrigans restaurant.
RESTAURANT OPERATING EXPENSES. Our restaurant operating expenses as a
percent of sales increased to 85.9% in fiscal 1998 from 85.8% in fiscal 1997.
The resulting fiscal 1998 decrease in restaurant operating margins of 0.1% was
principally due to an increase in cost in the Applebee's brand generated by the
divestiture of the brand and an increase in Core Brand restaurant expenses due
primarily to costs associated with opening new restaurants. These increases were
partially offset by depreciation related to Applebee's which was suspended in
December 1997 when the related assets were classified as assets held for sale.
43
<PAGE>
The following discussion of restaurant operating expenses focuses on the
percentages which certain items of expense bear to total restaurant sales for
(i) our Core Brands and (ii) our brands which have been or are being
discontinued which include Applebee's, Harrigans, Tomato Rumba's and Hardee's.
Our Core Brand restaurant operating expenses for fiscal 1998 were 85.0% of
sales as compared to 84.1% in fiscal 1997 (84.9% on a pro forma basis). Don
Pablo's higher margins were offset by lower margins from smaller, developing
brands which were acquired in 1997, resulting in lower reported margins in
fiscal 1998. These lower margins were primarily attributable to:
(i) an increase in payroll and benefit expenses related to an increase in
the number of new unit openings which typically experience higher labor
costs during the first several months of operations;
(ii) an increase in food and beverage costs primarily related to an increase
in Hops sales as a percentage of total Core Brand sales compared to
Hops sales as a percentage of total Core Brand restaurant sales in the
prior year (Hops experiences higher food and beverage costs due to a
larger percentage of beef sales and a smaller percentage of alcoholic
beverage sales as compared to the other brands);
(iii) an increase in other operating expenses related primarily to an
increase in advertising in Don Pablo's and Hops; and
(iv) other operating costs also associated with an increase in the number of
new unit openings coupled with the policy of expensing preopening costs
as incurred which was adopted at the beginning of fiscal 1998.
Restaurant operating margins for all core restaurants were also negatively
impacted by seven underperforming Don Pablo's restaurants which opened in fiscal
1997. Excluding the operations of these seven restaurants, total Core Brand
income from restaurant operations was 15.4% in fiscal 1998.
Our restaurant operating expenses as a percent of sales for the Core Brand
restaurants increased to 84.1% in fiscal 1997 from 82.2% in fiscal 1996. The
corresponding decrease in restaurant operating margins during fiscal 1997 was
principally due to:
(i) the higher cost of goods and payroll expenses in the brands acquired
during fiscal 1997;
(ii) higher occupancy costs in the newly acquired brands due to restaurant
locations which are predominantly leased; and
(iii) higher payroll and training costs in Don Pablo's associated primarily
with new hourly kitchen positions.
These increases were offset somewhat by a decrease in advertising expense in Don
Pablo's and a decrease in occupancy cost generated by our tendency of owning
versus leasing restaurant locations.
Our restaurant operating expenses as a percent of sales for discontinued
brands increased to 87.2% in fiscal 1998 from 87.0% in fiscal 1997 and 84.9% in
fiscal 1996. The resulting decrease in fiscal 1998 restaurant operating margins
was principally due to increased payroll and benefits resulting from
performance-based, pay-to-stay bonus programs implemented to control management
turnover and operating costs during the Applebee's divestiture period.
The fiscal 1997 decrease in restaurant operating margins was principally due
to the escalation of payroll and benefits in anticipation of our disposition of
the Applebee's business. These increases were primarily attributable to:
(i) increased staffing at the hourly and management levels related to the
accelerated implementation of project "Exceed" (a program initiated by
the franchisor to enhance the performance of the Applebee's system); and
44
<PAGE>
(ii) an increase in management turnover and operating costs which often
escalate during the period prior to announcement of a divestiture.
GENERAL AND ADMINISTRATIVE EXPENSES. In fiscal 1998, our general and
administrative expenses as a percent of sales were 5.4% as compared with 4.9% in
fiscal 1997 and 4.8% in fiscal 1996. The fiscal 1998 increase is primarily due
to the brands acquired in fiscal 1997 which have higher expenses as a percentage
of revenue, due primarily to lower leverage on the fixed costs required to
support these smaller, higher-growth concepts. The increases in general and
administrative expenses at the new brands were offset by a continued decrease in
similar expenses for Don Pablo's as it gained leverage from its absolute size.
General and administrative expenses related to Core Brand restaurants were 6.5%
of total Core Brand restaurant sales in fiscal 1998 compared to 7.7% on a pro
forma basis for fiscal 1997.
ASSET REVALUATION AND OTHER SPECIAL CHARGES. In the fourth quarter of fiscal
1998, we initiated programs at Don Pablo's, Canyon Cafe and our corporate
headquarters to reorganize management and reduce overhead costs. We recorded a
pre-tax charge of $2.9 million which was primarily attributable to employee
termination and severance costs.
In fiscal 1996, we dissolved the Tomato Rumba's operating brand and
accelerated our efforts to sell our Hardee's restaurants. These decisions,
combined with the implementation of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of," resulted in an asset revaluation charge of
$27.7 million. During fiscal 1998 and fiscal 1997, our Hardee's restaurants and
several of our Tomato Rumba's restaurants were sold, several additional
locations were converted to other company brands, and the remaining assets were
redeployed.
INTEREST AND OTHER EXPENSES. Our interest expense increased to $25.3 million
in fiscal 1998 from $20.5 million in fiscal 1997 and $11.3 million in fiscal
1996 due to higher average borrowings. The cost of construction of new
restaurants and the acquisition of new brands in fiscal 1997 required more cash
than we generated by operations. We obtained additional cash by assuming greater
debt levels under our revolving credit facilities. We later used a portion of
the proceeds of various divestitures to reduce our obligations on our revolving
credit facilities. Our weighted average interest rate on borrowings was
approximately 8.0% in fiscal 1998 as compared to 7.9% in fiscal 1997 and 8.1% in
fiscal 1996. Expenses related to dividends on Preferred Securities reflect the
fiscal 1997 issuance of $115.0 million of Preferred Securities which were
outstanding for the full year in fiscal 1998.
Gain on disposal of assets primarily reflects the gain recognized on the
Applebee's divestiture. The unsold premises and equipment and franchise cost
related to the brand are included in "Assets Held for Sale" in the consolidated
balance sheets. Income from investments carried at equity reflects our pro rata
share of earnings from our 20% equity interest in Belgo Group PLC and our 25%
equity interest in Harrigans.
Other expenses relate primarily to amortization of goodwill. Our total
fiscal 1998 other expenses were comparable to fiscal 1997 as a result of
increases in amortization expense resulting from a full-year of goodwill
amortization from the brands we acquired in fiscal 1997, which was offset by
goodwill amortization related to Applebee's that was suspended in December 1997
when the related assets were classified as assets held for sale. Our other
expenses increased in fiscal 1997 compared to fiscal 1996 primarily due to the
amortization of goodwill and other intangible assets associated with the
acquisition of three of the four Core Brands in fiscal 1997.
INCOME TAX EXPENSE. Income tax expense as a percentage of our earnings
before income taxes was 36.7% in fiscal 1998 compared to 32.4% in fiscal 1997
and 35.9% in fiscal 1996. The increase in the effective tax rate for fiscal 1998
compared with fiscal 1997 was due primarily to an increase in taxable income
generated primarily by the gain on sale of assets and a corresponding decrease
in the
45
<PAGE>
impact of FICA tip credits. The decrease in the effective tax rate for fiscal
1997 compared with fiscal 1996 was due primarily to an increased impact of FICA
tip credits and the allocation of earnings among states associated with our
fiscal 1997 acquisitions.
NET EARNINGS. Net earnings as a percent of sales was 7.7% in fiscal 1998,
3.5% in fiscal 1997 and 2.1% in fiscal 1996. The increase from fiscal 1997 to
fiscal 1998 was primarily a result of a $72.5 million pre-tax gain on disposal
of assets. This increase was partially offset by:
(i) a $4.8 million increase in interest expense;
(ii) a $1.8 million increase in dividends on Preferred Securities; and
(iii) a $2.2 million decrease in operating income resulting from a
combination of increased Core Brand operating income and a decline in
Applebee's operating income.
The increase from fiscal 1996 to fiscal 1997 was primarily a result of the $27.7
million pre-tax asset revaluation charge recorded in fiscal 1996. The resulting
increase in fiscal 1997 was partially offset by:
(i) higher interest expense and intangible amortization related to the
fiscal 1997 acquisitions;
(ii) dividends related to the Preferred Securities; and
(iii) a decrease in operating margins associated with the Applebee's
division.
LIQUIDITY AND CAPITAL RESOURCES
Our historical and projected growth and our preference to own the real
estate on which our restaurants are situated cause us to be a net user of cash
even after a significant amount of expansion financing is internally generated
from operations. Principal sources of funds in the thirteen weeks ended April 4,
1999 consisted of proceeds from the disposal of assets in the amount of $45.6
million and cash generated from operations in the amount of $8.8 million. Our
primary uses of funds consisted of the acquisition of stock through the
settlement of an equity forward agreement of $32.4 million and capital
expenditures of $22.2 million.
In fiscal 1998, our principal financing sources consisted of proceeds from
the divestiture of Applebee's and cash generated from operations of $41.0
million. Our principal uses of funds during 1998 consisted of:
(i) capital expenditures of $142.8 million;
(ii) stock purchases of $92.0 million;
(iii) net repayment of revolving credit facilities of $114.7 million;
(iv) equity investments of $15.1 million; and
(v) the retirement of $8.5 million of the Senior Notes.
Most sales in our restaurants are for cash and our accounts payable are
generally due in 15 to 45 days. As a result, we operate with negative working
capital. Increases in accounts receivable, prepaid and other expenses,
inventory, accounts payable and accrued liabilities occurred in our Core Brand
restaurants during fiscal 1998 and thirteen weeks ended April 4, 1999 primarily
as a result of new restaurant openings. In some instances, these increases were
more than offset by decreases resulting from the divestiture of our Applebee's
restaurants. We expect further increases in current asset and liability accounts
as we continue our restaurant development program. In fiscal 1998, the increase
in other assets was principally due to:
(i) equity investments;
(ii) loans to our Chief Executive Officer and certain other executive
officers;
46
<PAGE>
(iii) certain properties retained in connection with our Applebee's
divestiture which are being leased to several buyers;
(iv) consent fees paid to bondholders in connection with stock repurchases;
and
(v) the annual increase in cash surrender value on a life insurance policy
on our Chief Executive Officer.
For the thirteen weeks ended April 4, 1999, the decrease in other assets was
primarily related to the sale of the properties discussed in (iii) above.
Our capital expenditures during the thirteen weeks ended April 4, 1999
provided for the opening of seven Don Pablo's and four Hops restaurants. In
addition, we also opened one restaurant with each of our joint venture partners,
Belgo Group PLC and PizzaExpress PLC, and closed three Core Brand restaurants.
During fiscal 1998, capital expenditures provided for the opening of 32 Don
Pablo's, 17 Hops, five McCormick & Schmick's and five Canyon Cafe restaurants in
addition to ongoing refurbishments of existing restaurants. In addition, we
completed the construction of and opened 15 Applebee's restaurants, which were
sold subsequent to April 4, 1999.
The following table presents Core Brand restaurants open as of the end of
fiscal 1997, fiscal 1998 and the thirteen weeks ended April 4, 1999, and
anticipated restaurant openings for the Core Brands for fiscal 1999 and fiscal
2000:
<TABLE>
<CAPTION>
RESTAURANTS OPEN AT ANTICIPATED
------------------------------------ OPENINGS
DECEMBER 28, JANUARY 3, APRIL 4, -----------
1997 1999 1999 1999 2000
------------ ---------- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Don Pablo's....................................... 91 123 129 15 27
Hops.............................................. 30 47 51 20 24
McCormick & Schmick's............................. 18 23 22 4 5
Canyon Cafe....................................... 16 19 18 1 4
--- --- --- ---- ----
Total......................................... 155 212 220 40 60
--- --- --- ---- ----
--- --- --- ---- ----
</TABLE>
Aggregate capital requirements for the construction of new Core Brand
restaurants are expected to be approximately $180.0 million for the remainder of
fiscal 1999 and fiscal 2000, over half of which is expected to be generated
internally. Our management believes that cash flow from operations, together
with available borrowings under the New Credit Facility, will provide funding
sufficient to satisfy our expansion plans through fiscal 2000.
Our Board of Directors, from time to time and depending on market
conditions, can and has authorized the purchase of our common shares. In
connection with a purchase program, we obtained consent from the holders of the
Senior Notes to amend certain covenants contained in the Senior Notes Indenture,
bondholder consent was finalized on July 1, 1998, and the Company paid $4.2
million to the consenting bondholders. During fiscal 1998, we repurchased 7.3
million shares of our common stock, and repurchased an additional 2.5 million
shares during the thirteen weeks ended April 4, 1999.
In fiscal 1998, third parties purchased a total of 8.3 million shares of our
common stock at an average price per share of $13.36 (or a total acquisition
cost of $110.9 million) pursuant to four equity forward contracts. Upon
expiration of the contracts, we have the option to:
(i) acquire the shares at the third parties' average acquisition cost as
described above or
(ii) instruct the third parties to sell the shares in the market and settle
in cash any appreciation or depreciation in the market value of the
stock at the sale date compared to the acquisition cost described
above.
47
<PAGE>
Any such appreciation or depreciation in the value of the shares would be
reflected in equity and would not impact net earnings. One of these contracts
for 2.0 million shares was settled in December 1998, and we exercised our option
to acquire the related shares for $29.9 million. An additional contract for 2.5
million shares was settled in March 1999, and we acquired the related shares for
$32.4 million. At April 4, 1999, two equity forward contracts covering 3.8
million shares were pending settlement. The third parties' total acquisition
price for these shares of approximately $52.2 million, including approximately
$10.5 million in collateral deposits and other transaction costs of
approximately $1.7 million, is reflected as "Temporary equity, net" in the
consolidated balance sheet as of April 4, 1999. The remaining two contracts
expire in June and July of 1999, respectively. We anticipate that we will settle
the pending equity forward contracts by using borrowings under the New Credit
Facility.
EFFECT OF INFLATION
Our management believes that inflation has not had a material effect on our
earnings during the past several years. Inflationary increases in the cost of
labor, food and other operating costs could adversely affect our restaurant
operating margins. In the past, however, we generally have been able to modify
our operations, including raising prices, to offset increases in our operating
costs.
YEAR 2000
Historically, certain computer programs were written and certain computer
chips were designed using two-digit year designations. These programs and chips
may experience problems handling dates beyond fiscal 1999. Incomplete or
untimely resolution of these problems by us, by our critical suppliers, or by
governmental entities or utility providers could have a material adverse effect
on our consolidated financial position or results of operations. Work on Year
2000 related issues began in fiscal 1997 with executive awareness programs and
the engagement of outside consultants to assist in developing a consistent Year
2000 methodology, time line and project plan. An inventory and assessment of
information technology ("IT") systems as well as non-IT systems was completed
during fiscal 1998, and the solution implementation and testing phases have been
substantially completed. As we have invested primarily in licensed software
rather than developing it internally, remediation efforts and related
expenditures have not been material. An evaluation of key suppliers to determine
the status of their Year 2000 compliance programs is also in process. Currently,
our management does not anticipate any material adverse effects related to the
Year 2000. Contingency plans, however, are being developed to address all
aspects of operation level functionality and vendor management in the event
unforeseen circumstances arise.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and changes in
commodity prices. Exposure to interest rate risk relates primarily to variable
rate U.S. LIBOR obligations on revolving credit agreements. Interest rate swap
agreements are utilized to manage overall borrowing costs and reduce exposure to
adverse fluctuations in interest rates. Two interest rate swap agreements are
currently in place under which we pay an average of certain foreign LIBOR-based
variable rates. These agreements also contain interest rate caps which further
limit interest rate exposures. If interest rates related to our U.S. LIBOR
obligations increased by 100 basis points over the rates in effect at April 4,
1999, interest expense, after considering the effects of interest rate swap
agreements, would increase by approximately $1.0 million for the remainder of
fiscal 1999. If an additional 100 basis point interest rate increase occurred in
our foreign LIBOR-based obligations, interest expense in fiscal 1999 would
increase by an additional $0.9 million. These amounts were determined by
considering the impact of hypothetical interest rates on our borrowing cost and
interest rate swap agreements. The analyses do not consider the effects of the
overall reduced debt levels anticipated in fiscal 1999. Further, in the
48
<PAGE>
event of a change of such magnitude, management would likely take actions to
further mitigate its interest rate exposures.
We purchase certain commodities such as beef, chicken, flour and cooking
oil. Purchases of these commodities are generally based on vendor agreements
which often contain contractual features that limit the price paid by
establishing price floors or caps. As commodity price aberrations are generally
short term in nature and have not historically had a significant impact on
operating performance, we do not use financial instruments to hedge commodity
price risk.
49
<PAGE>
BUSINESS
GENERAL
Avado Brands, Inc. (formerly Apple South, Inc.) is a leading full service,
casual dining restaurant company, which acquires, develops and operates growth
oriented niche-leading restaurant brands. As of April 4, 1999, we owned four
niche-leading restaurant brands operating 220 restaurants, which consisted of
129 Don Pablo's Mexican Kitchen restaurants, 51 Hops Restaurant Bar & Brewery
restaurants, 22 McCormick & Schmick's seafood dinner houses and 18 Canyon Cafe
restaurants (collectively, the "Core Brands"). In addition, we operated 23
Applebee's Neighborhood Grill & Bar restaurants, which were divested subsequent
to April 4, 1999. We also own a 20% equity interest in Belgo Group PLC, a
thirteen-unit United Kingdom restaurant company, a 50% equity interest in Belgo
Americas, LLC, and a 50% equity interest in San Marzano, LLC. Since acquiring
the Core Brands, we have significantly increased pro forma restaurant sales and
EBITDA, with increases of approximately 44% and 55%, respectively, for fiscal
1998 as compared to fiscal 1997 (as if we owned these brands at the beginning of
the period). For the latest twelve-month period ("LTM period") ended April 4,
1999, we generated pro forma restaurant sales and EBITDA of $558.1 million and
$70.1 million, respectively, from our Core Brands.
We operate multi-concept, niche-leading restaurant brands using a
decentralized organizational structure in order to enhance growth and
profitability. Since 1986, we have developed a strong track record of acquiring
and growing leading casual dining concepts, beginning with Applebee's, where we
became the leading Applebee's operator and franchisee with 264 restaurants and
approximately $454.0 million in annual sales, prior to the divestiture of our
Applebee's restaurants in fiscal years 1998 and 1999. More recently, we have
continued this strong growth trend, more than doubling the number of our
niche-leading Core Brand restaurants from 94 at the time of acquisition during
1995 through 1997 to 220 as of April 4, 1999. For the thirteen-weeks ended April
4, 1999, we have improved restaurant operating margins from 14.9% to 15.6% for
our Core Brands, calculated on a pro forma basis, as compared to the thirteen
weeks ended March 30, 1997. For the LTM period ended April 4, 1999, we have
improved EBITDA margins to 12.6% from 11.4% for our Core Brands, calculated on a
pro forma basis, as compared to fiscal 1997. We intend to continue to execute
this successful operating strategy which emphasizes decentralized operating
management and the benefits of centralized economies of scale in the areas of
finance, accounting, human resource services and selective purchasing
opportunities.
STRATEGY
Our strategy is to continue to acquire, develop and operate growth oriented
niche-leading restaurant brands using a decentralized organizational structure
to enhance growth and profitability. Our key strategies are to:
- CONTINUE TO DEVELOP AND GROW CORE BRANDS--Since the mid 1980's, we have
grown to become a leading multi-concept operator of niche-leading
restaurant brands. Our first success was with Applebee's, where we grew
from one restaurant in 1986 to become the largest operator in the
Applebee's system, with 264 restaurants and approximately $454.0 million
in annual sales in fiscal 1997. Since the acquisition of our four Core
Brands, we have grown the total number of Core Brand restaurants from 94
to 220 and total Core Brand restaurant sales to approximately $558.1
million, creating niche-leading market positions for each of our Core
Brands. For fiscal 1999, we plan to open approximately 40 new restaurants,
consisting of 15 Don Pablo's, 20 Hops, four McCormick & Schmick's and, if
an appropriate site is located, one Canyon Cafe.
- BENEFIT FROM DECENTRALIZED BRAND MANAGEMENT--Each brand functions on a
decentralized basis with its own executive management, real estate
development, purchasing, recruiting, training, marketing and restaurant
operations. This strategy provides our Core Brands a competitive
50
<PAGE>
advantage by tailoring the management of each brand to its respective
market, while allowing each brand to share best practices and leverage
centralized corporate functions such as finance, accounting, human
resource services and selective purchasing opportunities. In addition,
this decentralized management structure encourages entrepreneurial
decision making on the part of brand level management by placing decisions
closer to the customer. Each brand's performance is also monitored by
strict financial targets including returns on investment and restaurant
level growth and profitability.
- CONTINUE TO IMPROVE MARGINS AND PROFITABILITY--In connection with our
Applebee's divestitures, we undertook a strategic review of our corporate
operations, resulting in the identification of significant opportunities
for cost savings. We expect these initiatives to reduce corporate level
expenses by approximately $2.2 million annually. In addition, each of the
Core Brands focuses on improving restaurant level operating margins by
benefiting from the Company's economies of scale in areas such as finance,
accounting, human resource services and selective purchasing
opportunities, as well as leveraging the best practices of each of the
four Core Brands. For the thirteen weeks ended April 4, 1999, we have
improved restaurant operating margins from 14.9% to 15.6% for our Core
Brands, calculated on a pro forma basis, as compared to the thirteen weeks
ended March 30, 1997. For the LTM period ended April 4, 1999, we have
improved EBITDA margins to 12.6% from 11.4% for our Core Brands,
calculated on a pro forma basis, as compared to fiscal 1997.
- CONSISTENTLY PROVIDE HIGH QUALITY PRODUCTS AND SUPERIOR CUSTOMER
SERVICE--We believe that food quality, attentive service and dining
atmosphere all contribute to customer satisfaction. As such, each of our
Core Brands continually evaluates new initiatives that will improve food
presentation and taste and customer service. Additionally, as we expand
the market presence of our brands, we strive to create a consistent brand
image for each concept that our customers will find appealing. To achieve
and maintain a consistently rewarding dining experience for our customers,
each of our brands has implemented stringent operational controls and
extensive employee training.
- PURSUE SELECTIVE OPPORTUNITIES TO GROW INTERNATIONALLY--We are selectively
seeking opportunities to export one or more of our brands to other
countries through joint ventures or strategic alliances. Additionally, we
may selectively make equity investments in strategic international
partners. For example, in fiscal 1998, we made an equity investment in
Belgo Group PLC, which resulted in two joint ventures, Belgo Americas, LLC
and Belgo Ventures Limited. A leading restaurant guide has rated two of
the restaurants in the Belgo portfolio to be among the top three in
London. We also established San Marzano, LLC, a joint venture with
PizzaExpress PLC, to develop upscale pizza restaurants in the United
States. PizzaExpress PLC owns and operates more than 200 upper-end pizza
restaurants in the United Kingdom and other countries in Europe and Asia.
These equity ownership positions and joint ventures provide us with
several potential growth vehicles, which are designed to allow for
development outside our current geographic and industry niches.
- OPPORTUNISTICALLY PURSUE STRATEGIC ACQUISITIONS--While we are not
currently contemplating any significant additional acquisitions or
investments, we will continue to evaluate opportunities to expand our
operations by making strategic acquisitions of innovative concepts which
can be developed into niche-leading brands and established concepts with
potential for growth. Currently, however, our primary focus is to continue
developing our four niche-leading Core Brand concepts and our Belgo and
San Marzano joint ventures.
51
<PAGE>
RESTAURANT CONCEPTS
DON PABLO'S
CONCEPT. Known as "The Real Enchilada," Don Pablo's is the leading casual
dining Mexican restaurant brand in the United States and generates among the
highest operating margins in the casual dining industry. The restaurants feature
traditional Mexican dishes served in a distinctive, festive dining atmosphere
reminiscent of a Mexican village plaza. Each restaurant is staffed with an
experienced management team that is visible in the dining area and interacts
with customers and staff to ensure attentive customer service and consistent
food quality. Don Pablo's relatively low priced menu items are prepared fresh
on-site using high-quality ingredients. The diverse menu, generous portions and
attractive price/value relationship appeal to a broad customer base. The Don
Pablo's concept was initiated in 1985, with the opening of the first Don Pablo's
restaurant in Lubbock, Texas. We acquired this brand through a merger with DF&R
Restaurants, Inc. in November 1995. At acquisition, Don Pablo's included 44
then-existing restaurants, and we have since opened 86 additional restaurants
and closed one restaurant as of April 4, 1999. We believe the build-out
potential for this concept is approximately 400 restaurants. For the LTM period
ended April 4, 1999, this brand generated sales of approximately $285.5 million,
representing 51% of sales of our Core Brands. Don Pablo's is based in Bedford,
Texas.
MENU. The menu offers a wide variety of entrees, including enchiladas and
tacos served with various sauces, homemade salsa and mesquite-grilled items such
as fajitas, carne asada and chicken. The menu also includes tortilla soup, a
selection of salads, Mexican-style appetizers such as quesadillas and unique
desserts. During fiscal 1998, the cost of a typical meal, including beverages,
was $8.00 to $9.50 for lunch and $9.50 to $11.50 for dinner. In addition to its
regular menu, Don Pablo's offers 15 lunch specials priced from $4.49 to $7.19
each and a lower-priced children's menu. Full bar service is also provided.
RESTAURANT LAYOUT. Distinctive Mexican architecture and interior decor
provide a casual, fun dining atmosphere. A typical restaurant has an open,
spacious feel, created with the use of sky-lights and a Mexican village plaza
design, which is enhanced by an indoor fountain and the use of stucco, brick and
tile, plants, signs and art work. Homemade tortillas cooked in the dining area
underscore the commitment to fresh, authentic Mexican food. Both one and
two-story building designs are utilized. The two-story design features a balcony
which provides seating for bar patrons and dining customers. The one-story
design incorporates a smaller bar, also available to dining customers, adjacent
to the dining area. Both designs use high ceiling architecture and have similar
dining capacities. Restaurants range in size from 6,000 square feet to 9,900
square feet, with the average restaurant containing approximately 8,000 square
feet. The restaurants generally have dining room seating for approximately 230
customers and bar seating for approximately 70 additional customers.
UNIT ECONOMICS. In fiscal 1998, management estimates that the average cost
of developing and opening a Don Pablo's restaurant was approximately $1.7
million, excluding land costs and preopening expenses. The cost of land for
these restaurants ranged from approximately $600,000 to $1.3 million. Preopening
expenses, which consist primarily of wages and salaries, hourly employee
recruiting, license fees, meals, lodging and travel plus the cost of hiring and
training the management teams, averaged $185,000. For the LTM period ended April
4, 1999, this brand generated revenues of $285.5 million, with average sales
volume per unit of approximately $2.4 million. Alcoholic beverage sales
accounted for approximately 19% of sales in fiscal 1998. Income from restaurant
operations for the thirteen weeks ended April 4, 1999 was 17.4% of sales.
FIELD MANAGEMENT AND EMPLOYEES. Management is shared by 17 directors and
assistant directors who report to a Regional Vice President of Operations. A
typical restaurant has a management staff of
52
<PAGE>
one general manager, one kitchen manager and three assistant managers, and
employs 85 to 95 full- and part-time employees. General managers and kitchen
managers are eligible to receive bonuses equal to a percentage of their
restaurant's sales, subject to operating at certain sales levels and within
budgeted costs.
ADVERTISING AND MARKETING. Don Pablo's advertising and marketing strategy
combines the use of television and radio advertising in core markets with a
focus on local efforts and community involvement at all locations. For the LTM
period ended April 4, 1999, we spent $10.9 million for Don Pablo's related
advertising and marketing, representing 3.8% of Don Pablo's sales for the same
period. Current strategies are expected to continue in fiscal 1999 with a focus
on efforts, such as Manager's Specials and other promotions, designed to
increase the number of customers and check average.
HOPS RESTAURANT BAR & BREWERY
CONCEPT. Hops is the nation's largest restaurant brand with an on-premise
brewery. Unlike many traditional brewpub concepts, Hops emphasizes a high
quality restaurant menu, which is complemented by fresh microbrewed beer. The
Hops concept was initiated in 1989, with the opening of the first Hops
restaurant in Clearwater, Florida. We acquired this brand for $58.4 million in
March 1997, including 21 then-existing restaurants, and have since opened 30
additional restaurants. We believe the build-out potential for this concept is
approximately 400 restaurants. For the LTM period ended April 4, 1999, this
brand generated sales of $115.5 million, representing 21% of the sales of our
Core Brands. Hops is based in Tampa, Florida.
MENU. Hops restaurants feature an American-style menu that includes top
choice steaks and prime rib, baby-back ribs, fresh fish, chicken and pasta
dishes, deluxe burgers and sandwiches, hand-tossed salads with homemade
dressings, appetizers, soups and desserts-all of which are freshly prepared in a
display kitchen. The menu offers separate selections for children. The cost of a
typical meal, including beverages, ranges from $6.00 to $9.00 per person for
lunch and $13.00 to $15.00 per person for dinner. Each restaurant offers four
distinctive lager-style beers and ales, plus a variety of blends of these beers,
that are brewed on-premises. Except for one non-alcoholic beer, the brewed beers
are typically the only beers served. Full bar service is also available at each
restaurant.
RESTAURANT LAYOUT. Restaurants range in size from approximately 5,000 to
7,300 square feet. The on-premise brewing equipment is an integral aspect of the
design and occupies from 450 to 750 square feet. An observation microbrewery at
each restaurant allows customers to view the entire brewing process. The
restaurant dining and bar areas seat from 160 to 240 customers.
UNIT ECONOMICS. In fiscal 1998, management estimates that the cost of
developing and opening a restaurant averaged approximately $1.5 million,
excluding land and preopening costs but including approximately $160,000 in
microbrewery equipment. Land costs ranged from $675,000 to $1.0 million with
preopening costs averaging $170,000. For the LTM period ended April 4, 1999,
this brand generated revenues of $115.5 million, with average sales volume per
unit of approximately $2.6 million. Alcoholic beverages accounted for
approximately 16% of sales in fiscal 1998. Income from restaurant operations for
the thirteen weeks ended April 4, 1999 was 15.1% of sales.
FIELD MANAGEMENT AND EMPLOYEES. Management is shared by seven operating
partners and three area managers who report to both the Vice President of
Operations and the Chief Executive Officer. Operating partners have equity
investments in the restaurants they manage, which increases their entreprenurial
incentives. Each operating partner and area manager is responsible for no more
than five restaurants, thus facilitating a focus on quality of operations and
unit profitability. A typical restaurant has a management staff of one general
manager, one kitchen manager and two assistant managers, and employs 55 to 75
full- and part-time employees. General managers and kitchen managers are
eligible to receive bonuses equal to a percentage of their restaurant's
controllable income, subject to operating above a minimum operating margin.
53
<PAGE>
ADVERTISING AND MARKETING. Hops' advertising and marketing strategy has
historically focused primarily on grassroots efforts utilizing special
promotions in local markets and special event equipment designed to increase
customer awareness and name recognition. For the LTM period ended April 4, 1999,
we spent $5.1 million for Hops related advertising and marketing, representing
4.4% of Hops sales for the same period. In fiscal 1999, we expect to use
television advertising in core markets and the continued use of radio and print
media as well as grassroots efforts.
MCCORMICK & SCHMICK'S
CONCEPT. McCormick & Schmick's is the leading upper-end casual dining
seafood group in the United States with 22 traditional, classic restaurants
specializing in fresh seafood. It is recognized for its traditional-style full
service bar, regional taste and superior service. The restaurants are designed
to capture the distinctive attributes of each local market, and vary in design
from a traditional, New England-style fish house to a more contemporary dinner
house with spectacular waterfront views. Many of the restaurants are located in
historical buildings. The same philosophy of distinctiveness and quality applies
equally to the bar operation and the dining rooms. Restaurants are operated
under the names "MCCORMICK & SCHMICK'S SEAFOOD RESTAURANT," "MCCORMICK'S FISH
HOUSE & BAR," "MCCORMICK & SCHMICK'S FISH HOUSE," "MCCORMICK & SCHMICK'S
HARBORSIDE AND PILSNER ROOM," "JAKE'S FAMOUS CRAWFISH," "JAKE'S GRILL," "M&S
GRILL" AND "MCCORMICK & KULETO'S SEAFOOD RESTAURANT." The McCormick & Schmick's
concept was initiated in 1972, with the acquisition of its first restaurant in
Portland, Oregon. We acquired this brand for $68.3 million in March 1997,
including 16 then-existing restaurants, and have since opened seven additional
restaurants and closed one restaurant as of April 4, 1999. We believe the
build-out potential for this concept is approximately 125 restaurants. For the
LTM period ended April 4, 1999, this brand generated sales of approximately
$109.0 million, representing 19% of the sales of our Core Brands. McCormick &
Schmick's is based in Portland, Oregon.
MENU. McCormick & Schmick's features a daily menu, offering the freshest
seafood available based on price and product availability. With 25 to 30
varieties of fresh fish and seafood and over 85 individual selections, the menu
gives range in culinary appeal as well as price selection. The cost of a typical
meal, including beverages, is approximately $10.00 to $20.00 for lunch and
$25.00 to $35.00 for dinner. Full bar service is also provided.
RESTAURANT LAYOUT. Restaurants range in size from 6,000 to 14,000 square
feet with an average restaurant containing approximately 8,500 square feet. The
restaurants generally seat 200 to 300 customers in the dining room with some
locations having 40 to 60 additional seats available in the patio area.
UNIT ECONOMICS. In fiscal 1998, management estimates that the average cost
of developing a restaurant was approximately $2.5 million, including leasehold
improvements, fixtures and equipment. All restaurant real estate is leased.
Additionally, preopening expenses average $300,000. For the LTM period ended
April 4, 1999, this brand generated revenues of $109.0 million with average
sales volume per unit of approximately $5.0 million. Alcoholic beverages
accounted for approximately 27% of sales in fiscal 1998. Income from restaurant
operations for the thirteen weeks ended April 4, 1999 was 14.3% of sales.
FIELD MANAGEMENT AND EMPLOYEES. Management is shared by eight multi-unit
senior managers, three of whom have regional responsibility, and two Vice
Presidents of Operations. Staffing levels vary depending on restaurant size. A
typical restaurant has a general manager, an executive chef, a sous chef and
four assistant managers and will employ 80 to 90 full-and part-time employees.
The McCormick & Schmick's operating philosophy encourages and trains the
management of individual restaurant units to be creative by promoting a large
degree of self-sufficiency.
54
<PAGE>
ADVERTISING AND MARKETING. Advertising and marketing efforts are focused on
a grassroots philosophy. Each region utilizes the services of a public relations
firm and makes full use of media events targeting the local market. Advertising
strategies focus on existing and local customers, but also emphasize out-of-town
travelers as a key customer component. Marketing begins in each restaurant with
daily printed menus and other local efforts. A primary focus is to expand name
and location awareness through the use of promotional discount certificates and
periodic contact with organizations in the travel/convention industry such as
hotels, travel agents and convention centers. For the LTM period ended April 4,
1999, we spent approximately $4.0 million for McCormick & Schmick's related
advertising and marketing, representing 3.7% of McCormick & Schmick's sales for
the same period.
CANYON CAFE
CONCEPT. Canyon Cafe is the leader in the emerging concept of Southwestern
cuisine, with 18 locations that bring the flavors of the Southwest to life with
a convergence of great creative food, a visually entertaining environment and a
soothing yet invigorating ambiance. This brand combines three distinct cultures,
Native American, Spanish and Mexican, to create a unique upscale casual dining
experience. Restaurants are operated under the names "CANYON CAFE," "DESERT
FIRE" AND "SAM'S CAFE." The Canyon Cafe concept was initiated in 1989, with the
opening of the first restaurant in Dallas, Texas. We acquired this brand for
$46.3 million in July 1997, including 13 then-existing restaurants, and have
since opened eight additional restaurants and closed three restaurants as of
April 4, 1999. Canyon Cafe is the only brand in this niche that has a broad
geographic presence, and we believe the build-out potential for this concept is
approximately 125 restaurants. For the LTM period ended April 4, 1999, this
brand generated sales of approximately $48.1 million, representing 9% of the
sales of our Core Brands. Canyon Cafe is based in Dallas, Texas.
MENU. The menu offers a wide variety of unique items such as "Desert Fire
Pasta," "Chile-Rubbed Grilled Tuna" and "Chipotle Chicken." A variety of more
traditional items including chicken tacos and grilled chicken salad are also
offered. In addition to the set items that appear on each restaurant's menu, the
executive chefs at each location offer their original recipes. During 1998, the
cost of a typical meal, including beverages, was $9.00 to $14.00 for lunch and
$14.00 to $20.00 for dinner. Full bar service is also provided.
RESTAURANT LAYOUT. The restaurants are based on a Santa Fe design which
reflects a strong southwestern influence through the use of heavy ponderosa pine
timbers. The walls, floors and furniture reflect surfaces and colors native to
the American Southwest. Restaurants are located in malls, in-line power centers
and as freestanding buildings. In-line and mall sites average 7,000 square feet
with some locations featuring an additional 800-1,000 square foot patio. The
freestanding buildings average 6,700 square feet with a 1,050 square foot patio.
All locations typically have a minimum of 190 interior dining seats, an average
of 26 bar seats and 45-50 seats in the patio area.
UNIT ECONOMICS. In fiscal 1998, management estimates that the cost of
developing and opening a restaurant averaged $1.4 million for in-line/mall
locations and $1.6 million for freestanding locations, excluding land costs and
preopening expenses. In 1998, one land site was purchased at a cost of $947,000.
Preopening expenses averaged $151,000. For the LTM period ended April 4, 1999,
this brand generated revenues of $48.1 million with average sales volume per
unit of approximately $2.6 million. Alcoholic beverages accounted for
approximately 18% of sales in fiscal 1998. Income from restaurant operations for
the thirteen weeks ended April 4, 1999 was 11.9% of sales.
FIELD MANAGEMENT AND EMPLOYEES. Management is structured with a general
manager, two to three assistant managers, an executive chef and a sous chef.
Typical restaurants employ 50 to 70 full- and part-time employees. Regional
Directors are responsible for quality of operations and sales and profitability
of four to five restaurants and report to a Vice President of Operations. All
managers are eligible to receive bonuses based on individual restaurant
operating performance.
55
<PAGE>
ADVERTISING AND MARKETING. Advertising and marketing strategy relies on
grassroots efforts focused on developing a strong brand identity and strong
core-customer recommendations. Advertising and marketing efforts include local
radio, media appearances and event involvement as well as direct mail and other
print media. Additional local efforts, such as a system-wide "neighborhood
networking" program, are utilized to develop a direct relationship with targeted
customers. For the LTM period ended April 4, 1999, we spent approximately $2.0
million for Canyon Cafe related advertising and marketing, representing 4.2% of
Canyon Cafe's sales for the same period.
INVESTMENT IN OTHER CONCEPTS
We have entered into relationships with Belgo Group PLC ("Belgo") and
PizzaExpress PLC ("PizzaExpress") as the initial step in developing strategic
international alliances. We believe that working with our joint venture partners
will enable us to gain expertise in international operations and potentially
provide additional growth concepts for the U.S. market.
BELGO. In January 1998, we established a strategic alliance with Belgo, a
public restaurant company headquartered in London, England. We have acquired 20%
of Belgo's outstanding stock for $14.9 million. Belgo owns and operates thirteen
restaurants, consisting of six Belgian-themed restaurants and seven up-scale
restaurants. The Belgian-themed restaurants feature Belgian-style mussels and
french fries and an extensive selection of Belgian beer, along with items such
as chicken, steak, lobster and other seafood. The seven up-scale restaurants
include "THE IVY" and "LE CAPRICE," which have been rated among the top three
restaurants in London in 1998 according to a leading restaurant guide. In
addition, we have formed two joint ventures with Belgo, (i) to develop Belgian-
themed restaurants in North and South America and (ii) to explore developing one
of our existing concepts in Europe. Under these joint ventures, we opened our
first Belgian-themed restaurant in New York in January, 1999. We and Belgo own
equal interests in the joint ventures. The total capital invested in the initial
restaurant was approximately $3.0 million.
SAN MARZANO. In February 1998, we entered into a joint venture with
PizzaExpress to develop PizzaExpress's upscale pizza restaurants in the United
States. PizzaExpress owns and operates more than 200 upper-end pizza restaurants
in the United Kingdom and other countries in Europe and Asia. In March 1999, the
joint venture opened its first U.S. restaurant in Philadelphia under the name
San Marzano. San Marzano offers upper-end Neopolitan-style pizza at casual
dining prices. The restaurant specializes in individual-size pizzas with
traditional and gourmet toppings and also offers baked pasta dishes, appetizers,
salads and desserts along with full bar service. The total capital invested in
the initial restaurant was approximately $2.5 million.
HARRIGANS. As part of the acquisition of Don Pablo's in fiscal 1995, we
acquired the Harrigans brand, currently operating 11 restaurants. In April 1998,
we sold our Harrigans restaurants for $7.0 million including a $4.0 million
note, and retained a 25% equity interest in the ongoing business.
OTHER RESTAURANT OPERATIONAL FUNCTIONS
QUALITY CONTROL. All levels of management are responsible for ensuring that
our restaurants are operated in accordance with strict quality standards. Our
management structure allows restaurant general managers to spend a significant
portion of their time in the dining area of the restaurant supervising staff and
providing service to customers. We monitor compliance with quality standards by
periodic on-site visits and formal periodic inspections by multi-unit managers.
TRAINING. Each brand requires employees to participate in formal training
programs. Management training programs generally last ten to 16 weeks and
encompass three general areas, including (i) all service positions, (ii)
management accounting, personnel management and dining room and bar operations
and (iii) kitchen management. Management positions at new restaurants are
typically staffed
56
<PAGE>
with personnel who have had previous experience in a management position at
another of the brands' restaurants. In addition, a highly experienced opening
team assists in opening each restaurant. Prior to opening, all personnel undergo
intensive training conducted by the restaurant opening team.
PURCHASING AND DISTRIBUTION. We strive to obtain consistent quality items
at competitive prices from reliable sources for all of our brands. We
continually research and test various products in an effort to maintain the
highest quality products and to be responsive to changing customer tastes.
Purchasing is handled by each brand, with ingredients and supplies common to all
brands coordinated by corporate-level personnel in order to maximize economies
of scale. With the exception of McCormick & Schmick's, our Core Brands use one
primary distributor for all food products except for produce, which is typically
purchased locally. At McCormick & Schmick's, purchasing is under the direction
of each restaurant's executive chef in order to obtain the freshest, highest
quality seafood available with a focus on local tastes. This also enables local
management to maintain margins through product selection and daily pricing. All
food and beverage products are available on short notice from alternative
qualified suppliers. The Company has not experienced any significant delays in
receiving food and beverage inventories, restaurant supplies or equipment.
RESTAURANT REPORTING AND RELATED MANAGEMENT INFORMATION SYSTEMS. We
maintain financial controls through a centralized accounting system at each
brand's headquarters. Each brand reports profits and loss information to our
corporate headquarters for financial consolidation and reporting. Point-of-sale
reporting systems are used in each restaurant. Restaurant management submits to
brand and/or corporate headquarters various daily and weekly reports of cash,
deposits, sales, labor and key business indicator metrics. Physical inventories
of all food and beverage items are taken at least monthly, with more frequent
inventories taken of key items. Both brand and corporate personnel closely
monitor operating results compared to prior periods, budgets and performance
goals.
We believe that our management information systems provide us with the
ability to efficiently manage our restaurants and to ensure consistent
application of operating controls. Our point-of-sale systems report data on a
daily basis to our brand and corporate headquarters. Our corporate headquarters
houses mid-range, PC and server-based application and decision support systems.
These systems facilitate financial and management control of restaurant
operations.
We have a number of projects underway, principally based on existing and
available software and software tools, that are designed to further enhance our
capabilities and to upgrade our information systems. We are implementing brand
data marts and a corporate data warehouse as well as an intranet to facilitate
information access.
INDUSTRY OVERVIEW
The restaurant industry consists of the quick service segment and the full
service segment, as well as other segments including, but not limited to, bars
and taverns, commercial cafeterias, military services and catering. The full
service segment can be further categorized into family dining and casual dining.
Family dining restaurants focus on quality, convenience, service, atmosphere and
value. Casual dining provides more elaborate decor, blends in some level of
perceived "entertainment" or "fun" and offers alcohol.
According to the National Restaurant Association ("NRA"), 1998 restaurant
industry sales reached $338.4 billion, representing a 4.9% nominal growth rate
over 1997, or 2.6% in inflation adjusted terms. Quick service restaurants
accounted for 31.2% of total restaurant industry sales, and full service
restaurants accounted for 33.1% of total restaurant industry sales in 1998.
Based on the Technomic, Inc. 1999 Top 100 Report, casual dining restaurant
chains which are included in the largest 100 restaurant companies (the "Top
100"), generated sales of $19.1 billion in 1998, representing a 12.8% increase
over 1997. The casual dining segment of the Top 100 has been the fastest growing
segment of the Top 100 full service restaurant category for the past 20 years
growing at a CAGR of
57
<PAGE>
14.9% for the last five years. The number and variety of casual full service
restaurants has increased to include a far greater variety of foods. In 1998,
the Mexican food category of the Top 100 accounted for $1.4 billion in sales,
representing a 27.6% increase over 1997. The Seafood category of the Top 100
accounted for $2.4 billion in sales in 1998, representing a 12.5% increase over
1997. Companies in the Top 100 offering varied menus and full service, which
include Hops and Canyon Cafe, generated sales of $9.0 billion in 1998,
representing an 11.9% increase over 1997.
The NRA estimates that total industry sales should reach $354 billion in
1999, representing 4.6% nominal growth and 1.8% real growth over 1998.
1999 is expected to mark the eighth consecutive year of real sales growth
for restaurants. The NRA projects that full service restaurants will achieve
higher growth in 1999 than their quick service counterparts, posting nominal and
real sales growth of 4.9% and 2.1%, respectively. Quick service sales are
expected to grow 4.6% and 1.8% in nominal and real terms, respectively.
COMPETITION
The restaurant industry in the U.S. is highly competitive with respect to
price, service, location, and food type and quality. This competition is
expected to intensify. There are a few, well-established competitors with
greater financial and other resources than us. Some of our competitors have been
in existence for a substantially longer period than us and may be better
established in the markets where our restaurants are or may be located. Don
Pablo's competes with Chi Chi's, On The Border Mexican Cafe, Rio Bravo Cantina,
Chevys Fresh Mex, Taco Cabana, many locally owned Mexican restaurants, and other
casual dining restaurants with different types of menus, but with similar meal
price points. Hops faces competition from other concepts with on-premises
breweries, such as Rock Bottom Restaurant & Brewery, John Harvard's Brew House
and Gordon Biersch Brewery Restaurants. However, management believes, based on
exit interviews with patrons, that its chief competitors are concepts such as
Outback Steakhouse and Houston's that also offer high quality, freshly prepared
American-style food. McCormick & Schmick's competes mostly with local
non-franchised, higher-end seafood restaurants. Canyon Cafe's principal
competition comes from local southwestern-style restaurants and select
non-southwestern restaurants, which serve distinctive ethnic or regional food
with price points similar to Canyon Cafe.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, traffic
patterns and the availability and cost of suitable locations. The type, number
and location of competing restaurants also impacts restaurant sales. We also
experience competition in attracting and retaining qualified operating
management. In addition, factors such as inflation, increased food, labor and
benefits costs and difficulty in attracting hourly employees may adversely
affect the restaurant industry in general and our restaurants in particular.
GOVERNMENTAL REGULATION
ALCOHOLIC BEVERAGE REGULATION. Each of our restaurants is subject to
licensing and regulation by a number of governmental authorities, which include
alcoholic beverage control and health, safety and fire agencies in the state,
county and municipality in which the restaurant is located. Difficulties or
failures in obtaining the required licenses or approvals could delay or prevent
the opening of a new restaurant in a particular area. Alcoholic beverage control
regulations require restaurants to apply to a state authority and, in certain
locations, county or municipal authorities for a license or permit to sell
alcoholic beverages on the premises and to provide service for extended hours
and on Sundays. Some counties prohibit the sale of alcoholic beverages on
Sundays. Typically, licenses or permits must be renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of a restaurant's operations, including
minimum age of patrons
58
<PAGE>
and employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages.
We may be subject in certain states to "dram-shop" statutes which generally
provide a person injured by an intoxicated patron the right to recover damages
from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. We carry liquor liability coverage as part of our existing
comprehensive general liability insurance.
BREWPUB REGULATION. Our Hops restaurants are subject to additional
regulations as a result of the microbrewery in each restaurant. Historically,
the alcoholic beverage laws of most states prohibited the manufacture and retail
sale of beer to consumers by the same company. Now, all states allow limited
brewing and retail sale of microbrewed beer by restaurants and bars classified
as "brewpubs" under state law. Our Hops restaurants are required to comply with
these state brewpub laws in order to obtain necessary state licenses and
permits. Additionally, many states impose restrictions on the operations of
brewpubs, such as a prohibition on the bottling of beer, a prohibition on the
sale of beer for consumption off of restaurant premises and a limitation on the
volume of beer that may be brewed at any location, as well as certain geographic
limitations. In addition, certain states limit the number of brewpubs that may
be owned by one company. Our ability to own and operate Hops restaurants in any
state is and will continue to be dependent upon our ability to operate within
the regulatory scheme of the state.
OTHER REGULATION. Our restaurants are also subject to Federal and state
laws governing such matters as minimum wage, working conditions, and overtime
and tip credits. We experienced a slight increase in hourly labor costs as a
result of the 1996 and 1997 increases in the federal minimum wage rate.
TRADEMARKS
We own the following registered trademarks: Don
Pablo's-Registered Trademark-, Mama's Skinny-Registered Trademark-, The Real
Enchilada-Registered Trademark-, Hops! -Registered Trademark-, Hops Grill & Bar
Microbrewery-Registered Trademark-, Wait'll You See What's Brewing on the
Grill-Registered Trademark-, Hop E. Hare-Registered Trademark-, Hammerhead
Red-Registered Trademark-, Clearwater Light-Registered Trademark-, Lightning
Bold Gold-Registered Trademark-, Golden Hammer, -Registered Trademark- McCormick
& Schmick's-Registered Trademark-, McCormick & Schmick's
Harborside-Registered Trademark-, Jake's-Registered Trademark-,
McCormick's-Registered Trademark-, Canyon Cafe-Registered Trademark- and Prairie
Fire-Registered Trademark-. In addition, we own a number of trademarks that are
in the process of being registered. We believe our trademarks have significant
value and play an important role in our marketing efforts.
EMPLOYEES
On April 4, 1999, we employed approximately 19,200 people in 29 states plus
the District of Columbia excluding employees related to the operation of
Applebee's restaurants. Of those employees, approximately 270 held management or
administrative positions, 1,500 were involved in restaurant management, and the
remainder were engaged in the operation of restaurants. We believe that our
continued success will depend to a large degree on our ability to attract and
retain good management employees. While we will have to continually address the
high level of employee attrition normally expected in the food-service industry,
we have taken steps to attract and keep qualified management through a variety
of employee benefit plans, including an Employee Stock Ownership Plan, a 401(k)
Plan, and an incentive stock option plan for our key employees. None of our
employees are covered by a collective bargaining agreement. We consider our
employee relations to be good.
PROPERTIES
We own a renovated historic building in Madison, Georgia, containing
approximately 19,000 square feet of office space and an adjoining building
containing approximately 41,000 square feet of office space. These office
buildings serve as our corporate headquarters. In 1997, we completed
construction
59
<PAGE>
of a new 44,100 square foot facility in Bedford, Texas, to house the Don Pablo's
headquarters. The headquarters for Hops is located in approximately 15,000
square feet of leased space in Tampa, Florida. The headquarters for McCormick &
Schmick's is located in approximately 12,000 square feet of leased space in
Portland, Oregon. The headquarters for Canyon Cafe is located in approximately
7,500 square feet of leased space in Dallas, Texas. We believe that our
corporate and brand headquarters are sufficient for our present needs.
In selecting restaurant sites, the Company attempts to acquire prime
locations in market areas to maximize both short and long-term revenues. Site
selection is made by each brand's development department, subject to executive
officer approval. Within the target market areas, the brands evaluate major
retail and office concentrations and major traffic arteries to determine focal
points. Site specific factors include visibility, ease of ingress and egress,
proximity to direct competition, accessibility to utilities, local zoning
regulations, laws regulating the sale of alcoholic beverages, and various other
factors.
As of April 4, 1999, the Company operated 220 restaurants. The following
table presents leased and owned restaurants by brand:
<TABLE>
<CAPTION>
PROPERTY AND PROPERTY LEASED, PROPERTY AND
BRAND BUILDING OWNED BUILDING OWNED BUILDING LEASED TOTAL
- ------------------------------------------------------- ------------------- ------------------- ------------------- -----
<S> <C> <C> <C> <C>
Don Pablo's............................................ 45 80 4 129
Hops................................................... 22 28 1 51
McCormick & Schmick's.................................. -- -- 22 22
Canyon Cafe............................................ 2 2 14 18
--- --- --- ---
Total.................................................. 69 110 41 220
--- --- --- ---
--- --- --- ---
</TABLE>
LEGAL PROCEEDINGS
In 1997, two lawsuits were filed by persons seeking to represent a class of
shareholders of the Company who purchased shares of the Company's common stock
between May 26, 1995 and September 24, 1996. Each plaintiff named the Company
and certain of its officers and directors as defendants. The complaints alleged
acts of fraudulent misrepresentation by the defendants which induced the
plaintiffs to purchase the Company's common stock and alleged illegal insider
trading by certain of the defendants, each of which allegedly resulted in losses
to the plaintiffs and similarly situated shareholders of the Company. The
complaints each sought damages and other relief. In 1998, one of these suits
(Artel Foam Corporation Pension Trust, et al. v. Apple South, Inc., et al.,
Civil Action No. CV-97-6189) was dismissed. Although the ultimate outcome of the
remaining lawsuit cannot be determined at this time, the Company believes that
the allegations therein are without merit and intends to vigorously defend
itself.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
60
<PAGE>
MANAGEMENT
The following table sets forth information about our executive officers and
our directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
Tom E. DuPree, Jr................ 47 Chairman of the Board of Directors and Chief Executive Officer
Erich J. Booth................... 50 Chief Financial Officer, Treasurer, Director
John G. McLeod................... 55 Senior Vice President of Human Resources, Secretary
Margaret E. Waldrep.............. 43 Chief Administrative Officer
Louis J. Profumo................. 47 Senior Vice President of Finance and Chief Accounting Officer
Thomas R. Williams............... 70 Director
Dr. Ruth G. Shaw................. 51 Director
John L. Moorhead................. 56 Director
</TABLE>
Certain biographical information regarding our executive officers and our
directors is set forth below:
Tom E. DuPree, Jr. founded the Company and has been Chairman of the Board of
Directors and Chief Executive Officer of the Company since its formation. He
also serves as a member of the Finance and Planning Committee. Mr. DuPree has
been actively involved in developing and managing restaurants since 1978. He is
a graduate of the Georgia Institute of Technology and holds a Master's degree in
Accounting from Georgia State University.
Erich J. Booth became a director in June, 1997. He also serves as a member
of the Finance and Planning Committee. Mr. Booth has served as the Chief
Financial Officer and Treasurer of the Company since 1991. Before joining us,
Mr. Booth had been Vice President of Finance of Dun & Bradstreet Software
(formerly Management Science America, Inc.) since 1989. From 1984 to 1989, he
served as Vice President and Chief Financial Officer of Ward White USA Holding,
Inc., a diversified, United Kingdom-based parent, specialty retailer. Mr. Booth,
a Certified Public Accountant, worked from 1973 to 1984 for Peat, Marwick,
Mitchell & Co. He is a graduate of the University of North Carolina at
Greensboro.
John G. McLeod, Jr. has served as Senior Vice President of Human Resources
since 1992, Vice President of Human Resources from 1987 to 1992, and a director
and Secretary of the Company since its formation in 1986. Mr. McLeod rotated off
the Board of Directors in December 1997, but continues to serve as Corporate
Secretary and Senior Vice President of Human Resources. From 1983 to 1987, Mr.
McLeod was the Personnel Director of a predecessor of the Company. He is a
graduate of Wofford College.
Margaret E. Waldrep was elected to the position of Chief Administrative
Officer of the Company in May 1997. Ms. Waldrep joined us in 1985. From 1978 to
1985, Ms. Waldrep was a long-range planner with the Greenville Planning
Commission in Greenville, South Carolina. She earned a Bachelor's degree in
Political Science in 1977 and a Master's degree in City and Regional Planning in
1979 from Clemson University.
Louis J. Profumo joined the Company in July, 1997 as Senior Vice President
of Planning and Acquisitions and was appointed to the position of Senior Vice
President of Finance and Chief Accounting Officer in December 1998. From 1974 to
1997, Mr. Profumo worked for KPMG Peat Marwick LLP serving as an Audit Partner
since 1986 in the firm's manufacturing, retailing and distribution practice. He
received both a bachelor's of science degree in hotel administration in 1973 and
a master's of business administration in 1974 from Cornell University.
Thomas R. Williams became a director in December, 1991. He also serves as
Chairman of the Finance and Planning Committee and as a member of the
Compensation and Human Resources Committee. Mr. Williams is President of The
Wales Group, Inc., a closely held corporation engaged in
61
<PAGE>
investments. He is a former Chairman of the Board of First Wachovia Corporation,
from which he retired in 1987. Mr. Williams is a director of American Software,
Inc., ConAgra, Inc., and National Life Insurance Company of Vermont and a
trustee of The Fidelity Group of Mutual Funds.
Dr. Ruth G. Shaw became a director in May, 1996. She also serves as
Chairperson of the Compensation and Human Resources Committee. Dr. Shaw is
Executive Vice President and Chief Administrative Officer for Duke Energy
Corporation. She joined Duke Energy in 1992 as Vice President of Corporate
Communications, was named Senior Vice President in 1994 and Executive Vice
President in 1997. Prior to joining Duke Energy, she was President of
Charlotte's Central Piedmont Community College from 1986 to 1992. Dr. Shaw is a
director of First Union Corporation and of TEPPCO.
John L. Moorhead became a director of the Company in January, 1997. He also
serves as a member of the Audit Committee. Mr. Moorhead is President of
Bestfoods Affiliates. He joined Bestfoods in 1992 as Vice President of Business
Management and Marketing. Prior to joining Bestfoods, he was with PepsiCo, Inc.
from 1979 to 1991 and last served as Vice President of Marketing Services for
the Pepsi-Cola Company, a division of PepsiCo, Inc. Prior to establishing
Pepsi-Cola's Marketing Services Group, Mr. Moorhead had served as Vice President
of Marketing for the Taco Bell Worldwide Division, Marketing Director at Frito
Lay and within the brand management system at General Mills.
Officers of the Company serve at the pleasure of the Board of Directors. The
term of office for each director of the Company ends at the next annual meeting
of the Company's shareholders or when his or her successor is elected and has
qualified.
62
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes the compensation paid or accrued by us for
services rendered during the years indicated to the Chief Executive Officer and
the four most highly compensated executive officers, other than the Chief
Executive Officer, and our former President and Chief Operating Officer. We did
not grant any stock appreciation rights or make any long-term incentive plan
payouts during the years indicated.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION --------------------------
---------------------- RESTRICTED SECURITIES ALL OTHER
SALARY STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) AWARDS OPTIONS (#) ($) (1)
- ------------------------------------------------ --------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tom E. DuPree, Jr............................... 1998 525,000 269,600 -- -- 265,762
Chairman and Chief Executive Officer 1997 425,000 -- -- -- 195,470
1996 285,577 81,750 -- -- 122,218
Erich J. Booth.................................. 1998 245,000 141,000 -- -- 5,226
Chief Financial Officer and Treasurer 1997 230,000 -- -- 10,125 4,600
1996 160,000 69,525 -- 10,125 3,706
Louis J. Profumo................................ 1998 259,965 45,740 -- -- 5,226
Chief Accounting Officer 1997 111,635 -- 72,500 65,000 --
Margaret E. Waldrep............................. 1998 220,000 82,950 -- -- 5,226
Chief Administrative Officer 1997 171,291 -- -- 6,835 3,426
1996 100,000 82,025 -- 6,835 2,440
John G. McLeod, Jr.............................. 1998 120,000 82,950 -- -- 3,919
Senior Vice President of Human Resources and 1997 120,000 -- -- -- 2,400
Secretary 1996 100,000 64,890 -- -- 2,000
S. Kirk Kinsell................................. 1998 405,091 148,485 -- -- --
Former President and Chief Operating Officer 1997 281,250 50,000 -- 200,000 --
</TABLE>
- ------------------------
(1) Except for Mr. DuPree, the amounts shown in this column consist of
contributions by us to our 401(k) savings plan on behalf of the named
executive officers, and the fair market value of shares of Common Stock
allocated to the executive officer's account pursuant to our Employee Stock
Ownership Plan and Trust ("ESOP"). Mr. DuPree does not participate in either
the ESOP or the 401(k) plan. The amount shown in this column for Mr. DuPree
includes $265,762 reflecting the current dollar value of the benefit to Mr.
DuPree of the unreimbursed portion of the premiums paid by us with respect
to a split-dollar insurance agreement (See "Certain Relationships and
Related Transactions" below for a description of such agreement), which
benefit was determined by calculating the time value of money (using our
1998 weighted average borrowing rate of 8.0%) of the unreimbursed portion of
the premiums paid by us for the period ended January 3, 1999.
63
<PAGE>
The following table sets forth information concerning the value of
unexercised options as of January 3, 1999 held by the executives named in the
summary compensation table. No options were exercised or granted during the
fiscal year ended January 3, 1999 to the executives named in the summary
compensation table and no stock appreciation rights were outstanding during
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE JANUARY 3, 1999 (#) JANUARY 3, 1999 ($)
ACQUIRED ON REALIZED ----------------------- -------------------------
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------- --------------- ----------- ----------------------- -------------------------
<S> <C> <C> <C> <C>
Tom E. DuPree, Jr...................... -- -- 23,152/176,564 --/--
Erich J. Booth......................... -- -- 8,565/76,435 --/--
Louis J. Profumo....................... -- -- --/65,000 --/--
Margaret E. Waldrep.................... -- -- 7,633/62,367 --/--
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of June 30, 1999 by (i) each person known by us
to own beneficially more than 5% of our Common Stock, (ii) each of our directors
and executive officers and (iii)all of our executive officers and directors as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1) (2)
--------------------
NAME NUMBER PERCENT
- -------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Tom E. DuPree, Jr. (3).................................................... 8,113,453 32.0%
John G. McLeod, Jr. (4)................................................... 283,084 1.1%
Erich J. Booth (5)........................................................ 67,110 *
Margaret E. Waldrep (6)................................................... 54,046 *
Thomas R. Williams (7).................................................... 54,936 *
James W. Rowe (8)......................................................... 41,625 *
Louis J. Profumo (9)...................................................... 6,000 *
Dr. Ruth G. Shaw (10)..................................................... 4,000 *
John L. Moorhead (11)..................................................... 664 *
State of Wisconsin Investment Board (12).................................. 3,121,000 12.3%
Brown Investment Advisory & Trust Company (13)............................ 3,038,405 12.0%
All directors and executive officers as a group (9 persons) (14).......... 8,418,340 33.2%
</TABLE>
Mr. DuPree, the State of Wisconsin Investment Board and Brown Investment
Advisory & Trust Company are the only shareholders known by us to be the
beneficial owners of more than 5% of our Common Stock. Mr.DuPree's address is
Hancock at Washington, Madison, Georgia 30650. The addressof the State of
Wisconsin Investment Board is P.O. Box 7842, Madison, Wisconsin 53707. The
address of Brown Investment Advisory & Trust Company is 19 South Street,
Baltimore, Maryland 21202.
- ------------------------
* Less than one percent.
(1) The named shareholders have sole voting and investing power with respect to
all shares shown as being beneficially owned by them except with respect to
the shares owned by our Employee Stock Ownership Plan and Trust ("ESOP").
Each participant in the ESOP has the right to direct voting of all shares
allocated to his account on all matters. Power to direct the investment of
shares held
64
<PAGE>
by the ESOP presently rests with our Employee Benefit Committee, whose
members are Messrs. DuPree and McLeod; however, each ESOP participant, age
55 and with 10 years of service, may elect to direct the investment of 25%
of shares allocated to his account.
(2) Except as indicated below, does not include shares issuable upon exercise of
stock options.
(3) Includes 651,512 shares held by various Foundations, Partnerships and Trusts
of which Mr. Dupree's wife is the sole trustee. Includes 232,500 shares held
by DuPree Holdings, LLC. Includes 46,305 shares which Mr. DuPree has the
right to acquire within 60 days upon the exercise of stock options at an
average exercise price of $20.39. Includes 198,229 shares held by the ESOP
which are allocated to 10 other employees and for which Mr. DuPree has
shared investment power. See Footnote (1) above. Mr. DuPree is our Chairman
of the Board of Directors and Chief Executive Officer.
(4) Includes 11,392 shares held by the ESOP which are vested and allocated to
Mr. McLeod and 186,837 shares held by the ESOP which are allocated to other
employees and for which Mr. McLeod has shared investment power. See Footnote
(1) above. Mr. McLeod is our Senior Vice President of Human Resources and
Secretary.
(5) Includes 1,125 shares held by the ESOP which are vested and allocated to Mr.
Booth. Includes 17,040 shares which Mr. Booth has the right to acquire
within 60 days upon the exercise of stock options at an average exercise
price of $20.02. Mr. Booth is our Chief Financial Officer and Treasurer and
one of our Directors.
(6) Includes 7,224 shares held by the ESOP which are vested and allocated to Ms.
Waldrep. Includes 15,266 shares which Ms. Waldrep has the right to acquire
within 60 days upon the exercise of stock options at an average exercise
price of $20.00. Ms. Waldrep is our Chief Administrative Officer.
(7) Includes 2,793 deferred stock units credited to Mr. Williams' account in our
Outside Director Deferred Stock Unit Plan, which are convertible to shares
of common stock upon termination of Board service. Mr. Williams is one of
our Directors.
(8) Includes 32,000 shares held by Rowe Family Investments, L.P. Mr. Rowe is one
of our Directors.
(9) Includes 4,000 shares held under a Restricted Stock Agreement. Does not
include 227 shares held by the ESOP which are allocated to Mr. Profumo but
are unvested. Mr. Profumo is our Senior Vice President of Finance and Chief
Accounting Officer.
(10) Includes 2,000 shares which Dr. Shaw has the right to acquire within 60
days upon the exercise of stock options at an average exercise price of
$21.25.
(11) Includes 589 deferred stock units credited to Mr. Moorhead's account in our
Outside Director Deferred Stock Unit Plan, which are convertible to shares
of common stock upon termination of Board service. Mr. Moorhead is one of
our Directors.
(12) Based on a Form 13G/A dated June 4, 1999, filed by the State of Wisconsin
Investment Board.
(13) Based on a Form 13G/A dated May 10, 1999 filed by Brown Investment Advisory
& Trust Company.
(14) Includes 80,611 shares which the officers and directors have the right to
acquire within 60 days upon the exercise of stock options at an average
exercise price of $20.26 per share, 19,741 shares held by the ESOP which are
vested and allocated to directors and executive officers, and 178,488 shares
held by the ESOP which are unvested or allocated to other employees. See
Footnote (1) above.
65
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1995, we entered into a Split Dollar Insurance Agreement (the
"Agreement") with The DuPree Insurance Trust (the "Insurance Trust"). Under the
Agreement, we agreed to make premium payments on certain life insurance policies
of which the Insurance Trust is the owner and beneficiary. These policies
provide a total of $50 million in death proceeds payable upon death of the
survivor of Tom E. DuPree, Jr., our Chairman of the Board and Chief Executive
Officer, and his wife. The devisees under the wills of Mr. DuPree and his wife
are the beneficiaries of the Insurance Trust. The Insurance Trust has agreed to
reimburse us on an annual basis for that portion of the premiums which equals
the current value of the economic benefit, as defined by the Internal Revenue
Service, attributable to the life insurance protection provided. The premiums
due under the policies total $850,000 per year. Reimbursements for the current
value of the economic benefit attributable to the life insurance provided in
fiscal 1998 totaled $2,308. There were no reimbursements due to us from the
Insurance Trust at April 4, 1999. We or the Insurance Trust can cancel the
Agreement at any time. Upon cancellation, the Insurance Trust is obligated to
repay to us an amount equal to the lesser of either the cash surrender value of
the policies or the total amount of unreimbursed premiums paid by us. Upon
receipt of the death proceeds under the policies, the Insurance Trust is
required to repay to us all unreimbursed premium payments. The policies have
been assigned to us to secure the repayment obligations of the Insurance Trust.
During the fourth quarter of fiscal 1998, our Board of Directors approved
loans to certain of our executive officers. Since that time and at April 30,
1999, we had outstanding loans to Tom E. DuPree, Jr., our Chairman of the Board
and Chief Executive Officer, in the principal amount of $7,851,500. This loan is
evidenced by three notes from Mr. DuPree, each of which bears interest at 7.0%.
All principal and interest on these notes is due in November and December of
2000 or earlier upon our demand. In addition, we had outstanding loans to Erich
J. Booth, our Chief Financial Officer and Treasurer, in the principal amount of
$107,000. These loans are evidenced by two notes from Mr. Booth, each of which
bears interest at 5.06%. All principal and interest on these notes is due in
October and November of 1999. We also had an outstanding loan to Margaret E.
Waldrep, our Chief Administrative Officer, in the principal amount of $41,500.
This loan is evidenced by three notes from Ms. Waldrep, each of which bears
interest at 5.06%. All principal and interest on these notes is due in October
and November of 1999.
In October and November 1998, we purchased a total of 1,340,146 shares of
our common stock from Mr. DuPree for an aggregate purchase price of $12,234,924.
We made these purchases on eight different days, each at a purchase price per
share equal to the closing price per share of our common stock as reported on
the Nasdaq Stock Market for the previous trading date.
66
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following description of some important terms of certain of our
indebtedness does not purport to be complete and does not contain all the
information that may be important to you. For a more complete understanding of
the following indebtedness, we encourage you to obtain and read the agreements
and documents governing the New Credit Facility, the Senior Notes, the
Convertible Subordinated Debentures and Preferred Securities, and the Financing
Lease Arrangements, all of which we will provide to you upon your request to our
Director of Investor Relations (see "Where You Can Find More Information").
NEW CREDIT FACILITY
Concurrently with the closing of the offering of the Outstanding Notes, we
entered into a credit facility with Wachovia Bank, N.A. ("Wachovia") as agent,
and with Wachovia, BankBoston, N.A. ("BankBoston"), and other financial
institutions as lenders (the "New Credit Facility"). The New Credit Facility
replaced the following two senior, unsecured, revolving credit lines: the Credit
Agreement dated April 1, 1998, among the Company and Wachovia and other
financial institutions and the Credit Agreement dated May 8, 1998, between the
Company and First Union National Bank, each as amended.
The New Credit Facility consists of a revolving credit facility providing
revolving loans to us in an aggregate principal amount not to exceed $125.0
million at any one time, with a maturity of three years. The New Credit Facility
also includes a $10.0 million sub-limit available for swing line loans. Until
our total debt to EBITDA ratio is less than 2.0 to 1.0, the aggregate principal
amount available under the New Credit Facility will be lowered by an amount
equal to 75% of all net proceeds from asset sales of over $10.0 million
annually. Subject to the satisfaction of customary conditions, advances under
the New Credit Facility may be made at any time during its term.
Our borrowings under the New Credit Facility will be general, senior,
unsecured, obligations of the Company and will be guaranteed by all of our
wholly-owned subsidiaries which have $10,000 or more in assets, other than
certain of our subsidiaries where it is expected that a portion of the ownership
interests of such subsidiaries will be acquired by management of such
subsidiaries.
At our option, the interest rates per annum applicable under the New Credit
Facility will be either (i) the rate (adjusted for reserve requirements) at
which LIBOR deposits for one, two, three or six months (as selected by us) are
offered in the interbank LIBOR market plus a margin of between 1.75% and 3.25%
(depending on our ratio of total debt to EBITDA) or (ii) the Base Rate plus a
margin of between 0.00% and 1.50% (depending on our ratio of total debt to
EBITDA). The "Base Rate" is the higher of (a) the interest rate publicly
announced by Wachovia as its prime rate or (b) the overnight federal funds rate
plus 0.50%. The swing line loans will bear interest at either the base rate
option or at an as-offered basis by Wachovia.
The New Credit Facility contains customary representations and warranties.
The New Credit Facility contains several significant covenants that, among other
things, restricts our ability to dispose of assets, to incur indebtedness,
create liens on assets, pay dividends, repurchase our outstanding stock and
Senior Notes, engage in mergers and consolidations, make investments and
acquisitions, and engage in certain transactions with affiliates and certain
subsidiaries. The New Credit Facility also requires that we comply with
specified financial ratios and tests, including an adjusted debt to adjusted
capitalization ratio, a total debt to EBITDA ratio, a senior debt to EBITDA
ratio, and a fixed charge coverage ratio. In addition, the New Credit Facility
contains customary events of default, including violations of the covenants,
failure to pay interest, principal or fees when due, a change in control of the
Company, defaults under our other credit facilities, material unsatisfied
judgments against the Company, a material adverse effect on the Company and the
insolvency or bankruptcy of the Company.
67
<PAGE>
SENIOR NOTES
In May 1996, we issued Senior Notes consisting of our general, senior,
unsecured obligations in the aggregate principal amount of $125.0 million. The
Senior Notes mature on June 1, 2006 and bear interest at the rate of 9.75% from
the most recent interest payment date on which interest was paid. Interest on
the Senior Notes is payable semiannually on June 1 and December 1. In 1998, we
repurchased $8.5 million of the Senior Notes.
The indebtedness evidenced by the Senior Notes ranks PARI PASSU in right of
payment with all of our other unsubordinated indebtedness. Each of our
wholly-owned subsidiaries which has $10,000 or more in assets has guaranteed the
indebtedness evidenced by the Senior Notes, other than certain of our
subsidiaries where it is expected that a portion of the ownership interests of
such subsidiaries will be acquired by management of such subsidiaries.
Upon a change of control (as defined in the Senior Notes Indenture) of the
Company, we are required to make an offer to repurchase the Senior Notes at a
purchase price equal to 101% of their principal amount, subject to adjustment,
together with accrued interest. We cannot redeem the Senior Notes at our option.
The Senior Notes Indenture contains certain covenants and events of default
customary for senior note transactions.
CONVERTIBLE SUBORDINATED DEBENTURES AND PREFERRED SECURITIES
We issued $115.0 million of our 7% Convertible Subordinated Debentures due
March 1, 2027 (the "Convertible Debentures") in March of 1997. They are all held
by a Delaware trust we set up in 1997 called Avado Financing I (the "Trust"),
and these are the only assets of the Trust. The Trust in turn issued its
preferred securities known as $3.50 Term Convertible Securities, Series A (the
"Preferred Securities"), each with a par value of $50. We pay the Trust
quarterly interest on the Convertible Debentures, and the Trust pays quarterly
distributions to holders of the Preferred Securities at an annual rate of $3.50
per Preferred Security. We can defer interest payments to the Trust under
certain conditions for up to 20 consecutive quarters (but not beyond maturity),
and the Trust would then likewise defer its quarterly distributions. At the end
of such an extension period, we would have to pay all of the accrued interest
(compounded quarterly). During any such extension, we would be unable to pay
dividends on our common stock.
We have guaranteed the payments the Trust is required to make to holders of
the Preferred Securities (i) of dividends, (ii) of the amount to be paid for
redemption of Preferred Securities if any are redeemed, and (iii) of any amount
to be paid holders of the Preferred Securities if the trust is liquidated, but
our guarantee only applies to the extent the Trust has funds available for any
of these payments. Our guarantee is not secured, and it is subordinate and
junior in right of payment to all other liabilities we may have other than
preferred stock payments.
Holders may convert their Preferred Securities into shares of our common
stock at any time prior to maturity of the Convertible Debentures. Conversion is
accomplished by the Trust converting all or a portion of the Convertible
Debentures and then using those shares to convert the Preferred Securities. For
each Preferred Security, the holder would receive 3.3801 shares of our common
stock. This equates to a conversion price of $14.793 per share of our common
stock (subject to adjustment). The last reported bid price for our common stock
on June 30, 1999 was $8.375 per share.
If the Trust were liquidated, then holders of Preferred Securities would be
entitled to receive $50 per Preferred Security, plus any accumulated but unpaid
distributions, or we could pay them in Convertible Debentures. We may redeem
Convertible Debentures for cash after March 3, 2000, in which case the Trust
would redeem Preferred Securities having a liquidation amount equal to the
principal amount of the Convertible Debentures redeemed.
68
<PAGE>
Holders of Preferred Securities generally have no voting rights, but if we
are in default under the indenture we entered into for the Preferred Securities
financing, then they can vote to cause the institutional trustee to accelerate
payment under the Convertible Debentures. The vote of only 25% in liquidation
amount of the Preferred Securities would be enough.
The Convertible Debentures are subordinated to the Senior Notes and will be
subordinated to the New Credit Facility and the Exchange Notes. We may not make
any payments of principal or interest on the Convertible Debentures if we are in
default under our senior indebtedness. We are under no limitation in the
indenture we entered into in connection with our issuance of the Convertible
Debentures as to the amount of senior indebtedness we may incur.
The Preferred Securities are traded on NASDAQ under the symbol "AVDOP."
FINANCING LEASE ARRANGEMENTS
In September 1997, we entered into financing lease arrangements with a
special purpose trust and several financial institutions. Since then, we have
financed the acquisition of the equipment and related items in many of our new
restaurants through these arrangements. At the end of each fiscal quarter during
this period, we designated certain newly opened restaurants which were to have
their equipment acquisitions financed through these arrangements. The trust then
purchased the equipment for those restaurants from third parties and
subsequently leased the equipment to us or to one of our subsidiaries. The trust
financed its purchases of the equipment by issuing its senior notes to the
participating financial institutions. The Company and its subsidiaries are not
obligors on these notes. The trust's notes are secured both by the financed
restaurant equipment and by the trust's interest in the equipment leases. The
total amount of the equipment financed at the time of financing under these
lease arrangements was approximately $30.0 million.
Our lease payments are due quarterly, and the total quarterly lease payments
due to the trust under all these arrangements for the thirteen weeks ended April
4, 1999 was approximately $1.4 million. The lease payments are based on a
variable formula which is different for each quarterly equipment financing
transaction. At April 4, 1999, we had financed the equipment acquisitions for
102 of our restaurants through these financing lease arrangements. However, we
do not intend to finance the acquisition of any more restaurant equipment
through these financing lease arrangements. Our lease payments are guaranteed by
each of our wholly-owned subsidiaries which has $10,000 or more in assets, other
than certain of our subsidiaries where it is expected that a portion of the
ownership interests of such subsidiaries will be acquired by management of such
subsidiaries.
For each of these quarterly equipment financings, the lease term is 60
months from date of the trust's original purchase of that equipment. Upon the
expiration of that 60-month period, we have the option of purchasing that
equipment at a cost equal to 20% of the original price paid for the equipment by
the trust.
69
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Company issued the Outstanding Notes under an indenture (the
"Indenture"), among itself, the Guarantors and SunTrust Bank, Atlanta, as
trustee (the "Trustee"). The Exchange Notes will also be issued under the
Indenture. The following is a summary of the material provisions of the
Indenture. It does not include all of the provisions of the Indenture. We urge
you to read the Indenture because it defines your rights. The terms of the
Exchange Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). The form and terms of the Exchange Notes will be the same as the
Outstanding Notes, except that the issuance of the Exchange Notes will be
registered under the Securities Act and thus the Exchange Notes will not bear
legends restricting their transferability. The Exchange Notes will evidence the
same indebtedness as the Outstanding Notes, will be entitled to the benefits of
the Indenture, and will be treated as a single class under the Indenture with
any Outstanding Notes that remain outstanding after the Exchange Offer. A copy
of the Indenture may be obtained from the Company, the Initial Purchasers, or
from the Commission (as an exhibit to the Registration Statement). You can find
definitions of certain capitalized terms used in this description under
"--Certain Definitions." For purposes of this section, references to the
"Company" include only Avado Brands, Inc. and not its Subsidiaries.
The Exchange Notes will be unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Debt of the Company.
The Company will issue the Exchange Notes in fully registered form in
denominations of $1,000 and integral multiples thereof. The Trustee will
initially act as paying agent (the "Paying Agent") and registrar (the
"Registrar") for the Exchange Notes. The Exchange Notes may be presented for
registration of transfer and exchange at the offices of the Registrar. The
Company may change any Paying Agent and Registrar without notice to holders of
the Exchange Notes (the "Holders"). The Company will pay principal (and premium,
if any) on the Exchange Notes at the Trustee's office in New York, New York. At
the Company's option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of Holders. Any Outstanding
Notes that remain outstanding after the completion of the Exchange Offer,
together with the Exchange Notes issued in connection with the Exchange Offer,
will be treated as a single class of securities under the Indenture (and
together are referred to in this description as "Notes").
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100.0 million. The
Notes will mature on June 15, 2009. Interest on the Notes will accrue at the
rate of 11 3/4% per annum and will be payable semiannually in cash on each June
15 and December 15, commencing on December 15, 1999, to the persons who are
registered Holders at the close of business on the June 1 and December 1
immediately preceding the applicable interest payment date. Interest on the
Exchange Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from and including the date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
The initial offering price of the Exchange Notes in this offering is 100%
plus accrued interest, if any, from the Issue Date. If a bankruptcy case is
commenced by or against the Company under applicable bankruptcy law after the
issuance of the Exchange Notes, the claim of a Holder of the Exchange Notes with
respect to the principal amount thereof may be limited to an amount equal to the
sum of: (i) the initial offering price; and (ii) that portion of the original
issue discount that had been amortized as of any such bankruptcy filing.
70
<PAGE>
REDEMPTION
OPTIONAL REDEMPTION. Except as described below, the Notes are not
redeemable before June 15, 2004. Thereafter, the Company may redeem the Notes at
its option, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the following redemption prices (expressed as percentages of the
principal amount thereof) if redeemed during the twelve-month period commencing
on June 15 of the year set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2004.............................................................................. 105.875%
2005.............................................................................. 103.917%
2006.............................................................................. 101.959%
2007 and thereafter............................................................... 100.000%
</TABLE>
In addition, the Company must pay accrued and unpaid interest on the Notes
redeemed.
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to June 15, 2002, the Company may, at its option, use the
net cash proceeds of one or more Public Equity Offerings (as defined below) to
redeem up to 35% of the principal amount of the Notes issued under the Indenture
at a redemption price of 111.75% of the principal amount thereof plus accrued
and unpaid interest thereon, if any, to the date of redemption; PROVIDED that:
(1) at least 65% of the principal amount of Notes issued under the
Indenture remains outstanding immediately after any such redemption; and
(2) the Company makes such redemption not more than 90 days after the
consummation of any such Public Equity Offering.
"Public Equity Offering" means an underwritten public offering of Capital
Stock of the Company (other than Redeemable Stock) pursuant to a registration
statement filed with the Commission in accordance with the Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that the Company chooses to redeem less than all of the Notes,
selection of the Notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed; or,
(2) on a pro RATA basis, by lot or by such method as the Trustee shall
deem fair and appropriate.
No Notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the proceeds of a Public Equity Offering,
the Trustee will select the Notes only on a PRO RATA basis or on as nearly a PRO
RATA basis as is practicable (subject to DTC procedures). Notice of redemption
will be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. On and after the redemption date, interest will cease to accrue on
Notes or portions thereof called for redemption as long as the Company has
deposited with the Paying Agent funds in satisfaction of the applicable
redemption price.
SUBORDINATION
The payment of all Obligations on or relating to the Notes is subordinated
in right of payment to the prior payment in full in cash or Cash Equivalents of
all Obligations on Senior Debt of the Company (including the Obligations with
respect to the Credit Agreement). Notwithstanding the
71
<PAGE>
foregoing, payments and distributions made relating to the Notes pursuant to the
trust described under "--Legal Defeasance and Covenant Defeasance" shall not be
so subordinated in right of payment.
The holders of Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations due in respect of Senior Debt
(including interest after the commencement of any bankruptcy or other like
proceeding at the rate specified in the applicable Senior Debt whether or not
such interest is an allowed claim in any such proceeding) before the Holders of
Notes will be entitled to receive any payment or distribution of any kind or
character with respect to any Obligations on, or relating to, the Notes in the
event of any distribution to creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Company's assets and liabilities.
The Company also may not make any payment or distribution of any kind or
character with respect to any Obligations on, or relating to, the Notes or
acquire any Notes for cash or property or otherwise if:
(1) a payment default on any Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Representative of any Designated Senior Debt.
Payments on and distributions with respect to any Obligations on, or with
respect to, the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earliest of (x) the date on
which all nonpayment defaults are cured or waived (so long as no other event
of default exists), (y) 180 days after the date on which the applicable
Payment Blockage Notice is received or (z) the date on which the Trustee
receives notice from the Representative for such Designated Senior Debt
rescinding the Payment Blockage Notice, unless the maturity of any
Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of delivery of such initial
Payment Blockage Notice that in either case would give rise to a default
pursuant to any provisions under which a default previously existed or was
continuing shall constitute a new default for this purpose).
The Company must promptly notify holders of Senior Debt if payment of the
Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of the Company, Holders of the
Exchange Notes may recover less ratably than creditors of the Company who are
holders of Senior Debt. See "Risk Factors-Subordination."
72
<PAGE>
After giving effect to the offering of the Outstanding Notes and the
application of the proceeds therefrom, on a PRO FORMA basis, at April 4, 1999,
the aggregate amount of Senior Debt outstanding was approximately $163.4 million
(excluding unused commitments of $78.6 million under the Credit Agreement).
GUARANTEES
The Guarantors will jointly and severally guarantee the Company's
obligations under the Indenture and the Notes on a senior subordinated basis.
Each Guarantee will be subordinated to Guarantor Senior Debt on the same basis
as the Notes are subordinated to Senior Debt. The obligations of each Guarantor
under its Guarantee will be limited as necessary to prevent the Guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly-Owned Restricted Subsidiary of the
Company without limitation, or with other Persons upon the terms and conditions
set forth in the Indenture. See "Certain Covenants-- Consolidation, Merger and
Sale of Assets." In the event all of the Capital Stock of a Guarantor is sold by
the Company and the sale complies with the provisions set forth in "Certain
Covenants--Limitation on Asset Sales," the Guarantor's Guarantee will be
released.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. Under the terms of the Indenture, the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness (other than Permitted Indebtedness (as
defined below)); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
Incurrence of any such Indebtedness, the Company or any Restricted Subsidiary
that is a Guarantor may Incur Indebtedness (including, without limitation,
Acquired Indebtedness) and any Restricted Subsidiary that is not a Guarantor may
Incur Acquired Indebtedness, in each case if on the date of the Incurrence of
such Indebtedness, after giving effect to the Incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company would be greater than
2.0 to 1.0.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following (each,
"Permitted Indebtedness"):
(1) Indebtedness of the Company and any Guarantor outstanding at any
time in an aggregate principal amount not to exceed an amount equal to
$150.0 million under the Credit Agreement, less any amount of Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below;
(2) Indebtedness under the Notes and the related Guarantees;
(3) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(4) Indebtedness to the Company or any of its Wholly-Owned Restricted
Subsidiaries as long as such Indebtedness continues to be owed to the
Company or any of its Wholly-Owned Restricted Subsidiaries;
(5) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, Indebtedness then outstanding, other than
Indebtedness Incurred under clause (1) or (4) above or clause (6) or (7)
below, and any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees, and
expenses); PROVIDED that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness
73
<PAGE>
that is PARI PASSU with, or subordinated in right of payment to, the Notes
shall only be permitted under this clause (5) if:
(i) in the case where the Indebtedness to be refinanced is PARI PASSU
with the Notes, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made PARI PASSU with, or subordinate in right
of payment to, the Notes;
(ii) in the case where the Indebtedness to be refinanced is
subordinated in right of payment to the Notes, such new Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to
which such new Indebtedness is outstanding, is expressly made subordinate
in right of payment to the Notes at least to the extent that the
Indebtedness to be refinanced is subordinated to the Notes; and
(iii) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity of
the Indebtedness to be refinanced or refunded, and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life of
the Indebtedness to be refinanced or refunded;
(6) Indebtedness:
(i) in respect of performance, surety, or appeal bonds provided in
the ordinary course of business consistent with past practice;
(ii) under Currency Agreements and Interest Rate Agreements; PROVIDED
that, in the case of Currency Agreements that relate to other
Indebtedness, such Currency Agreements do not increase the Indebtedness
of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities, and compensation payable thereunder; and
(iii) arising from agreements providing for indemnification,
adjustment of purchase price, or similar obligations, or from guarantees
or letters of credit, bankers' acceptances, surety bonds, or performance
bonds securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets, or Restricted
Subsidiary (other than guarantees of Indebtedness Incurred by any person
acquiring all or any portion of such business, assets, or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company
or any Restricted Subsidiary in connection with such disposition; and
(7) Indebtedness of the Company and its Restricted Subsidiaries not to
exceed $20.0 million at any time outstanding.
For purposes of determining compliance with the "Limitation on Indebtedness"
covenant described above;
(1) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the clauses of the
preceding paragraph, the Company, in its sole discretion, shall classify (or
later reclassify) such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one such clause; and
(2) the amount of Indebtedness issued at a price that is less than the
principal amount thereof will be equal to the amount of the liability in
respect thereof determined in conformity with GAAP.
Accrual of interest, accretion or amortization of original issue discount,
the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of
74
<PAGE>
dividends on Redeemable Stock in the form of additional shares of the same class
of Redeemable Stock will not be deemed to be an Incurrence of Indebtedness or an
issuance of Redeemable Stock for purposes of the "Limitation on Indebtedness"
covenant.
LIMITATION ON RESTRICTED PAYMENTS. Under the terms of the Indenture, so
long as any of the Notes are outstanding, the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly;
(1) declare or pay any dividend or make any distribution on its Capital
Stock (other than pro rata dividends or distributions payable solely in
shares of its or such Restricted Subsidiary's Capital Stock (other than
Redeemable Stock) of the same class held by such holders or in options,
warrants, or other rights to acquire such shares of Capital Stock) held by
persons other than the Company or any of its Wholly-Owned Restricted
Subsidiaries;
(2) purchase, redeem, retire, or otherwise acquire for value any shares
of Capital Stock of the Company or any Restricted Subsidiary (including
options, warrants, or other rights to acquire such shares of Capital Stock)
held by persons other than the Company or any of its Wholly-Owned Restricted
Subsidiaries;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes; or
(4) make any Investment that is a Restricted Investment (each of such
payments or any other actions described in clauses (1) through (4) being
referred to as a "Restricted Payment") if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing;
(ii) the Company could not Incur at least $1.00 of Indebtedness
(other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant; or
(iii) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good faith
by the board of directors, whose determination shall be conclusive and
evidenced by a board resolution) after the Issue Date shall exceed the
sum of:
(A) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus
100% of such amount) (determined by excluding income created by
transfers of assets received by the Company or a Restricted
Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter in which the Issue Date occurs
and ending on the last day of the last fiscal quarter preceding the
Transaction Date, PLUS
(B) the aggregate net proceeds (including the fair market value
of non-cash proceeds as determined in good faith by the board of
directors) received by the Company from the issuance and sale of its
Capital Stock (other than Redeemable Stock) to a person who is not a
Subsidiary of the Company, (including Capital Stock of the Company
(other than Redeemable Stock) issued upon the conversion of
convertible Indebtedness, in exchange for outstanding Indebtedness or
upon the exercise of any options, warrants or other rights to acquire
Capital Stock (other than Redeemable Stock) of the Company), PLUS
(C) without duplication, the sum of:
(I) the aggregate amount returned in cash on or with respect
to Investments (other than Permitted Investments) made subsequent
to the Issue Date whether
75
<PAGE>
through interest payments, principal payments, dividends or other
distributions or payments;
(II) the net cash proceeds received by the Company or any
Restricted Subsidiary of the Company from the disposition of all
or any portion of such Investments (other than to a Subsidiary of
the Company); and
(III) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of such Subsidiary
(valued in each case as provided in the definition of
"Investments");
PROVIDED, HOWEVER, that the sum of clauses (I), (II) and (III)
above shall not exceed the aggregate amount of all such
Investments made by the Company or any Restricted Subsidiary in
the relevant person or Unrestricted Subsidiary subsequent to the
Issue Date, PLUS
(D) $10.0 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance, or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, permitted refinancing
indebtedness;
(3) the repurchase, redemption or other acquisition of Capital Stock of
the Company in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Redeemable
Stock) of the Company;
(4) the acquisition of Indebtedness of the Company that is subordinated
in right of payment to the Notes in exchange for, or out of the proceeds of
a substantially concurrent offering of, shares of the Capital Stock of the
Company (other than Redeemable Stock);
(5) the purchase, redemption, acquisition, cancellation, or other
retirement for value of shares of Capital Stock of the Company, options on
any such shares or related stock appreciation rights or similar securities
held by officers or employees or former officers or employees (or their
estates or beneficiaries under their estates), upon death, disability,
retirement, termination of employment, or pursuant to any agreement under
which such shares of stock or related rights were issued; or
(6) payments or distributions pursuant to or in connection with a
consolidation, merger, or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations, and
transfers of all or substantially all of the property and assets of the
Company; or
(7) the payment of amounts due with respect to the Forward Equity
Contracts in effect on the Issue Date;
provided that, except in the case of clauses (1) and (3), no Default or Event of
Default (as defined below) shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Notwithstanding the foregoing, in the event of an issuance of Capital Stock
(other than Redeemable Stock) of the Company and (1) the repurchase, redemption,
or other acquisition of Capital Stock out of the proceeds of such issuance or
(2) the acquisition of Indebtedness that is subordinated in right of payment to
the Exchange Notes out of the proceeds of such issuance, then, in
76
<PAGE>
calculating whether the conditions of clause (iii) above have been met with
respect to any subsequent Restricted Payments, the proceeds of any such issuance
shall be included under such clause (iii) only to the extent such proceeds are
not applied as described in clause (1) or (2) of this paragraph.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. Under the terms of the Indenture, so long as any of the Notes are
outstanding, the Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any kind of
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary;
(2) pay any Indebtedness or other obligation owed to the Company or any
other Restricted Subsidiary;
(3) make loans or advances to the Company or any other Restricted
Subsidiary; or
(4) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing on the Issue Date in the Credit Agreement, the Indenture,
or any other agreements in effect on the Issue Date, and any extensions,
refinancings, renewals, or replacements of any of the foregoing; provided
that the encumbrances and restrictions in any such extensions, refinancings,
renewals, or replacements are no less favorable in any material respect to
the Holders than those encumbrances or restrictions that are then in effect
and that are being extended, refinanced, renewed, or replaced;
(2) existing under or by reason of applicable law;
(3) existing with respect to any person or the property or assets of
such person acquired by the Company or any Restricted Subsidiary and
existing at the time of such acquisition, which encumbrances or restrictions
(i) are not applicable to any person or the property or assets of any person
other than such person or the property or assets of such person so acquired
and (ii) were not put in place in anticipation of such acquisition, and any
extensions, refinancings, renewals, or replacements of any of the foregoing;
PROVIDED that the encumbrances and restrictions in any such extensions,
refinancings, renewals, or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that
are then in effect and that are being extended, refinanced, renewed, or
replaced;
(4) in the case of clause (4) of the first paragraph of this covenant;
(i) that restrict in a customary manner the subletting, assignment,
or transfer of any property or asset that is a lease, license,
conveyance, or contract or similar property or asset;
(ii) existing 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
(iii) not relating to any Indebtedness, and, in each of cases (i),
(ii), or (iii), arising or agreed to in the ordinary course of business
and that do not, individually or in the aggregate, detract from the value
of property or assets of the Company or any Restricted Subsidiary in any
manner material to the Company or any Restricted Subsidiary; or
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary.
77
<PAGE>
Nothing contained in the preceding paragraph shall prevent the Company or
any Restricted Subsidiary from (1) creating, incurring, assuming, or suffering
to exist any Liens otherwise permitted by the "Limitation on Liens" covenant or
(2) restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries that secure Indebtedness of the
Company or any of its Restricted Subsidiaries.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Under the
terms of the Indenture, the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew, or extend any
transaction (including, without limitation, the purchase, sale, lease, or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock of
the Company or with any Affiliate of the Company or any Restricted Subsidiary
(each, a "Related Party Transaction"), except upon fair and reasonable terms no
less favorable to the Company or such Restricted Subsidiary than could be
obtained, at the time of such transaction or at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
person that is not such a holder or an Affiliate.
Without limiting the foregoing:
(1) any Related Party Transaction or series of Related Party
Transactions with an aggregate value in excess of $1.0 million must first be
approved pursuant to a board resolution by a majority of the board of
directors of the Company who are disinterested in the subject matter of the
transaction; and
(2) with respect to any Related Party Transaction or series of Related
Party Transactions with an aggregate value in excess of $10.0 million, the
Company must first obtain a favorable written opinion from an independent
financial advisor of national reputation as to the fairness, from a
financial point of view, of such transaction to the Company or such
Restricted Subsidiary, as the case may be.
The foregoing limitation does not limit, and will not apply to:
(1) any transaction between the Company and any of its Wholly-Owned
Restricted Subsidiaries or between Wholly-Owned Restricted Subsidiaries of
the Company;
(2) the payment of reasonable and customary regular fees to directors of
the Company who are not employees of the Company;
(3) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant; or
(4) any loans or advances by the Company to employees of the Company or
a Restricted Subsidiary in the ordinary course of business and in
furtherance of the Company's business.
LIMITATION ON LIENS. Under the terms of the Indenture, the Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
create, Incur, assume or permit or suffer to exist any Liens of any kind against
or upon any property or assets of the Company or any of its Restricted
Subsidiaries whether owned on the Issue Date or acquired after the Issue Date,
or any proceeds therefrom, or assign or otherwise convey any right to receive
income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(2) in all other cases, the Notes are equally and ratably secured,
except for:
(i) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
78
<PAGE>
(ii) Liens securing Senior Debt and Liens securing Guarantor Senior
Debt;
(iii) Liens securing the Notes and the Guarantees;
(iv) Liens of the Company or a Wholly-Owned Restricted Subsidiary of
the Company on assets of any Restricted Subsidiary of the Company;
(v) Liens securing Indebtedness which is Incurred to refinance any
Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been Incurred in accordance with the provisions
of the Indenture; PROVIDED, HOWEVER, that such Liens: (A) are no less
favorable to the Holders and are not more favorable to the lienholders
with respect to such Liens than the Liens in respect of the Indebtedness
being refinanced; and (B) do not extend to or cover any property or
assets of the Company or any of its Restricted Subsidiaries not securing
the Indebtedness so refinanced; and
(vi) Permitted Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. Under the terms of
the Indenture, the Company will not, and will not permit any Restricted
Subsidiary that is a Guarantor to, Incur or suffer to exist Indebtedness that is
senior in right of payment to the Notes or such Guarantor's Guarantee, as the
case may be, and subordinate in right of payment to any other Indebtedness of
the Company or such Guarantor, as the case may be.
LIMITATION ON ASSET SALES. Under the terms of the Indenture, the Company
shall not effect or permit any Asset Sale unless:
(1) such Asset Sale is effected at least fair market value (as
determined in good faith by the board of directors);
(2) in the case of any Asset Sale or series of related Asset Sales for a
total consideration in excess of $10.0 million, at least 80% of the
consideration is received in cash; and
(3) in the event and to the extent that the Net Cash Proceeds received
by the Company or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Issue Date exceed $10.0 million;
then the Company shall or shall cause the relevant Restricted Subsidiary to:
(1) within 270 days after the date Net Cash Proceeds so received exceed
$10.0 million:
(i) apply an amount equal to such excess Net Cash Proceeds to
permanently repay Senior Debt, Guarantor Senior Debt or Indebtedness of
any Restricted Subsidiary that is not a Guarantor in each case owing to a
person other than the Company or any of its Restricted Subsidiaries and,
in the case of repayment of Indebtedness arising under the Credit
Agreement or any other revolving credit facility, effect a permanent
reduction in the commitments or availability under the Credit Agreement
or such other facility; or
(ii) invest an equal amount, or the amount not so applied pursuant to
clause (i) (or enter into a definitive agreement committing so to invest
within 270 days after the date of receipt of such Net Cash Proceeds and
investing within 360 days of the receipt of such Net Cash Proceeds), in
property or assets of a nature or type or that are used in a business
similar or related to the nature or type of the property and assets of,
or the business of, the Company and its Restricted Subsidiaries existing
on the date of such investment (as determined in good faith by the board
of directors, whose determination shall be conclusive and evidenced by a
board resolution); and
(2) apply (no later than the end of the periods referred to in clause
(1)) such excess Net Cash Proceeds (to the extent not applied pursuant to
clause (1)) as provided below. The amount of such
79
<PAGE>
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 270-day period as set forth in clause (1) of the
preceding sentence and not applied as so required by the end of such period
(or, with respect to such Net Cash Proceeds committed to be applied, such
360-day period) shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10.0 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders on a pro rata basis an aggregate principal amount
of Notes equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes, plus, in each case, accrued interest
(if any) to the date of purchase (the "Excess Proceeds Payment").
The Company shall commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each Holder stating:
(1) that the Excess Proceeds Offer is being made pursuant to the
"Limitation on Asset Sales" covenant and that all Notes validly tendered
will be accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be the date
20 Business Days from the date such notice is mailed) (the "Excess Proceeds
Payment Date");
(3) that any Exchange Note not tendered will continue to accrue interest
pursuant to its terms;
(4) that, unless the Company defaults in the payment of the Excess
Proceeds Payment, any Exchange Note accepted for payment pursuant to the
Excess Proceeds Offer shall cease to accrue interest on and after the Excess
Proceeds Payment Date;
(5) that Holders electing to have an Exchange Note purchased pursuant to
the Excess Proceeds Offer will be required to surrender the Exchange Note,
together with the form entitled "Option of the Holder to Elect Purchase" on
the reverse side of the Exchange Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the
Business Day immediately preceding the Excess Proceeds Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, facsimile transmission, or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased;
and
(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered; PROVIDED that each Exchange Note purchased and each new
Exchange Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
On the Excess Proceeds Payment Date, the Company shall:
(1) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to the Excess Proceeds Offer;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the Trustee all Notes or
portions thereof so accepted together with an officers' certificate
specifying the Notes or portions thereof accepted for payment by the
Company.
80
<PAGE>
The Paying Agent shall promptly mail to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Exchange Note equal in principal
amount to any unpurchased portion of the Exchange Note surrendered; PROVIDED
that each Exchange Note purchased and each new Exchange Note issued shall be in
a principal amount of $1,000 or integral multiples thereof. The Company will
publicly announce the results of the Excess Proceeds Offer as soon as
practicable after the Excess Proceeds Payment Date. For purposes of the
"Limitation on Asset Sales" covenant of the Indenture, the Trustee shall act as
the Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under the "Limitation on Asset Sales" covenant of the Indenture
and the Company is required to repurchase Notes as described above.
LIMITATION OF GUARANTEES BY RESTRICTED SUBSIDIARIES. Under the terms of the
Indenture, the Company will not permit any of its Restricted Subsidiaries,
directly or indirectly, by way of the pledge of any intercompany note or
otherwise, to assume, guarantee or in any other manner become liable with
respect to any Indebtedness of the Company or any other Restricted Subsidiary of
the Company (other than Permitted Indebtedness of a Restricted Subsidiary of the
Company), unless, in any such case:
(1) such Restricted Subsidiary executes and delivers a supplemental
indenture to the Indenture, providing a guarantee of payment of the Notes by
such Restricted Subsidiary; and
(2) (i) if any such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Senior Debt, the
guarantee or other instrument provided by such Restricted
Subsidiary in respect of such Senior Debt may be senior to the
Guarantee pursuant to subordination provisions no less favorable
to the Holders of the Notes than those contained in the
Indenture; and
(ii) if such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Indebtedness that
is expressly subordinated to the Notes, the guarantee or other
instrument provided by such Restricted Subsidiary in respect of
such subordinated Indebtedness shall be subordinated to the
Guarantee pursuant to subordination provisions no less favorable
to the Holders of the Notes than those contained in the
Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon:
(1) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such
Guarantee was executed and delivered pursuant to the preceding paragraph; or
(2) any sale or other disposition (by merger or otherwise) to any person
which is not a Restricted Subsidiary of the Company of all of the Company's
Capital Stock in, or all or substantially all of the assets of, such
Restricted Subsidiary; PROVIDED that (i) such sale or disposition of such
Capital Stock or assets is otherwise in compliance with the terms of the
Indenture and (ii) such assumption, guarantee or other liability of such
Restricted Subsidiary has been released by the holders of the other
Indebtedness so guaranteed.
REPORTS TO HOLDERS. The Indenture will provide that, whether or not
required by the rules and regulations of the Commission, so long as any Notes
are outstanding, the Company will furnish the Holders of Notes:
81
<PAGE>
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of the Company and its consolidated Subsidiaries and, with respect to the
annual information only, a report thereon by the Company's certified
independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations.
In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability within the time periods specified in
the Commission's rules and regulations (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company has agreed that,
for so long as any Notes remain outstanding, it will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Under the terms of the Indenture, upon the occurrence of a Change of
Control, each Holder shall have the right to require the repurchase of its Notes
by the Company in cash pursuant to the offer described below (the "Change of
Control Offer") at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest (if any) to the date of purchase (the "Change of
Control Payment"). Prior to the mailing of the notice to Holders provided for in
the succeeding paragraph, but in any event within 30 days following any Change
of Control, the Company covenants to:
(1) repay in full all Indebtedness of the Company that would prohibit
the repurchase of the Notes as provided for in the succeeding paragraph; or
(2) obtain any requisite consents under instruments governing any such
Indebtedness of the Company to permit the repurchase of the Notes as
provided for in the succeeding paragraph. The Company shall first comply
with the covenant clause (1) above before it shall be required to repurchase
Notes pursuant to the "Repurchase of Notes upon a Change of Control"
covenant of the Indenture.
Within 30 days of the Change of Control, the Company shall mail a notice to
the Trustee and each Holder stating:
(1) that a Change of Control has occurred (and a brief description of
the events resulting in such Change of Control), that the Change of Control
Offer is being made pursuant to the "Repurchase of Notes upon a Change of
Control" covenant of the Indenture and that all Notes validly tendered will
be accepted for payment;
(2) the purchase price and the date of purchase (which shall be the date
20 business days from the date such notice is mailed) (the "Change of
Control Payment Date");
(3) that any Exchange Note not tendered will continue to accrue interest
pursuant to its terms;
(4) that, unless the Company defaults in the payment of the Change of
Control Payment, any Exchange Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on and after the
Change of Control Payment Date;
82
<PAGE>
(5) that Holders electing to have any Exchange Note or portion thereof
purchased pursuant to the Change of Control Offer will be required to
surrender such Exchange Note, together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side of such Exchange Note
completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the business day immediately preceding the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
business day immediately preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission, or letter setting forth the name of
such Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Notes
purchased; and
(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered; PROVIDED that each Exchange Note purchased and each new
Exchange Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
On the Change of Control Payment Date, the Company shall:
(1) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the Trustee, all Notes or
portions thereof so accepted together with an officers' certificate
specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail, to the holders of Notes so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Exchange Note
equal in principal amount to any unpurchased portion of the Notes
surrendered; PROVIDED that each Exchange Note purchased and each new
Exchange Note issued shall be in a principal amount of $1,000 or integral
multiples thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of the "Repurchase of Notes upon a Change
of Control" covenant of the Indenture, the Trustee shall act as Paying
Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Notes under the "Repurchase of Notes upon
a Change of Control" covenant of the Indenture.
If the Company is unable to repay all of its Indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
Holders of Indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
Notes, then the Company will have breached the "Repurchase of Notes upon a
Change of Control" covenant of the Indenture. This breach will constitute an
Event of Default under the Indenture if it continues for a period of 30
consecutive days after written notice is given to the Company by the Trustee or
the holders of at least 25% in aggregate principal amount of the Notes
outstanding. In addition, the failure by the Company to repurchase Notes at the
conclusion of the Change of Control Offer will constitute an Event of Default
(as defined below) without any waiting period or notice requirements.
There can be no assurances that the Company will have sufficient funds
available, or will be able to obtain third-party financing, at the time of any
Change of Control to make any debt payment (including repurchases of Notes)
required by the "Repurchase of Notes upon a Change of Control"
83
<PAGE>
covenant of the Indenture (as well as may be contained in other securities of
the Company which might be outstanding at the time). The "Repurchase of Notes
upon a Change of Control" covenant of the Indenture will, unless the consents
referred to above are obtained, require the Company to repay all Indebtedness
then outstanding which, by its terms, would prohibit such Exchange Note
repurchase, either prior to or concurrently with such Note repurchase. The terms
of the Credit Agreement and the 9 3/4% Senior Notes prohibit such a Note
repurchase.
EVENTS OF DEFAULT
An Event of Default, as defined in the Indenture and applicable to the
Notes, will occur with respect to the Notes if:
(1) the Company defaults in the payment of principal of (or premium if
any, on) any Note when the same becomes due and payable at maturity, upon
acceleration, redemption, mandatory repurchase, or otherwise (whether or not
such payment shall be prohibited by the subordination provisions of the
Indenture);
(2) the Company defaults in the payment of interest on any Note when the
same becomes due and payable, and such default continues for a period of 30
days (whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(3) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture with respect to the
Exchange Notes or under the Exchange Notes and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or by the Holders of 25% or more in aggregate principal amount of
the Exchange Notes;
(4) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Restricted Subsidiary having an outstanding principal
amount of $10.0 million or more in the aggregate for all such issues of all
such persons, whether such Indebtedness now exists or shall hereafter be
created:
(i) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity
and/or
(ii) the failure to make a principal payment at the final (but not
any interim) fixed maturity;
(5) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10.0 million in the aggregate for all such
final judgments or orders (treating any deductibles, self-insurance, or
retention as not so covered) shall be rendered against the Company or any
Restricted Subsidiary and shall not be paid or discharged, and there shall
be any period of 60 consecutive days following entry of the final judgment
or order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid or discharged against all such persons to
exceed $10.0 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect;
(6) a court having jurisdiction in the premises enters a decree or order
for:
(i) relief in respect of the Company or any Restricted Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect;
(ii) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator, or similar official of the Company or any
Restricted Subsidiary or for all or substantially all of the property and
assets of the Company or any Restricted Subsidiary; or
84
<PAGE>
(iii) the winding up or liquidation of the affairs of the Company or
any Restricted Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days;
(7) the Company or any Restricted Subsidiary:
(i) commences a voluntary case under any applicable bankruptcy,
insolvency, or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any such
law;
(ii) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator, or
similar official of the Company or any Restricted Subsidiary or for all
or substantially all of the property and assets of the Company or any
Restricted Subsidiary; or
(iii) effects any general assignment for the benefit of creditors; or
(8) any Guarantee of a Restricted Subsidiary ceases to be in full force
and effect or any Guarantee of a Restricted Subsidiary is declared to be
null and void and unenforceable or any Guarantee of a Restricted Subsidiary
is found to be invalid or any Guarantor that is a Restricted Subsidiary
denies its liability under its Guarantee (other than by reason of release of
such Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(6) or (7) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, then, and in each and every such case, either
the Trustee or the Holders of not less than 25% in aggregate principal amount of
the Notes then outstanding under the Indenture by written notice to the Company
(and to the Trustee if such notice is given by the Holders (the "Acceleration
Notice")), may, and the Trustee at the request of such Holders shall, declare
the principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and payable.
In the event of a declaration of acceleration because an Event of Default set
forth in clause (4) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default or payment default triggering such Event of Default pursuant to clause
(4) shall be remedied or cured by the Company and/or the relevant Restricted
Subsidiary or waived by the holders of the relevant Indebtedness within 60 days
after the declaration of acceleration with respect thereto. If an Event of
Default specified in clause (6) or (7) above occurs with respect to the Company,
the principal of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder. The
Holders of at least a majority in principal amount of the Notes may, by written
notice to the Company and to the Trustee, waive all past defaults with respect
to the Notes and rescind and annul a declaration of acceleration with respect to
the Notes and its consequences if all existing Events of Default applicable to
Notes, other than the nonpayment of the principal of, premium, if any, and
interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived and the rescission would not conflict
with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
Notes may direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee. However, the Trustee may refuse to follow any direction that
conflicts with law or the Indenture, that may involve the Trustee in personal
liability, or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders of the Notes not joining in the giving of
such direction and may take any other action it deems proper that is not
85
<PAGE>
inconsistent with any such direction received from Holders of the Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of Notes
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to
the Trustee against any costs, liability, or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the Outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations
do not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Exchange Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected
without the consent of the Holder.
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that they
have conducted or supervised a review of the activities of the Company and its
subsidiaries and the Company's and its subsidiaries' performance under the
Indenture and that to the best of such officers' knowledge, based upon such
review, the Company has fulfilled all obligations thereunder, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default and the nature and status thereof. The Company will also be obligated to
notify the Trustee of any default or defaults in the performance of any
covenants or agreements under the Indenture.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell, convey,
transfer, lease, or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to any person (other than a
consolidation with or merger with or into a Wholly-Owned Restricted Subsidiary
with a positive net worth; PROVIDED that, in connection with any such merger of
the Company with a Wholly-Owned Restricted Subsidiary, no consideration (other
than common stock in the surviving person or the Company) shall be issued or
distributed to the stockholders of the Company) or permit any person to merge
with or into the Company unless:
(1) the Company shall be the continuing person, or the person (if other
than the Company) formed by such consolidation or into which the Company is
merged or that acquired or leased such property and assets of the Company
shall be a corporation organized and validly existing under the laws of the
United States of America or any state thereof or the District of Columbia
and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of the Company on all of
the Notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, the Company or any person becoming the successor obligor of the
Notes, as the case may be, shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to
such transaction;
86
<PAGE>
(4) immediately after giving effect to such transaction on a pro forma
basis, the consolidated resulting surviving or transferee entity would
immediately thereafter be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation
on Indebtedness" covenant; and
(5) the Company delivers to the Trustee an officers' certificate
(attaching the arithmetic computations to demonstrate compliance with clause
(3)) and opinion of counsel, in each case stating that such consolidation,
merger, or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; PROVIDED, HOWEVER, that clause (3)
above does not apply if, in the good faith determination of the board of
directors of the Company, whose determination shall be evidenced by a board
resolution, the principal purpose of such transaction is to change the state
of incorporation of the Company; and PROVIDED FURTHER that any such
transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any person other than the Company or any
other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia;
(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, the Company could satisfy
the provisions of clause (4) of the first paragraph of this covenant.
Any merger or consolidation of a Guarantor with and into the Company (with
the Company being the surviving entity) or any merger or consolidation of a
Guarantor and a Restricted Subsidiary of the Company (with a Guarantor being the
surviving entity) need only comply with clause (5) of the first paragraph of
this covenant.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
Notes ("Legal Defeasance"). Such Legal Defeasance
87
<PAGE>
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Notes, except for:
(1) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on the Notes when such payments
are due;
(2) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that:
(i) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling; or
(ii) since the date of the Indenture, there has been a change in the
applicable federal income tax law;
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
88
<PAGE>
(6) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(7) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(8) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that:
(i) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
Indenture; and
(ii) assuming no intervening bankruptcy of the Company between the
date of deposit and the 91st day following the date of deposit and that
no Holder is an insider of the Company, after the 91st day following the
date of deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above with respect to a Legal Defeasance need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (1) have become due and
payable or (2) will become due and payable on the maturity date within one year
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.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all Notes when:
(1) either:
(i) all the Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee
for cancellation; or
(ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the
Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
(2) the Company has paid all other sums payable under the Indenture by
the Company; and
(3) the Company has delivered to the Trustee an officers' certificate
and an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with.
89
<PAGE>
MODIFICATION AND WAIVER
The Indenture provides that the Company, the Guarantors and the Trustee may
amend or supplement the Indenture or the Notes without notice to or the consent
of any Holder:
(1) to cure any ambiguity, defect, or inconsistency in the Indenture;
PROVIDED that such amendments or supplements shall not adversely affect the
interests of the Holders in any material respect;
(2) to comply with the provisions in the Indenture described above under
the caption entitled "Consolidation, Merger, and Sale of Assets";
(3) to comply with any requirements of the Commission in connection with
the qualification of the Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee;
(5) to establish the form or forms or terms of the Notes as permitted by
the Indenture;
(6) to provide for uncertificated Notes and to make all appropriate
changes for such purpose; or
(7) to make any change that does not materially and adversely affect the
rights of any Holder.
The Indenture also provides that modifications and amendments of the
Indenture may be made by the Company, the Guarantors and the Trustee with the
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes; PROVIDED, HOWEVER, that no such modification or amendment may,
without the consent of each Holder affected thereby:
(1) change the stated maturity of the principal of, or any installment
of interest on, any Note;
(2) reduce the principal amount of, or premium, if any, or interest on,
any Note;
(3) change the place or currency of payment of principal of, or premium,
if any, or interest on, any Note;
(4) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on
or after the redemption date) of any Note;
(5) reduce the above-stated percentage of Notes the consent of whose
Holders is necessary to modify or amend the Indenture;
(6) waive a default in the payment of principal of, premium, if any, or
interest on the Notes;
(7) reduce the percentage or aggregate principal amount of an
outstanding Note the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults;
(8) after the Company's obligation to purchase Notes arises thereunder,
amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate an Excess Proceeds Offer with
respect to any Asset Sale that has been consummated or, after such Change of
Control has occurred or such Asset Sale has been consummated, modify any of
the provisions or definitions with respect thereto; or
(9) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders.
90
<PAGE>
It shall not be necessary for the consent of the Holders under the Indenture
to approve the particular form of any proposed amendment, supplement, or waiver,
but it shall be sufficient if such consent approves the substance thereof. After
an amendment, supplement, or waiver under the Indenture becomes effective, the
Company shall give to the Holders affected thereby a notice briefly describing
the amendment, supplement, or waiver. The Company will mail supplemental
indentures to Holders upon request. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture or waiver.
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee, or otherwise, to any Holder of any Exchange Note for or as an
inducement to any consent, waiver, or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered to
be paid or agreed to be paid to all Holders of the Notes that consent, waive, or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver, or agreement.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse shall be had for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant, or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
against any incorporator, shareholder, officer, director, employee, or
controlling person of the Company or of any successor person thereof. Each
holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the TIA incorporated by reference therein
contain limitations on the rights of the Trustee, should it become a creditor of
the Company, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claims, as security or
otherwise. The Trustee is permitted to engage in other transactions; PROVIDED,
HOWEVER, that if it acquires any conflicting interest, it must eliminate such
conflict or resign.
GOVERNING LAW
The Indenture will provide that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" is defined to mean Indebtedness of a person existing
at the time such person merged with or into or became a Restricted Subsidiary.
91
<PAGE>
"ADJUSTED CONSOLIDATED NET INCOME" is defined to mean, for any period, the
aggregate net income (or loss) of the Company and its consolidated Restricted
Subsidiaries for such period determined in conformity with GAAP; PROVIDED that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication):
(1) the net income (or loss) of any person that is not a Restricted
Subsidiary, except to the extent of the amount of dividends or other
distributions that both (i) are actually paid in cash to the Company or any
of its Restricted Subsidiaries by such person during such period and (ii)
when taken together with all other dividends and distributions paid during
such period in cash to the Company or any of its Restricted Subsidiaries by
such person, are not in excess of the Company's or any of its Restricted
Subsidiaries' pro rata share of such other person's aggregate net income
earned during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (iii) of the first paragraph of
the "Limitation on Restricted Payments" covenant described above (and in
such case, except to the extent includable pursuant to clause (1) above),
the net income of any person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with the Company or
any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such person are acquired by the Company or any of its
Restricted Subsidiaries;
(3) the net income (or loss) of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary of such net income is not permitted by its
charter or any agreement, instrument, judgment, decree, order, statute,
rule, or governmental regulation applicable to such Restricted Subsidiary;
(4) any net gains or losses (on an after-tax basis) attributable to
Asset Sales; and
(5) all net after-tax extraordinary gains and extraordinary losses.
"AFFILIATE" is defined to mean, as applied to any person, any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as applied to any person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract, or otherwise.
"ASSET ACQUISITION" is defined to mean:
(1) an investment by the Company or any of its Restricted Subsidiaries
in any other person pursuant to which such person shall become a Restricted
Subsidiary or shall be merged into or consolidated with the Company or any
of its Restricted Subsidiaries; or
(2) an acquisition by the Company or any of its Restricted Subsidiaries
of the property and assets of any person other than the Company or any of
its Restricted Subsidiaries that constitute substantially all of a division
or line of business, or one or more restaurant properties, of such person.
"ASSET DISPOSITION" is defined to mean the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of:
(1) all or substantially all of the Capital Stock of any Restricted
Subsidiary; or
(2) all or substantially all of the assets that constitute a division or
line of business, or one or more restaurant properties, of the Company or
any of its Restricted Subsidiaries.
92
<PAGE>
"ASSET SALE" is defined to mean any sale, transfer, or other disposition
(including by way of merger, consolidation, or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries of all or any of its property, business, or assets
(including, without limitation, the Capital Stock of any Restricted Subsidiary);
PROVIDED that the following shall not be included in the definition of "Asset
Sale":
(1) any transaction or series of related transactions for which the
Company or any Restricted Subsidiary of the Company receives aggregate
consideration of less than $1.0 million;
(2) any conveyance, sale, lease, transfer, or other disposition by a
Restricted Subsidiary of the Company of any or all of its assets (upon
voluntary liquidation or otherwise) to the Company or a Restricted
Subsidiary of the Company;
(3) any conveyance, sale, lease, transfer, or other disposition by the
Company or any Restricted Subsidiary of the Company in the ordinary course
of business of assets acquired and held for resale in the ordinary course of
business (in no event shall the conveyance, sale, lease, transfer, or other
disposition of a restaurant property by the Company or any Restricted
Subsidiary of the Company be considered in the ordinary course of business
for purposes of the Indenture);
(4) any conveyance, sale, lease, transfer, or other disposition by the
Company and its Restricted Subsidiaries of assets pursuant to and in
accordance with the provisions described under "--Consolidation, Merger, and
Sale of Assets";
(5) any sale by the Company or any Restricted Subsidiary of the Company
of damaged, worn out, or other obsolete property in the ordinary course of
business;
(6) any abandonment by the Company or any Restricted Subsidiary of the
Company of assets
and properties that are no longer useful in its business and cannot be sold;
or
(7) any transfer by the Company or any Restricted Subsidiary of the
Company of any Capital Stock of any Restricted Subsidiary of the Company to
the Company or any Restricted Subsidiary of the Company.
"AVERAGE LIFE" is defined to mean, at any date of determination with respect
to any Exchange Note, the quotient obtained by dividing:
(1) the sum of the products of (i) the number of years from such date of
determination to the dates of each successive scheduled principal payment of
such Exchange Note and (ii) the amount of such principal payment by
(2) the sum of all such principal payments.
"CAPITAL STOCK" is defined to mean, with respect to any person, any and all
shares, interests, participations, or other equivalents (however designated,
whether voting or non-voting) of such person's capital stock or other ownership
interests, whether now outstanding or issued after the Issue Date, including,
without limitation, all common stock and preferred stock.
"CAPITALIZED LEASE" is defined to mean, as applied to any person, any lease
of any property (whether real, personal, or mixed) of which the discounted
present value of the rental obligations of such person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"CASH EQUIVALENTS" is defined to mean:
(1) 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 thereof;
93
<PAGE>
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than $250.0
million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through (5)
above.
"CHANGE OF CONTROL" is defined to mean such time as:
(1) a "person" or "group" (within the meaning of sections 13(d) and
14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of more than 50% of the total Voting
Stock of the Company on a fully diluted basis; or
(2) individuals who at the beginning of any period of two consecutive
calendar years constituted the board of directors (together with any new
directors whose election by the board of directors or whose nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the members of the board of directors then still in office who
either were members of the board of 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 members of
the board of directors then in office.
"CONSOLIDATED EBITDA" is defined to mean, for any period, the sum of the
amounts for such period of:
(1) Adjusted Consolidated Net Income;
(2) Consolidated Interest Expense;
(3) income taxes, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income (other than income taxes (either positive
or negative) attributable to extraordinary and non-recurring gains or losses
or sales of assets);
(4) depreciation expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income;
(5) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income; and
(6) all other non-cash items reducing Adjusted Consolidated Net Income,
less all non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP;
94
<PAGE>
PROVIDED that, if any Restricted Subsidiary is not a Wholly-Owned Restricted
Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to:
(i) the amount of the Adjusted Consolidated Net Income attributable
to such Restricted Subsidiary multiplied by
(ii) the quotient of (A) the number of shares of outstanding common
stock of such Restricted Subsidiary not owned on the last day of such
period by the Company or any of its Restricted Subsidiaries divided by
(B) the total number of shares of outstanding common stock of such
Restricted Subsidiary on the last day of such period.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" is defined to mean, on any
Transaction Date, the ratio of the aggregate amount of Consolidated EBITDA for
the four fiscal quarters for which financial information in respect thereof is
available immediately prior to such Transaction Date (the "Reference Period") to
the aggregate Consolidated Fixed Charges during such Reference Period.
In making the foregoing calculation;
(1) pro forma effect shall be given to:
(i) any Indebtedness Incurred subsequent to the end of the Reference
Period and prior to the Transaction Date;
(ii) any Indebtedness Incurred during such Reference Period to the
extent such Indebtedness is outstanding at the Transaction Date; and
(iii) any Indebtedness to be Incurred on the Transaction Date, in
each case as if such Indebtedness had been Incurred on the first day of
such Reference Period and after giving pro forma effect to the
application of the proceeds thereof as if such application had occurred
on such first day;
(2) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma
basis and bearing a floating interest rate shall be computed as if the rate
in effect on the Transaction Date (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months) had been the applicable rate
for the entire period;
(3) there shall be excluded from Consolidated Fixed Charges any
Consolidated Fixed Charges related to any amount of Indebtedness, Redeemable
Stock, or obligations under leases that was outstanding during such
Reference Period or thereafter but that is not outstanding or is to be
repaid on the Transaction Date, except for Consolidated Interest Expense
accrued (as adjusted pursuant to clause (2) above) during such Reference
Period under a revolving credit or similar working capital facility in the
ordinary course for working capital purposes;
(4) PRO FORMA effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving PRO FORMA effect to the application of
proceeds of any Asset Disposition and the Consolidated EBITDA relating to
such Asset Acquisitions or Asset Dispositions) that occur during such
Reference Period or thereafter and on or prior to the Transaction Date as if
they had occurred and such proceeds had been applied on the first day of
such Reference Period;
(5) with respect to any such Reference Period commencing prior to the
Issue Date, the issuance of the Notes shall be deemed to have taken place on
the first day of such Reference Period; and
(6) PRO FORMA effect shall be given to asset dispositions and asset
acquisitions (including giving PRO FORMA effect to the application of
proceeds of any asset disposition) that have been made by
95
<PAGE>
any person that has become a Restricted Subsidiary or has been merged with
or into the Company or any Restricted Subsidiary during such Reference
Period or subsequent to such period and prior to the Transaction Date and
that would have constituted Asset Dispositions or Asset Acquisitions had
such transactions occurred when such person was a Restricted Subsidiary as
if such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions that occurred on the first day of such Reference Period;
PROVIDED that to the extent that clause (4) or (6) above requires that pro forma
effect be given to an asset acquisition or asset disposition, such PRO FORMA
calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date the person, or division or line of business of
the person, or restaurant property, that is acquired or disposed of, for which
financial information is available.
"CONSOLIDATED FIXED CHARGES" is defined to mean, for any period, the sum
(without duplication) of:
(1) Consolidated Interest Expense for such period; and
(2) the product of (x) cash and non-cash dividends (except dividends
payable solely in shares of Capital Stock that are not Redeemable Stock)
paid, declared, accrued, or accumulated on any Redeemable Stock and (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the sum of the currently effective combined Federal, state, local, and
foreign tax rate of the Company and its Restricted Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" is defined to mean, for any period, the
aggregate amount of:
(1) interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts, and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is guaranteed by the Company or any of its Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued, or scheduled to be paid or to
be accrued by the Company and its Restricted Subsidiaries during such
period; EXCLUDING, HOWEVER, any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in
the calculation of Adjusted Consolidated Net Income pursuant to clause (3)
of the definition thereof (but only in the same proportion as the net income
of such Restricted Subsidiary is excluded from the calculation of Adjusted
Consolidated Net Income pursuant to clause (3) of the definition thereof);
and
(2) the amount of dividends accrued or payable by such person or any of
its consolidated Restricted Subsidiaries in respect of preferred stock
(other than by Restricted Subsidiaries of such person to such person or such
person's Wholly-Owned Restricted Subsidiaries).
"CONSOLIDATED NET WORTH" is defined to mean, at any date of determination,
stockholders' equity of the Company and its Restricted Subsidiaries (which shall
be as of a date not more than 90 days prior to the date of such computation),
less:
(1) amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness;
(2) cost of treasury stock; and
(3) the principal amount of any promissory notes receivable from the
sale of the Capital Stock of the Company or any of its Restricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding
the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
52).
96
<PAGE>
"CREDIT AGREEMENT" is defined to mean the Credit Agreement dated as of June
22, 1999, between the Company, the lenders party thereto in their capacities as
lenders thereunder and Wachovia Bank, N.A., as agent, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (PROVIDED that such increase in borrowings is
permitted by the "Limitation on Indebtedness" covenant above) or adding
Restricted Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"CURRENCY AGREEMENT" is defined to mean any foreign exchange contract,
currency swap agreement, or other similar agreement or arrangement designed to
protect against fluctuation in currency values.
"DEFAULT" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" is defined to mean:
(1) Indebtedness under or in respect of the Credit Agreement; and
(2) any other Indebtedness constituting Senior Debt which, at the time
of determination, has an aggregate principal amount of at least $25.0
million and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
"FORWARD EQUITY CONTRACTS" is defined to mean (1) the master agreement (with
attached schedule) dated as of August 12, 1998, as amended, and the confirmation
thereto dated September 9, 1998 between Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. and the Company and (2) the master agreement
(with attached schedule) dated as of July 22, 1998, and the confirmation thereto
dated July 28, 1998 between SunTrust Bank, Atlanta and the Company.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, 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 contained in the Indenture shall be computed in conformity with
GAAP applied on a consistent basis, except that calculations made for purposes
of determining compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect to:
(1) the amortization of any expenses incurred in connection with the
offering of the Notes; and
(2) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"GUARANTEE" is defined to mean any obligation, contingent or otherwise, of
any person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
person:
(1) 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
97
<PAGE>
arrangements, 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
(2) 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 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.
"GUARANTEE" is defined to mean each guarantee by a Guarantor of the
Company's obligations under the Notes and the Indenture.
"GUARANTOR" is defined to mean:
(1) each of the Company's Subsidiaries that guarantees the Notes on the
Issue Date; and
(2) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees
to be bound by the terms of the Indenture as a Guarantor;
PROVIDED that any person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"GUARANTOR SENIOR DEBT" is defined to mean, with respect to any Guarantor:
the principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of:
(1) all monetary obligations of every nature of such Guarantor under, or
with respect to, the Credit Agreement, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(2) the guarantee by such Guarantor of the Company's obligations under
the 9 3/4% Senior Notes;
(3) all Interest Rate Agreements (and guarantees thereof); and
(4) all obligations (and guarantees thereof) under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Subsidiary of such
Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation)
other than a shareholder who is also a lender (or an Affiliate of a lender)
under the Credit Agreement;
98
<PAGE>
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Redeemable Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by such Guarantor;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Indebtedness" (but, as
to any such obligation, no such violation shall be deemed to exist for
purposes of this clause (6) if the holder(s) of such obligation or their
representative shall have received an officers' certificate of the Company
to the effect that the incurrence of such Indebtedness does not (or, in the
case of revolving credit indebtedness, that the incurrence of the entire
committed amount thereof at the date on which the initial borrowing
thereunder is made would not) violate such provisions of the Indenture);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"INCUR" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, guarantee, or otherwise become liable for, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness;
PROVIDED that the Indebtedness of a person existing at the time such person
became a Subsidiary or a Restricted Subsidiary, as the case may be, shall be
deemed to have been Incurred by such Subsidiary or Restricted Subsidiary, as the
case may be, at such time.
"INDEBTEDNESS" is defined to mean, with respect to any person at any date of
determination (without duplication):
(1) all indebtedness of such person for borrowed money;
(2) all obligations of such person evidenced by bonds, debentures,
notes, or other similar instruments;
(3) all obligations of such person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto);
(4) all obligations of such person to pay the deferred and unpaid
purchase price of property or services (but excluding trade accounts payable
or accrued liabilities arising in the ordinary course of business);
(5) all obligations of such person as lessee under Capitalized Leases;
(6) 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 that the amount of such Indebtedness shall be the lesser of (i) the
fair market value of such asset at such date of determination and (ii) the
amount of such Indebtedness;
(7) all Indebtedness of other persons guaranteed by such person to the
extent such Indebtedness is guaranteed by such person;
(8) all Redeemable Stock of such person; and
(9) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
99
<PAGE>
The amount of Indebtedness of any person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; PROVIDED
(1) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and
(2) that Indebtedness will not include any liability for federal, state,
local, or other taxes.
"INTEREST RATE AGREEMENTS" is defined to mean any obligations of any person
pursuant to any interest rate swaps, caps, collars, and similar arrangements
providing protection against fluctuations in interest rates. For purposes of the
Indenture, the amount of such obligations shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such person, based on the assumption that such obligation had terminated at the
end of such fiscal quarter, and in making such determination, if any agreement
relating to such obligation provides for the netting of amounts payable by and
to such person thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such person, then in each such case, the amount of
such obligations shall be the net amount so determined, plus any premium due
upon default by such person.
"INVESTMENT" is defined to mean any direct or indirect advance, loan, or
other extension of credit (other than advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
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, bonds, notes,
debentures, or other similar instruments issued by any other person.
For purposes of the definition of "Unrestricted Subsidiary" and the
"Limitation on Restricted Payments" covenant described above:
(1) "Investment" shall include the fair market value of the assets (net
of liabilities) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall
exclude the fair market value of the assets (net of liabilities) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary;
(2) any property transferred to or from any person 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
(3) 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 Adjusted Consolidated Net Income.
"ISSUE DATE" is defined to mean the date on which the Outstanding Notes were
originally issued under the Indenture.
"LIEN" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien, or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, any option or other agreement to sell, or any filing of or any agreement
to give any security interest).
100
<PAGE>
"NET CASH PROCEEDS" is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of:
(1) brokerage commissions and other fees and expenses (including fees
and expenses of counsel and investment bankers) related to such Asset Sale;
(2) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole;
(3) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (i) is secured by a
Lien on the property or assets sold or (ii) is required to be paid as a
result of such sale; and
(4) appropriate amounts to be provided by the Company or any Restricted
Subsidiary as a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters, and
liabilities under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with GAAP.
"9 3/4% SENIOR NOTES" is defined to mean the Company's 9 3/4% Senior Notes
due 2006 outstanding on the Issue Date.
"OBLIGATIONS" is defined to mean all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" is defined to mean:
(1) Investments by the Company or any Restricted Subsidiary of the
Company in any Person that is or will become immediately after such
Investment a Restricted Subsidiary of the Company or that will merge or
consolidate into the Company or a Restricted Subsidiary of the Company;
(2) Investments in the Company by any Restricted Subsidiary of the
Company; PROVIDED that any Indebtedness evidencing such Investment is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of the Company and its
Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $10.0 million at any one time
outstanding;
(5) Currency Agreements and Interest Rate Agreements entered into in the
ordinary course of the Company's or its Restricted Subsidiaries' businesses
and otherwise in compliance with the Indenture;
(6) additional Investments (including joint ventures) (in addition to
Investments existing on the Issue Date) not to exceed $15.0 million at any
one time outstanding;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
101
<PAGE>
(8) Investments made by the Company or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant; and
(9) Investments existing on the Issue Date.
"PERMITTED LIENS" is defined to mean:
(1) Liens for taxes, assessments, governmental charges, or claims that
are being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(2) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen, or other similar Liens arising in the
ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance, and other
types of social security;
(4) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds, and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money);
(5) easements, rights-of-way, municipal and zoning ordinances, and
similar charges, encumbrances, title defects, or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Issue Date; PROVIDED that
(i) such Lien is created solely for the purpose of securing
Indebtedness Incurred:
(A) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto (or
to refinance unsecured Indebtedness Incurred to finance such cost)
and such Lien is created prior to, at the time of or within twelve
months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property;
or
(B) to refinance any Indebtedness previously so secured;
(ii) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost; and
(iii) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets and any improvements on
such item;
(7) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(8) Liens encumbering property or assets under construction arising from
obligations of the Company or any Restricted Subsidiary to make progress or
partial payments relating to such construction;
102
<PAGE>
(9) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(10) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(11) Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes a part
of, any Restricted Subsidiary;
(12) Liens in favor of the Company or any Restricted Subsidiary;
(13) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary of the Company that does
not give rise to an Event of Default;
(14) fm]Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(16) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are either within the general parameters customary in
the industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency Agreements
and forward contracts, options, futures contracts, futures options, or
similar agreements or arrangements designed to protect the Company or any of
its Restricted Subsidiaries from fluctuations in the price of commodities;
(17) Liens arising out of conditional sale, title retention,
consignment, or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Issue Date; and
(18) Liens on or sales of receivables.
"REDEEMABLE STOCK" is defined to mean any class or series of Capital Stock
of any person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the Notes;
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the Notes; or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity prior to
the Stated Maturity of the Notes;
provided that any Capital Stock that would not constitute Redeemable Stock but
for provisions thereof giving holders thereof the right to require such person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in "Limitation on Asset
Sales" and "Repurchase of Notes Upon a Change of Control" covenants described
above and such Capital Stock specifically provides that such person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes Upon a Change of
Control" covenants described above. Notwithstanding the foregoing, Capital Stock
shall not be deemed to be Redeemable Stock if it may only be so redeemed solely
in consideration of Capital Stock that is not Redeemable Stock.
103
<PAGE>
"REPRESENTATIVE" is defined to mean the indenture trustee or other trustee,
agent or representative in respect of any Designated Senior Debt; PROVIDED that
if, and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"RESTRICTED INVESTMENT" is defined to mean any Investment other than a
Permitted Investment.
"RESTRICTED SUBSIDIARY" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"SENIOR DEBT" is defined to mean the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes.
Without limiting the generality of the foregoing, "Senior Debt" shall also
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of:
(1) all monetary obligations of every nature of the Company under, or
with respect to, the Credit Agreement, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(2) all monetary obligations of the Company under the 9 3/4% Senior
Notes;
(3) all Interest Rate Agreements (and guarantees thereof); and
(4) all obligations (and guarantees thereof) under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Company to a Subsidiary of the Company;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the
Company (including, without limitation, amounts owed for compensation) other
than a shareholder who is also a lender (or an Affiliate of a lender) under
the Credit Agreement;
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Redeemable Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by the Company;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Indebtedness" (but, as
to any such obligation, no such violation shall be deemed to exist for
purposes of this clause (6) if the holder(s) of such obligation or their
representative shall have received an officers' certificate of the Company
to the effect that the incurrence of such Indebtedness does not (or, in the
case of revolving credit indebtedness, that the
104
<PAGE>
incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of
the Indenture);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company.
"STATED MATURITY" is defined to mean:
(1) with respect to any Indebtedness, the date specified in such
Indebtedness as the fixed date on which the final installment of principal
of such Indebtedness is due and payable; and
(2) with respect to any scheduled installment of principal of or
interest on any Indebtedness, the date specified in such Indebtedness as the
fixed date on which such installment is due and payable.
"SUBSIDIARY" is defined to mean, with respect to any person, any
corporation, association, or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such person and
one or more other Subsidiaries of such person.
"TRANSACTION DATE" is defined to mean, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"UNRESTRICTED SUBSIDIARY" is defined to mean:
(1) 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
(2) any Subsidiary of an Unrestricted Subsidiary. The board of directors
may designate any Restricted Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, the Company or any Restricted Subsidiary;
provided that either:
(1) the Subsidiary to be so designated has total assets of $1,000 or
less; or
(2) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the "Limitation on Restricted Payments"
covenant described above.
The board of directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of the Company; PROVIDED that immediately after giving
effect to such designation
(1) the Company could Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Indebtedness"
covenant; and
(2) no Default or Event of 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.
Avado Financing I shall be designated as an Unrestricted Subsidiary as of
the Issue Date.
"VOTING STOCK" is defined to mean, with respect to any person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers, or other voting members of the governing body of such
person.
105
<PAGE>
"WHOLLY-OWNED" is defined to mean, with respect to any Subsidiary of any
person, such Subsidiary if all of the outstanding common stock or other similar
equity ownership interests (but not including preferred stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly by
such person.
BOOK-ENTRY, DELIVERY AND FORM
The Outstanding Notes were offered and sold to qualified institutional
buyers in reliance on Rule 144A and also were offered and sold in offshore
transactions in reliance on Regulation S. They were issued in registered, global
form in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof (the "Global Notes").
The Global Notes were deposited upon issuance with the Trustee as custodian
for The Depository Trust Company ("DTC"), in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Notes in certificated
form.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. The Company takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants and not on the records maintained by DTC.
DTC has also advised the Company that, pursuant to procedures established by
it:
(1) upon deposit of the Global Notes, DTC credits the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and
(2) ownership of such interests in the Global Notes are shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interest in the Global Notes).
106
<PAGE>
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Additional
Interest, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant security
as shown on the records of DTC unless DTC has reason to believe it will not
receive payment on such payment date.
Payments by the Participants and the Indirect Participants to the beneficial
owners of the Notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Trustee or the
Company. Neither the Company nor the Trustee will be liable for any delay by DTC
or any of its Participants in identifying the beneficial owners of the Notes,
and the Company and the Trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all purposes.
Interests in the Global Notes (other than those sold under Regulation S, in
some circumstances) are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System, and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See "Same Day Settlement and
Payment."
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of
107
<PAGE>
the Notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange the Global Notes for legended Notes in
certificated form, and to distribute such Notes to its Participants.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC
(i) notifies the Company that it is unwilling or unable to continue
as depositary for the Global Notes and the Company thereupon fails to
appoint a successor depositary; or
(ii) has ceased to be a clearing agency registered under the Exchange
Act;
(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request, but upon prior written notice given to the
Trustee by or on behalf of DTC in accordance with the Indenture. In all cases,
Certificated Notes delivered in exchange for any Global Note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear a restrictive legend, unless the Company
determines otherwise in compliance with applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial
interest in any Global Note unless the transferor first delivers to the Trustee
a written certificate (in the form provided in the Indenture) to the effect that
such transfer will comply with the appropriate transfer restrictions applicable
to such Notes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and
Additional Interest, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to Notes
in certificated form, the Company will make all payments of principal, premium,
if any, interest and Additional Interest, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Notes represented by the Global Notes are expected to be
eligible to trade in the PORTAL market and to trade in the Depository's Same Day
Funds Settlement System, and any permitted secondary market trading activity in
such Notes will, therefore, be required by the Depositary to be settled in
immediately, available funds. The Company expects that secondary trading in any
certificated Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
The Company, the Guarantors and the Initial Purchasers have entered into the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Company and the Guarantors agreed to file with the Commission the Exchange
Offer Registration Statement (as defined in the Registration
108
<PAGE>
Rights Agreement) on the appropriate form under the Securities Act with respect
to the Exchange Notes.
If any Holder of Transfer Restricted Securities notifies the Company prior
to the 20th day following consummation of the Exchange Offer that:
(i) it is prohibited by law or Commission policy from participating
in the Exchange Offer;
(ii) it would not be able to resell the Exchange Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales; or
(iii) it is a broker-dealer and owns Outstanding Notes acquired
directly from the Company or an affiliate of the Company,
then, in each such case, the Company will file with the Commission a Shelf
Registration Statement (as defined in the Registration Rights Agreement) to
cover resales of the Outstanding Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Outstanding Note until:
(1) the date on which such Outstanding Note has been exchanged by a
person other than a broker-dealer for an Exchange Note in the Exchange
Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of
an Outstanding Note for an Exchange Note, the date on which such Exchange
Note is sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement;
(3) the date on which such Outstanding Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement; or
(4) the date on which such Outstanding Note is distributed to the public
pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that:
(1) the Company will commence the Exchange Offer and use its best
efforts to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Exchange Notes tendered prior
thereto in the Exchange Offer; and
(2) if obligated to file the Shelf Registration Statement, the Company
will use its best efforts to file the Shelf Registration Statement with the
Commission on or prior to 60 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on
or prior to 150 days after such obligation arises.
If (1) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date
specified for such filing;
(2) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date");
(3) the Company fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement; or
109
<PAGE>
(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted Securities during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (1) through (4) above a "Registration Default"),
then, in each such case, the Company will pay Additional Interest to each
Holder of Exchange Notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$0.05 per week per $1,000 principal amount of Exchange Notes held by such
Holder. The amount of the Additional Interest will increase by an additional
$0.05 per week per $1,000 principal amount of Exchange Notes with respect to
each subsequent 90-day period until all Registration Defaults have been cured up
to a maximum amount of Additional Interest for all Registration Defaults of
$0.50 per week per $1,000 principal amount of Exchange Notes. All accrued
Additional Interest will be paid by the Company on each Interest Payment Date to
the Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Additional Interest will cease.
Holders of Outstanding Notes will be required to make certain
representations to the Company (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required to
deliver certain information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Outstanding Notes included in the Shelf Registration Statement and benefit
from the provisions regarding Additional Interest set forth above. Holders of
Outstanding Notes will also be required to suspend their use of the prospectus
included in the Shelf Registration Statement under certain circumstances upon
receipt of written notice to that effect from the Company.
110
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material United States
federal income and estate tax considerations relating to the purchase, ownership
and disposition of the Exchange Notes by an initial beneficial owner of the
Exchange Notes, and the exchange by an initial beneficial owner of the
Outstanding Notes for Exchange Notes. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations and judicial decisions and administrative interpretations
thereunder, as of the date of this Prospectus, all of which are subject to
change, possibly with retroactive effect, or to different interpretations. We
cannot assure you that the Internal Revenue Service (the "IRS") will not
challenge one or more of the tax considerations described herein, and we have
not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of
counsel with respect to the United States federal tax considerations resulting
from acquiring, holding or disposing of the Exchange Notes.
In this discussion, we do not purport to address all tax considerations that
may be important to a particular holder in light of the holder's circumstances
(such as the alternative minimum tax provisions of the Code), or to certain
categories of investors (including, but not limited to, certain financial
institutions, insurance companies, tax-exempt organizations, dealers in
securities, persons who hold the Exchange Notes as part of a hedge, conversion
transaction, straddle or other risk reduction transaction, pass-through entities
(e.g., partnerships) or persons who hold the Exchange Notes through a
pass-through entity, or individuals who are United States expatriates) that may
be subject to special rules. This discussion is limited to initial holders who
hold the Exchange Notes as capital assets. This discussion also does not address
the tax considerations arising under the laws of any foreign, state or local
jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSIDERATIONS TO YOU OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
EXCHANGE NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR
FOREIGN TAX LAWS.
U.S. HOLDERS
As used in this discussion, the term "U.S. Holder" means a holder of an
Exchange Note that is:
- a citizen or resident of the United States for United States federal
income tax purposes, including an alien individual who is a lawful
permanent resident of the United States or meets the "substantial
presence" test prescribed under the Code;
- a corporation (including an entity treated as a corporation for United
States federal income tax purposes) created or organized in or under the
laws of the United States or of any political subdivision thereof;
- an estate, the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust, the administration of which is subject to the primary supervision
of a court within the United States and which has one or more United
States persons with authority to control all substantial decisions, or if
the trust was in existence on August 20, 1996 and has elected to continue
to be treated as a United States person.
As used in this discussion, the term "Non-U.S. Holder" means a holder of an
Exchange Note that is not a U.S. Holder.
INTEREST ON EXCHANGE NOTES. Interest on the Exchange Notes will be taxable
to a U.S. Holder as ordinary income at the time it is paid or accrued, depending
on the holder's method of tax accounting.
111
<PAGE>
SALE, EXCHANGE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF THE EXCHANGE
NOTES. Upon the sale, exchange, retirement or other taxable disposition of an
Exchange Note, a U.S. Holder will recognize gain or loss equal to the difference
between the fair market value of the proceeds received in exchange for the
Exchange Note (except to the extent attributable to the payment of accrued
interest, which generally will be taxable as ordinary income) and the U.S.
Holder's adjusted tax basis in the Exchange Note.
A U.S. Holder's adjusted tax basis in an Exchange Note generally will equal
the price paid by the U.S. Holder for the Exchange Note decreased by any
repayments of principal received thereon. Gain or loss, realized on the sale,
exchange or retirement of an Exchange Note will be capital gain or loss. For
U.S. Holders who are individuals, the gain generally is taxed at ordinary income
tax rates if the Exchange Note is held for 12 months or less, and at a maximum
statutory federal income tax rate of 20% if the Exchange Note is held for more
than 12 months.
EXCHANGE OFFER. In satisfaction of the holders' registration rights as
described in this Prospectus, we intend to offer to exchange Exchange Notes for
the Outstanding Notes. The Exchange Notes should not differ materially in kind
or extent from the Outstanding Notes, and therefore a U.S. Holder's exchange of
Outstanding Notes for Exchange Notes should not constitute a taxable disposition
of the Outstanding Notes for United States federal income tax purposes. As a
result, a U.S. Holder should not recognize taxable income, gain or loss on the
exchange, the holder's holding period for the Exchange Notes should generally
include the holding period for the Outstanding Notes so exchanged, and the
holder's adjusted tax basis in the Exchange Notes should generally be the same
as the holder's adjusted tax basis in the Outstanding Notes so exchanged.
PAYMENTS OF ADDITIONAL INTEREST. We intend to take the position for United
States federal income tax purposes that payments of Additional Interest, as
described above under "Description of the Exchange Notes-Registration Rights;
Additional Interest," if paid as required therein, should be taxable to a U.S.
Holder as additional interest income when received or accrued, in accordance
with the holder's method of tax accounting. This position is based in part on
the assumption that as of the date of issuance of the Exchange Notes, the
possibility that Additional Interest will have to be paid is a "remote" or
"incidental" contingency. Our determination that the possibility is a remote or
incidental contingency is binding on a U.S. Holder, unless the holder explicitly
discloses to the IRS, on the holder's return for the year during which the
Exchange Note is acquired, that the holder is taking a different position.
Regardless of our position, however, the IRS may take the contrary position that
the payment of Additional Interest is not a remote or incidental contingency,
which could cause the Exchange Notes to be treated as having been issued with
original issue discount. This contrary position could affect the timing and
character of both the holder's income from the Exchange Notes and our deduction
with respect to the payments of Additional Interest. Prospective holders should
consult their own tax advisers regarding the tax considerations that relate to
the payment or potential payment of Additional Interest.
NON-U.S. HOLDERS
In the following discussion, we summarize the principal United States
federal income and estate tax considerations resulting from the acquisition,
ownership and disposition of the Exchange Notes by Non-U.S. Holders.
INTEREST ON EXCHANGE NOTES. Subject to the discussion below of backup
withholding, interest paid on the Exchange Notes to a Non-U.S. Holder generally
will not be subject to United States federal income tax if:
- such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder;
112
<PAGE>
- the Non-U.S. Holder does not actually or constructively own 10% or more of
the total voting power of all classes of our stock entitled to vote;
- the Non-U.S. Holder is not a controlled foreign corporation with respect
to which we are a "related person" within the meaning of the Code; and
- the beneficial owner, under penalty of perjury, certifies that the owner
is not a United States person and provides the owner's name and address.
If certain requirements are satisfied, the certification described in the
last clause above may be provided by a securities clearing organization, a bank,
or other financial institution that holds customers securities in the ordinary
course of its trade or business.
Under Treasury Regulations, which generally are effective for payments made
after December 31, 2000, subject to certain transition rules, the certification
described in the last clause above may also be provided by a qualified
intermediary on behalf of one or more beneficial owners (or other
intermediaries), provided that such intermediary has entered into a withholding
agreement with the IRS and certain other conditions are met. A holder that is
not exempt from tax under these rules will be subject to United States federal
income tax withholding at a rate of 30% unless:
- the interest is effectively connected with the conduct of a United States
trade or business, in which case the interest will be subject to the
United States federal income tax on net income that applies to United
States persons generally (and, with respect to corporate holders and under
certain circumstances, the branch profits tax); or
- the rate of withholding is reduced or eliminated by an applicable income
tax treaty; and
- in either case, the Non-U.S. Holder provides us with proper certification
as to the holder's exemption from withholding.
In the event any Additional Interest we are required to pay pursuant to a
failure to register the Exchange Notes for sale to the public is treated as
interest, the tax treatment of such payments should be the same as other
interest payments received by a Non-U.S. Holder. However, the IRS may treat such
payments as other than interest, in which case they would be subject to United
States federal withholding tax at a rate of 30%, unless the holder qualifies for
a reduced rate of tax or an exemption under a tax treaty.
GAIN ON DISPOSITION OF THE EXCHANGE NOTES. A Non-U.S. Holder generally will
not be subject to United States federal income tax on gain realized on the sale,
exchange or redemption of an Exchange Note, including an exchange of an
Outstanding Note for an Exchange Note, unless:
- in the case of an individual Non-U.S. Holder, such holder is present in
the United States for 183 days or more in the year of such sale, exchange
or redemption, and certain other requirements are met;
- the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates; or
- the gain is effectively connected with the conduct of a United States
trade or business of the Non-U.S. Holder.
U.S. FEDERAL ESTATE TAX. An Exchange Note held by an individual who at the
time of death is not a citizen or resident of the United States (as specially
defined for United States federal estate tax purposes) will not be subject to
United States federal estate tax if the individual did not actually or
constructively own 10% or more of the total combined voting power of all classes
of our stock and, at the time of the individual's death, payments with respect
to such Exchange Note would not have been effectively connected with the conduct
by such individual of a trade or business in the United States.
113
<PAGE>
OPTIONAL REDEMPTION
At certain times and subject to certain conditions, we are entitled to
redeem all or a portion of the Exchange Notes. Treasury regulations contain
special rules for determining the yield to maturity and maturity date on a debt
instrument in the event the debt instrument provides for a contingency that
could result in the acceleration or deferral of one or more payments. We believe
that under these rules the redemption provisions of the Exchange Notes should
not affect the computation of the yield to maturity or maturity date of the
Exchange Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS. Information reporting will apply to payments of interest on
or the proceeds of the sale or other disposition of the Exchange Notes made by
us with respect to certain non-corporate U.S. Holders. A U.S. Holder will
further be subject to backup withholding at the rate of 31% with respect to
interest, principal and premium, if any, we pay on an Exchange Note, unless the
holder (1) is an entity (including corporations, tax-exempt organizations and
certain qualified nominees) that is exempt from withholding and, when required,
demonstrates this fact; or (2) provides us with a correct taxpayer
identification number, certifies that the taxpayer identification number is
correct and that the holder has not been notified by the IRS that it is subject
to backup withholding due to underreporting of interest or dividends, and
otherwise complies with applicable requirements of the backup withholding rules.
Any amount withheld under the backup withholding rules is allowable as a credit
against the U.S. Holder's United States federal income tax liability, provided
that the required information is furnished to the IRS.
NON-U.S. HOLDERS. We will, when required, report to the IRS and to each
Non-U.S. Holder the amount of any interest paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld on
such payments. Copies of these information returns may also be made available to
the tax authorities of the country in which the Non-U.S. Holder resides under
the provisions of a specific treaty or agreement.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments of interest on or principal of the Exchange
Notes by us or our agent to a Non-U.S. Holder if the Non-U.S. Holder certifies
as to its Non-U.S. Holder status under penalties of perjury or otherwise
establishes an exemption (provided that neither we nor our agent have actual
knowledge that the holder is a U.S. person or that the conditions of any other
exemptions are not in fact satisfied). The payment of the proceeds on the
disposition of Exchange Notes to or through the United States office of a United
States or foreign broker will be subject to information reporting and backup
withholding unless the owner provides the certification described above or
otherwise establishes an exemption. The proceeds of the disposition by a
Non-U.S. Holder of Exchange Notes to or through a foreign office of a broker
generally will not be subject to backup withholding or information reporting.
However, if such broker is a U.S. person, a controlled foreign corporation or a
foreign person deriving 50% or more of its gross income from all sources for
certain periods from activities that are effectively connected with the conduct
of a United States trade or business, information reporting requirements will
apply unless such broker has documentary evidence in its files of the holder's
status as a Non-U.S. Holder and has no actual knowledge to the contrary or
unless the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
Holder's United States federal income tax liability provided that the required
information is furnished to the IRS.
New Treasury Regulations relating to withholding tax on income paid to
Non-U.S. Holders will generally be effective for payments made after December
31, 2000, subject to certain transition rules. In general, these new regulations
do not significantly alter the substantive withholding and information
114
<PAGE>
reporting requirements, but rather unify current certification procedures and
forms, and clarify reliance standards. The new regulations also alter the
procedures for claiming benefits of an income tax treaty and permit the shifting
of primary responsibility for withholding to certain financial intermediaries
acting on behalf of beneficial owners under some circumstances. On January 15,
1999, the IRS issued Notice 99-8, proposing certain changes to these new
withholding regulations for non-resident aliens and foreign corporations and
providing a model "qualified intermediary" withholding agreement to be entered
into with the IRS to allow certain institutions to certify on behalf of their
non-U.S. customers or account holders who invest in U.S. securities. We strongly
urge prospective Non-U.S. Holders to consult their own tax advisors for
information on the impact, if any, of these new withholding regulations.
115
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, we believe that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Outstanding Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of ours within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who acquired Outstanding Notes directly
from us or (iii) broker-dealers who acquired Outstanding Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; PROVIDED that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the staff of the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Outstanding Notes to the Initial
Purchasers) with the Prospectus contained in the Exchange Offer Registration
Statement. Pursuant to the Registration Rights Agreement, we have agreed to
permit Participating Broker-Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such Exchange Notes. We and the Guarantors have agreed to
make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents for a period of 180
days after the Expiration Date in the Letter of Transmittal.
Each holder of the Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to us as set forth in "The Exchange Offer--Purpose and Effect of
the Exchange Offer." In addition, each holder who is a broker-dealer and who
receives Exchange Notes for its own account in exchange for Outstanding Notes
that were acquired by it as a result of market-making activities or other
trading activities, will be required to acknowledge that it will deliver a
prospectus in connection with any resale by it of such Exchange Notes.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the Exchange Offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Outstanding Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
116
<PAGE>
LEGAL MATTERS
Kilpatrick Stockton LLP of Atlanta, Georgia will issue opinions about
certain legal matters with respect to Avado Brands, Inc., the issuance of the
Exchange Notes, and with respect to the validity of the Exchange Notes.
Attorneys at Kilpatrick Stockton LLP who participated in the preparation of this
Prospectus own a total of 2,830 shares of our common stock.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Avado Brands, Inc. as of December
28, 1997 and January 3, 1999, and for each of the years in the three-year period
ended January 3, 1999, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG LLP, covering the January
3, 1999 consolidated financial statements refers to a change in reporting the
cost of start-up activities.
117
<PAGE>
AVADO BRANDS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Earnings for the Fiscal Years Ended December 29, 1996, December 28, 1997 and
January 3, 1999 and for the Thirteen-Week Periods Ended March 29, 1998 and April 4, 1999 (unaudited)..... F-3
Consolidated Balance Sheets as of December 28, 1997 and January 3, 1999 and April 4, 1999 (unaudited)...... F-4
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the Fiscal Years Ended
December 29, 1996, December 28, 1997 and January 3, 1999 and for the Thirteen Weeks Ended April 4, 1999
(unaudited).............................................................................................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 1996, December 28, 1997 and
January 3, 1999 and for the Thirteen-Week Periods Ended March 29, 1998 and April 4, 1999 (unaudited)..... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
AVADO BRANDS, INC.
We have audited the accompanying consolidated balance sheets of Avado Brands,
Inc. as of December 28, 1997 and January 3, 1999, and the related consolidated
statements of earnings, shareholders' equity and comprehensive income and cash
flows for each of the years in the three-year period ended January 3, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Avado Brands, Inc.
at December 28, 1997 and January 3, 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended
January 3, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1998 the
Company adopted the provisions of AICPA Statement of Position 98-5, "Reporting
the Cost of Start-Up Activities."
KPMG LLP
Atlanta, Georgia
January 29, 1999
F-2
<PAGE>
AVADO BRANDS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN-WEEK
PERIODS ENDED
FOR THE FISCAL YEARS ENDED ----------------------
------------------------------- MARCH 29, APRIL 4,
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Restaurant sales:
Don Pablo's................................................ $ 133,261 $ 196,457 $ 270,399 $ 59,263 $ 74,372
Hops....................................................... - 49,511 106,329 23,327 32,532
McCormick & Schmick's...................................... - 67,373 102,489 21,342 27,805
Canyon Cafe................................................ - 18,577 48,187 11,981 11,899
Applebee's................................................. 379,042 454,127 335,288 125,763 17,467
Other...................................................... 33,719 22,275 - - -
--------- --------- --------- ----------- ---------
Total restaurant sales................................... 546,022 808,320 862,692 241,676 164,075
--------- --------- --------- ----------- ---------
Restaurant operating expenses:
Food and beverage.......................................... 150,090 225,302 241,689 67,317 45,644
Payroll and benefits....................................... 162,017 249,356 279,274 78,648 51,187
Depreciation and amortization.............................. 22,509 31,441 17,014 4,204 4,892
Other operating expenses................................... 125,781 187,781 202,994 56,458 36,702
--------- --------- --------- ----------- ---------
Total restaurant operating expenses...................... 460,397 693,880 740,971 206,627 138,425
--------- --------- --------- ----------- ---------
General and administrative expenses.......................... 26,329 39,617 46,150 12,915 9,840
Asset revaluation and other special charges.................. 27,700 - 2,940 -- --
--------- --------- --------- ----------- ---------
Operating income............................................. 31,596 74,823 72,631 22,134 15,810
--------- --------- --------- ----------- ---------
Other income (expense):
Interest expense, net...................................... (11,348) (20,504) (25,313) (7,139) (4,941)
Distributions on preferred securities...................... - (6,412) (8,205) (2,012) (2,012)
Gain on disposal of assets................................. - - 72,547 49,000 1,350
Income (loss) from investments carried at equity........... - - 1,025 703 (133)
Other, primarily goodwill amortization..................... (2,024) (5,834) (5,641) (1,322) (972)
--------- --------- --------- ----------- ---------
Total other income (expense)............................. (13,372) (32,750) 34,413 39,230 (6,708)
--------- --------- --------- ----------- ---------
Earnings before income taxes and cumulative effect of change
in accounting principle.................................... 18,224 42,073 107,044 61,364 9,102
Income taxes................................................. 6,550 13,625 39,300 22,825 3,150
--------- --------- --------- ----------- ---------
Earnings before cumulative effect of change in accounting
principle.................................................. 11,674 28,448 67,744 38,539 5,952
Cumulative effect of change in accounting principle, net of
tax benefit................................................ - - 1,461 1,461 -
--------- --------- --------- ----------- ---------
Net earnings................................................. $ 11,674 $ 28,448 $ 66,283 $ 37,078 $ 5,952
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Basic earnings per common share:
Basic earnings before cumulative effect of change in
accounting principle..................................... $ 0.30 $ 0.74 $ 1.85 $ 0.99 $ 0.19
Cumulative effect of change in accounting principle........ - - (0.04) (0.04) -
--------- --------- --------- ----------- ---------
Basic earnings per common share.............................. $ 0.30 $ 0.74 $ 1.81 $ 0.95 $ 0.19
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Diluted earnings per common share:
Diluted earnings before cumulative effect of change in
accounting principle..................................... $ 0.30 $ 0.73 $ 1.65 $ 0.85 $ 0.19
Cumulative effect of change in accounting principle........ - - (0.03) (0.03) -
--------- --------- --------- ----------- ---------
Diluted earnings per common share............................ $ 0.30 $ 0.73 $ 1.62 $ 0.82 $ 0.19
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AVADO BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR END
----------------------- APRIL 4,
1997 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 2,503 $ 7,216 $ 794
Short-term investments................................................... 37 27 53
Accounts receivable...................................................... 8,983 9,124 8,049
Inventories.............................................................. 10,732 8,599 8,960
Prepaid expenses and other............................................... 9,047 3,205 6,740
Assets held for sale..................................................... 331,104 72,814 39,481
----------- ---------- -----------
Total current assets................................................... 362,406 100,985 64,077
----------- ---------- -----------
Premises and equipment, net................................................ 283,839 367,587 382,539
Goodwill, net.............................................................. 138,403 138,005 137,127
Investments carried at equity.............................................. - 16,106 17,095
Other assets............................................................... 19,641 47,914 41,311
----------- ---------- -----------
$ 804,289 $ 670,597 $ 642,149
----------- ---------- -----------
----------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 24,819 $ 28,474 $ 32,367
Accrued liabilities...................................................... 40,266 42,053 34,714
Current installments of long-term debt................................... 206 140,500 137,491
Income taxes............................................................. - 28,091 32,229
----------- ---------- -----------
Total current liabilities.............................................. 65,291 239,118 236,801
----------- ---------- -----------
Long-term debt............................................................. 381,843 116,978 116,957
Deferred income taxes...................................................... 14,231 8,200 8,200
Other long-term liabilities................................................ 7,142 8,177 8,509
----------- ---------- -----------
Total liabilities...................................................... 468,507 372,473 370,467
----------- ---------- -----------
Company-obligated mandatorily redeemable preferred securities of Avado
Financing I, a subsidiary holding solely Avado Brands, Inc. 7%
convertible subordinated debentures due March 1, 2027.................... 115,000 115,000 115,000
Temporary equity, net...................................................... - 71,095 39,849
Shareholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares; none
issued................................................................. - - -
Common stock, $0.01 par value. Authorized 75,000,000 shares; 40,478,760
issued in 1997 and 1998 and April 4, 1999.............................. 405 405 405
Additional paid-in capital............................................... 145,269 63,431 94,588
Retained earnings........................................................ 97,905 162,411 167,985
Accumulated other comprehensive income................................... - 24 (317)
Treasury stock at cost; 1,662,812 shares in 1997 and 8,910,174 shares in
1998 and 11,344,546 shares at April 4, 1998............................ (22,797) (114,242) (145,828)
----------- ---------- -----------
Total shareholders' equity............................................. 220,782 112,029 116,833
----------- ---------- -----------
$ 804,289 $ 670,597 $ 642,149
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AVADO BRANDS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------- PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME STOCK EQUITY
------ ------ ---------- -------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..................... 39,079 $391 $142,355 $60,475 $ - $ - $203,221
Net earnings..................................... - - - 11,674 - - 11,674
Purchase of common stock......................... - - - - - (30,048) (30,048)
Common stock issued to ESOP and ESPP............. - - 197 - - 487 684
Exercise of options.............................. 46 - (14,111) - - 16,642 2,531
Tax effect of exercise of options by employees... - - 4,535 - - - 4,535
Cash dividends ($0.030 per share)................ - - - (1,168 ) - - (1,168)
------ ------ ---------- -------- ------------- --------- -------------
Balance at December 29, 1996..................... 39,125 391 132,976 70,981 - (12,919) 191,429
------ ------ ---------- -------- ------------- --------- -------------
Net earnings..................................... - - - 28,448 - - 28,448
Purchase of common stock......................... - - - - - (22,995) (22,995)
Issuance of common stock for acquisitions........ 1,298 13 16,323 - - - 16,336
Issuance of treasury stock for acquisitions...... - - (922) - - 6,078 5,156
Common stock issued to ESOP and ESPP............. 46 1 688 - - - 689
Exercise of options.............................. 10 - (4,814) - - 7,039 2,225
Tax effect of exercise of options by employees... - - 1,018 - - - 1,018
Cash dividends ($0.038 per share)................ - - - (1,524 ) - - (1,524)
------ ------ ---------- -------- ------------- --------- -------------
Balance at December 28, 1997..................... 40,479 405 145,269 97,905 - (22,797) 220,782
------ ------ ---------- -------- ------------- --------- -------------
Comprehensive income:
Net earnings................................... - - - 66,283 - - 66,283
Foreign currency translation adjustment........ - - - - 24 - 24
------ ------ ---------- -------- ------------- --------- -------------
Total comprehensive income....................... - - - 66,283 24 - 66,307
------ ------ ---------- -------- ------------- --------- -------------
Purchase of common stock......................... - - - - - (92,028) (92,028)
Common stock issued to ESOP and ESPP............. - - 36 - - 370 406
Exercise of options.............................. - - (65) - - 213 148
Temporary equity................................. - - (81,809) - - - (81,809)
Cash dividends ($0.0475 per share)............... - - - (1,777 ) - - (1,777)
------ ------ ---------- -------- ------------- --------- -------------
Balance at January 3, 1999....................... 40,479 405 63,431 162,411 24 (114,242) 112,029
------ ------ ---------- -------- ------------- --------- -------------
Comprehensive income:
Net earnings (unaudited)....................... - - - 5,952 - - 5,952
Foreign currency translation adjustment
(unaudited).................................. - - - - (341) - (341)
------ ------ ---------- -------- ------------- --------- -------------
Total comprehensive income (unaudited)........... - - - 5,952 (341) - 5,611
------ ------ ---------- -------- ------------- --------- -------------
Purchase of common stock (unaudited)............. - - - - - (32,435) (32,435)
Common stock issued to ESOP and ESPP
(unaudited).................................... - - (264) - - 849 585
Temporary equity (unaudited)..................... - - 31,421 - - - 31,421
Cash dividends ($0.0125 per share) (unaudited)... - - - (378 ) - - (378)
------ ------ ---------- -------- ------------- --------- -------------
Balance at April 4, 1999 (unaudited)............. 40,479 $405 $ 94,588 $167,985 $ (317) $(145,828) $116,833
------ ------ ---------- -------- ------------- --------- -------------
------ ------ ---------- -------- ------------- --------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AVADO BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN-WEEK
PERIODS ENDED
FOR THE FISCAL YEARS ENDED ----------------------
------------------------------- MARCH 29, APRIL 4,
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................................... $ 11,674 $ 28,448 $ 66,283 $ 37,078 $ 5,952
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................. 26,250 39,972 23,221 5,665 6,332
Deferred income taxes......................................... 300 3,905 (6,031) 1,769 -
(Gain) loss on disposal of assets............................. 107 54 (72,547) (49,000) (1,350)
(Income) loss from investments carried at equity.............. - - (1,025) (703) 133
Asset revaluation charges..................................... 27,700 - - - -
(Increase) decrease in assets:
Accounts receivable......................................... (1,062) (2,441) (141) (3,012) 1,071
Inventories................................................. (1,488) (2,592) (2,260) (883) (772)
Prepaid expenses and other.................................. (1,837) (1,980) 4,187 (2,233) (2,043)
Increase (decrease) in liabilities:
Accounts payable............................................ 3,199 703 3,655 (3,080) 3,893
Accrued liabilities......................................... (4,958) (1,447) (4,725) 8,690 (8,861)
Income taxes................................................ 4,668 (2,050) 28,091 18,049 4,138
Other long-term liabilities................................. - 164 2,309 1,106 332
--------- --------- --------- ----------- ---------
Net cash provided by operating activities................. 64,553 62,736 41,017 13,446 8,825
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ (124,623) (172,963) (142,841) (40,088) (22,173)
Acquisition of businesses, net of cash acquired................. - (146,444) (2,658) - -
Proceeds from disposal of assets, net........................... 429 5,798 373,814 414 45,643
Decrease in short-term investments.............................. 325 15 10 10 (26)
Additions to investments carried at equity...................... - - (15,057) (6,079) (1,463)
Additions to other assets....................................... (4,690) (5,676) (21,975) (370) (1,560)
--------- --------- --------- ----------- ---------
Net cash provided by (used in) investing activities....... (128,559) (319,270) 191,293 (46,113) 20,421
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayment of) revolving credit agreements.... (11,000) 165,500 (114,726) 32,966 (3,009)
Proceeds from issuance of preferred securities, net of issue
costs......................................................... - 111,261 - - -
Proceeds from issuance of long-term debt........................ 121,880 823 - - -
Principal payments on long-term debt............................ (19,756) (865) (8,500) (53) (21)
Proceeds from issuance of common stock.......................... 3,215 2,914 148 - -
Dividends declared and paid..................................... (1,168) (1,524) (1,777) (405) (378)
Purchase of treasury stock...................................... (30,048) (22,995) (92,028) (113) (32,435)
Collateral payments on equity forward contracts, net............ - - (10,714) - 175
--------- --------- --------- ----------- ---------
Net cash (used in) provided by financing activities....... 63,123 255,114 (227,597) 32,395 (35,668)
--------- --------- --------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. (883) (1,420) 4,713 (272) (6,422)
Cash and cash equivalents at the beginning of the period.......... 4,806 3,923 2,503 2,503 7,216
--------- --------- --------- ----------- ---------
Cash and cash equivalents at the end of the period................ $ 3,923 $ 2,503 $ 7,216 $ 2,231 $ 794
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Avado Brands, Inc. (formerly Apple South, Inc.), including its wholly owned
subsidiaries (the "Company"), is a multi-concept restaurant company operating
restaurants in 29 states plus the District of Columbia. At January 3, 1999, the
Company operated 123 Don Pablo's Mexican Kitchen restaurants, 47 Hops Restaurant
Bar and Brewery restaurants, 23 McCormick & Schmick's seafood dinner houses, 19
Canyon Cafe restaurants as well as 44 Applebee's Neighborhood Grill & Bar
restaurants which were held for sale. The Company owns all of its brands on a
proprietary basis except Applebee's, which is franchised. Avado Brands also owns
a 20% equity interest in Belgo Group PLC, a ten-unit United Kingdom restaurant
company, and a 25% equity interest in 11 Harrigans Grill and Bar restaurants.
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of Avado Brands, Inc. and its wholly owned subsidiaries. Investments in
20% to 50% owned affiliates and partnerships are accounted for on the equity
method. All significant intercompany accounts and transactions are eliminated in
consolidation.
The accompanying consolidated financial statements as of April 4, 1999 and
for the thirteen-week periods ended March 29, 1998 and April 4, 1999 are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X promulgated by the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
reporting purposes. In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation
have been included.
USE OF ESTIMATES--Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions related to the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results may ultimately
differ from estimates.
FISCAL YEAR--The Company's fiscal year is a 52- or 53-week year ending on
the Sunday closest to December 31. Accordingly, the accompanying consolidated
financial statements are as of and for the 52 week periods ended December 29,
1996 ("fiscal 1996") and December 28, 1997 ("fiscal 1997") and the 53-week
period ended January 3, 1999 ("fiscal 1998"). All general references to years
relate to fiscal years unless otherwise noted.
CASH EQUIVALENTS--Cash equivalents include all highly liquid investments,
which have original maturities of three months or less.
SHORT-TERM INVESTMENTS--Short-term investments, which have original
maturities of greater than three months, are stated at cost plus accrued
interest, which approximates market value.
INVENTORIES--Inventories consist primarily of food, beverages and supplies
and are stated at the lower of cost (using the first-in, first-out method) or
market.
ASSETS HELD FOR SALE--Assets held for sale are stated at the lower of cost
or estimated net realizable value and include certain premises and equipment,
franchise costs and goodwill related primarily to the Company's Applebee's brand
(Note 2). In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of," the Company does not recognize
depreciation or amortization expense during the period in which the assets are
being held for sale.
F-7
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT--Premises and equipment are stated at cost.
Depreciation of premises and equipment is calculated using the straight-line
method over the estimated useful lives of the related assets, which approximates
30 years for buildings and seven years for equipment. Leasehold improvements are
depreciated using the straight-line method over the shorter of the lease term,
including renewal periods, or the estimated useful life of the asset.
FRANCHISE COSTS--In 1996 and 1997, the costs related to acquisition of
Applebee's franchises were amortized over their estimated useful lives,
principally 20 years, using the straight-line method. At December 28, 1997 and
January 3, 1999, franchise costs are included as a component of assets held for
sale in the consolidated balance sheets (Note 2). The franchise agreements for
the Applebee's restaurants require royalty fees equal to 4% of sales and
advertising fees equal to 1 1/2% of sales. Such fees are expensed as incurred.
Total royalty and advertising fees paid under franchise agreements were $21.4
million in 1996, $25.0 million in 1997 and $18.4 million in 1998.
GOODWILL--Goodwill represents the excess of purchase price over fair value
of net assets acquired and is amortized over the expected period to be
benefitted, typically 40 years, using the straight-line method. Recoverability
of this intangible asset is determined by assessing whether the amortization of
the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operations. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. Accumulated amortization of goodwill amounted to $2.9 million at
December 28, 1997 and $5.9 million at January 3, 1999.
DEVELOPMENT COSTS--Certain direct and indirect costs are capitalized in
conjunction with acquiring and developing new restaurant sites and amortized
over the life of the related building. Development costs were capitalized as
follows: $4.0 million in 1996, $4.7 million in 1997 and $5.0 million in 1998.
PREOPENING COSTS--Preopening costs consist primarily of wages and salaries,
hourly employee recruiting, license fees, meals, lodging and travel plus the
cost of hiring and training the management teams. AICPA Statement of Position
98-5, "Reporting the Cost of Start-Up Activities," was adopted at the beginning
of 1998. This statement requires entities to expense the costs of start-up
activities as incurred. As a result of the adoption of this change in accounting
policy, from expensing preopening costs in the first full month of a
restaurant's operations to expensing them as incurred, a cumulative effect
charge from the change in accounting principle of $2.2 million ($1.5 million net
of tax benefit) was recorded in the thirteen weeks ended March 29, 1998.
ADVERTISING--Advertising is expensed over the period covered by the related
promotions. Total advertising expense included in other operating expenses was
$15.0 million in 1996, $29.0 million in 1997 and $32.6 million in 1998, in
addition to amounts paid to the franchisor of Applebee's.
FOREIGN CURRENCY TRANSLATION--Investments in foreign affiliates are
translated into U.S. dollars at the period-end exchange rate, while net earnings
are translated at the average exchange rate during the period. The resulting
translation adjustments are recorded as a separate component of shareholders'
equity and comprehensive income.
STOCK-BASED COMPENSATION--Stock-based compensation is determined using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured
F-8
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
as the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock
(Note 14).
INTEREST RATE CONTRACTS--Interest rate contracts are used principally for
the management of interest rate exposures. Differentials to be received or paid
under contracts designated as hedges are recognized in income over the life of
the contracts as adjustments to interest expense.
Certain interest rate swap contracts are used for trading purposes. These
contracts are carried at fair value. Fair value for interest rate swap contracts
is based on pricing models intended to approximate the amounts that would be
received from or paid to a third party in settlement of the contracts. Factors
taken into consideration include credit spreads, market liquidity,
concentrations, and funding and administrative costs incurred over the life of
the instruments. At January 3, 1999, no interest rate swap contracts were
classified as trading instruments.
Counterparties to interest rate contracts are major financial institutions
with which the Company also has other financial relationships. Exposure to
credit loss exists in the event of nonperformance by these counterparties.
However, the Company does not anticipate nonperformance by the other parties,
and no material loss would be expected from their nonperformance.
INCOME TAXES--Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
RECLASSIFICATIONS--Certain accounts have been reclassified in the 1996 and
1997 financial statements to conform with the 1998 classifications.
NOTE 2--APPLEBEE'S DIVESTITURE
In December 1997, the Company announced the decision to sell its franchised
Applebee's restaurants in order to focus on the development of proprietary
restaurant concepts. During 1998, the divestiture was substantially completed
with the sale of 233 of 279 Applebee's locations and the closing of two
additional locations. Gross proceeds in 1998 totaled $434.8 million including
$6.8 million in notes and other amounts due. The notes, net of a $2.6 million
allowance, are included in "Other assets" in the accompanying 1998 consolidated
balance sheet.
"Gain on disposal of assets" in the accompanying 1998 consolidated statement
of earnings primarily reflects the gain recognized on the Applebee's
divestiture. The unsold premises and equipment and franchise cost related to the
brand are included in "Assets held for sale" in the accompanying consolidated
balance sheets. Depreciation and amortization on these long-lived assets were
suspended in December 1997, when management finalized the decision to dispose of
the brand. Sale of the remaining restaurants is expected to be completed in
early 1999.
F-9
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ASSET REVALUATION AND OTHER SPECIAL CHARGES
In the fourth quarter of 1998, programs were initiated at Don Pablo's,
Canyon Cafe and the Company's corporate headquarters to reorganize management
and reduce overhead costs. A pre-tax charge of $2.9 million was recorded, the
components of which related primarily to employee termination and severance
costs. At January 3, 1999, the unpaid portion of these charges ($1.8 million)
was included in "Accrued liabilities" in the accompanying 1998 consolidated
balance sheet.
In 1996, the Tomato Rumba's operating brand was dissolved and efforts to
sell Hardee's were accelerated. These decisions, combined with the
implementation of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of," resulted in an asset revaluation charge of $27.7 million. Assets
related to these brands, included as a component of assets held for sale in the
consolidated balance sheets, were $1.7 million and $0.5 million at December 28,
1997 and January 3, 1999, respectively. During 1997 and 1998, Hardee's and
several Tomato Rumba's locations were sold, several additional locations were
converted to other company brands, and the remaining assets were redeployed.
NOTE 4--INVESTMENTS AND ACQUISITIONS
In January 1998, the Company acquired, for $6.1 million, a 20% interest in
Belgo Group PLC ("Belgo"), a public restaurant company based in the United
Kingdom that owned two Belgo restaurants in London. In 1998, Belgo completed two
transactions for the acquisition of five additional restaurants. In connection
with these acquisitions, the Company invested an additional $8.8 million to
maintain its 20% equity interest. At January 3, 1999, the fair value of the
Company's investment in Belgo was approximately $31.0 million. Also in 1998, the
Company and Belgo entered into two 50/50 joint ventures: one to develop one of
the Company's proprietary brands in Europe and the other to develop Belgo
restaurants in the Western Hemisphere. In January 1999, the first Belgo
restaurant in the United States was opened in New York City.
In April 1998, the Company sold its Harrigans brand, receiving $3.0 million
in cash plus a $4.0 million note and retaining a 25% equity interest in the
ongoing business. The transaction resulted in a $0.6 million gain with an
additional $4.0 million gain, related to the note, being deferred. The
investment is accounted for using the equity method of accounting.
In July 1997, the Company acquired Canyon Cafes, Inc. ("Canyon Cafe") for
$46.3 million, including $33.6 million in cash, the issuance of 357,600 shares
of common stock and the assumption of approximately $7.5 million in debt.
In March 1997, the Company acquired Hops Restaurant Bar & Brewery ("Hops")
for $58.4 million, which included $16.3 million in cash, the issuance of 1.05
million shares of common stock and the assumption of approximately $28.9 million
in debt.
In March 1997, the Company acquired McCormick & Schmick Holding Corp.
("McCormick & Schmick's") for $68.3 million, including $50.1 million in cash,
the issuance of 248,139 shares of common stock and the assumption of
approximately $15.0 million in debt.
All three 1997 acquisitions were accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase consideration was allocated
to the net assets acquired based on their estimated fair values. The aggregate
fair value of identifiable assets acquired and liabilities assumed was $68.0
million and $37.5 million, respectively. The remaining estimated excess of
purchase
F-10
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INVESTMENTS AND ACQUISITIONS (CONTINUED)
price over net assets acquired of $142.5 million was recorded as goodwill and is
being amortized on a straight-line basis over 40 years.
The following unaudited pro forma financial information gives effect to all
of the three foregoing acquisitions as if the acquisitions had occurred as of
the beginning of the periods presented. This pro forma financial information
reflects certain adjustments such as: expensing, rather than capitalizing and
amortizing preopening expenses, amortization of goodwill, interest expense on
the proceeds of the Convertible Preferred Securities (Note 7), elimination of
interest on a portion of the acquisition debt assumed, and the related income
tax effects (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
------------------------
<S> <C> <C>
1996 1997
----------- -----------
(UNAUDITED)
Total restaurant sales.............................................. $ 672,927 $ 842,785
Net earnings........................................................ $ 6,536 $ 26,759
Basic earnings per common share..................................... $ 0.16 $ 0.67
Diluted earnings per common share................................... $ 0.16 $ 0.67
</TABLE>
These pro forma results are not necessarily indicative of what actually
would have occurred if the acquisitions had taken place as of the beginning of
the periods presented, nor do they reflect the purchase price that might have
been negotiated at these earlier periods.
NOTE 5--PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
FOR FISCAL YEAR END
------------------------
1997 1998
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Land................................................................ $ 42,166 $ 69,154
Buildings........................................................... 123,901 161,501
Equipment........................................................... 87,043 79,371
Leasehold improvements.............................................. 59,584 88,270
Construction in progress............................................ 19,234 23,628
----------- -----------
Total premises and equipment........................................ 331,928 421,924
Less accumulated depreciation and amortization...................... 48,089 54,337
----------- -----------
Premises and equipment, net......................................... $ 283,839 $ 367,587
----------- -----------
----------- -----------
</TABLE>
F-11
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT
<TABLE>
<CAPTION>
FOR FISCAL YEAR END
------------------------
1997 1998
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Revolving credit agreements, unsecured, with variable rate interest
(7.3% at January 3, 1999)......................................... $ 255,000 $ 140,500
Senior notes, unsecured............................................. 125,000 116,500
Other............................................................... 2,049 478
----------- -----------
Total long-term debt................................................ 382,049 257,478
Less current maturities............................................. 206 140,500
----------- -----------
Long-term debt, excluding current maturities........................ $ 381,843 $ 116,978
----------- -----------
----------- -----------
</TABLE>
At January 3, 1999, revolving credit agreements aggregated $162.0 million of
which $21.5 million was unused and available. The agreements expire in March
through July of 1999, and as such, the $140.5 million of revolving obligations
have been classified as current maturities. The Company anticipates reducing
these obligations with proceeds received from Applebee's divestiture
transactions expected to be completed in 1999. Remaining revolving obligations
are expected to be replaced prior to their expiration with the renewal and
expansion of long-term revolving credit agreements.
In 1996, $125.0 million of 9.75% senior notes were issued under a $200.0
million shelf registration. The notes are due March 2006 with interest payable
semi-annually. In 1998, the Company repurchased $8.5 million of these notes.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of revolving credit
agreements and other long-term debt approximates the book value recorded. Fair
value of the senior notes at January 3, 1999 was estimated as $109.8 million,
based on quoted market prices of the notes.
The aggregate annual maturities of long-term debt for the years subsequent
to January 3, 1999 are as follows: 1999-$140.5 million and 2001-$0.5 million.
The $116.5 million senior notes are due in 2006.
Terms of the senior notes and revolving credit agreements include various
provisions which, among other things, require the Company to (i) maintain
defined net worth and coverage ratios, (ii) limit the incurrence of certain
liens or encumbrances in excess of defined amounts and (iii) maintain defined
leverage ratios. As amended, the Company was in compliance with the loan
provisions.
During 1997 and 1998, the Company was party to various interest rate swap
agreements with notional amounts ranging from $75.0 million to $115.0 million.
At January 3, 1999, two interest rate swap agreements with $100.0 million and
$115.0 million notional amounts were in place. The first agreement is a hedge of
U.S. LIBOR obligations relating to revolving credit facilities. Under the terms
of the agreement, the Company pays an average of certain foreign LIBOR-based
variable rates (6.0% at January 3, 1999) and receives a U.S. LIBOR-based
variable rate (5.2% at January 3, 1999). At January 3, 1999, the Company
estimates that it would have paid approximately $1.0 million to terminate this
swap agreement. The other swap agreement relates to the 7.0% fixed interest
obligation on the Convertible Preferred Securities (Note 7). Under the
agreement, the Company pays an average of certain foreign LIBOR-based variable
rates (5.9% at January 3, 1999) and receives a 7.0% fixed rate. At January 3,
1999, the Company estimates that it would have paid approximately $2.8 million
to
F-12
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT (CONTINUED)
terminate this swap agreement. Under the terms of the agreement, however, the
swap terminates upon conversion of the Convertible Preferred Securities with no
amounts due from either party. Amounts received on interest rate swap agreements
accounted for as hedges totaled $1.9 million in 1997 and $0.1 million in 1998.
NOTE 7--CONVERTIBLE PREFERRED SECURITIES
In 1997, Avado Financing I (formerly Apple South Financing I) (the "Trust")
issued 2,300,000, $3.50 term convertible securities, Series A (the "Convertible
Preferred Securities"), having a liquidation preference of $50 per security. The
Trust, a statutory business trust, is a wholly owned, consolidated subsidiary of
the Company with its sole asset being $115.0 million aggregate principal amount
of 7% convertible subordinated debentures due March 1, 2027 of Avado Brands,
Inc. (the "Convertible Debentures").
The Convertible Preferred Securities are convertible until 2027 at an
initial rate of 3.3801 shares of Avado Brands common stock for each security
(equivalent to a conversion price of $14.793 per share). A guarantee has been
executed with regard to the Convertible Preferred Securities. The guarantee,
when taken together with the obligations under the Convertible Debentures, the
indenture pursuant to which the Convertible Debentures were issued, and the
declaration of trust of Avado Financing I, provides a full and unconditional
guarantee of amounts due under the Convertible Preferred Securities.
Proceeds, after deducting underwriters' fees and other offering expenses of
approximately $3.7 million, of $111.3 million were used to repay revolving loan
advances used for the acquisition of McCormick & Schmick's and to finance the
acquisition of Hops Restaurant Bar & Brewery, including in each case, retirement
of acquired company debt.
NOTE 8--LEASES
Various leases are utilized for restaurant land, buildings, equipment and
office facilities. Land and building lease terms typically range from 10 to 20
years, with renewal options ranging from five to 20 years. Equipment lease terms
generally range from four to eight years. In the normal course of business, some
leases are expected to be renewed or replaced by leases on other properties.
Future minimum lease payments do not include amounts payable for maintenance
costs, real estate taxes, insurance, etc., or contingent rentals payable based
on a percentage of sales in excess of stipulated amounts for restaurant
facilities.
In 1997, the Company entered into a $70.0 million (amended to $30.0 million
in 1998) master equipment lease agreement. The agreement provides for the rental
of restaurant equipment for a five-year period, subject to renewal at the
Company's option. Pursuant to terms of the agreement, the Company acts as
purchasing agent for the lessor. Equipment is procured for new restaurants, with
payment coming from the lessor. This agreement has been accounted for as an
operating lease for financial reporting purposes. At January 3, 1999, $3.7
million of the $30.0 million commitment was unused and available.
F-13
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases at
January 3, 1999 are as follows (amounts in thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 20,192
2000.............................................................. 21,036
2001.............................................................. 20,854
2002.............................................................. 20,621
2003.............................................................. 20,436
Later years....................................................... 105,169
---------
Total minimum payments............................................ $ 208,308
---------
---------
</TABLE>
Total rental expense related to cancelable and noncancelable operating
leases was $15.6 million in 1996, $24.3 million in 1997 and $27.5 million in
1998. Rental expense included contingent rentals of $0.9 million in 1996, $1.0
million in 1997 and $2.3 million in 1998.
NOTE 9--ACCRUED LIABILITIES
<TABLE>
<CAPTION>
FOR FISCAL YEAR END
------------------------
1997 1998
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Payroll and related benefits........................................ $ 15,060 $ 13,584
Insurance........................................................... 4,219 6,615
Gift certificates................................................... 3,926 4,797
Applebee's divestiture.............................................. - 2,948
Acquisition costs................................................... 5,327 2,830
Property taxes...................................................... 4,293 2,659
Other............................................................... 7,441 8,620
----------- -----------
$ 40,266 $ 42,053
----------- -----------
----------- -----------
</TABLE>
F-14
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--SUPPLEMENTAL CASH FLOW INFORMATION
The following supplements the consolidated statements of cash flows (amounts
in thousands):
<TABLE>
<CAPTION>
THIRTEEN-WEEK
PERIODS ENDED
FOR FISCAL YEARS ENDED ----------------------
-------------------------------- MARCH 29, APRIL 4,
1996 1997 1998 1998 1999
--------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Interest paid......................... $ 10,728 $ 20,452 $ 25,739 $ 3,977 $ 2,171
--------- ---------- --------- ----------- ---------
Distributions on preferred
securities.......................... - 5,944 8,050 2,012 2,012
--------- ---------- --------- ----------- ---------
Income taxes paid (refunded).......... 1,415 9,022 14,487 2,254 (988)
--------- ---------- --------- ----------- ---------
Business acquisitions, net of cash
acquired:
Fair value of assets acquired, other
than cash......................... $ - $ 64,861 $ - $ - $ -
Liabilities assumed................. - (37,504) 1,274 - -
Merger consideration payable........ - (1,890) - - -
Stock issued........................ - (21,492) - - -
Purchase price in excess of the net
assets acquired................... - 142,469 1,384 - -
--------- ---------- --------- ----------- ---------
Net cash used for acquisitions........ $ - $ 146,444 $ 2,658 $ - $ -
--------- ---------- --------- ----------- ---------
--------- ---------- --------- ----------- ---------
</TABLE>
The 1998 business acquisition reflects the buyout of several of Hops' joint
venture partners. As discussed in Note 2, in 1998 the Company sold 233
Applebee's restaurants. The accompanying consolidated balance sheets reflect
changes in asset and liability accounts related to the divestiture of these
restaurants as follows: decrease in assets held for sale of $281.3 million,
decreases in assets not classified as held for sale of $5.5 million and
increases in accrued liabilities of $2.9 million.
F-15
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--EARNINGS PER SHARE INFORMATION
Effective for fiscal year ending December 28, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS 128 requires all entities to provide dual disclosure of earnings
per share, basic and diluted. Basic earnings per share equals net earnings
divided by the weighted average number of common shares outstanding and does not
include the dilutive effects of stock options. Diluted earnings per share is
computed by giving effect to dilutive stock options and by adjusting both net
earnings and shares outstanding as if the Convertible Preferred Securities (Note
7) had been converted at the date of issuance. In accordance with SFAS 128, all
prior-period earnings per share have been restated. The following table presents
a reconciliation of weighted average shares and earnings per share amounts
(amounts in thousands, except per share data):
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Average number of common shares used in basic calculation.... 38,731 38,620 36,612
Additional shares issuable pursuant to employee stock option
plans at period-end market price........................... 686 206 9
Shares issuable on assumed conversion of Convertible
Preferred Securities....................................... - 6,101 7,774
--------- --------- ---------
Average number of common shares used in diluted
calculation................................................ 39,417 44,927 44,395
--------- --------- ---------
--------- --------- ---------
Earnings before cumulative effect of change in accounting
principle.................................................. $ 11,674 $ 28,448 $ 67,744
Cumulative effect of change in accounting principle, net of
tax........................................................ - - 1,461
--------- --------- ---------
Net earnings................................................. 11,674 28,448 66,283
Distribution savings on assumed conversion of Convertible
Preferred Securities, net of income taxes.................. - 4,336 5,415
--------- --------- ---------
Net earnings for computation of diluted earnings per common
share...................................................... $ 11,674 $ 32,784 $ 71,698
--------- --------- ---------
--------- --------- ---------
Basic earnings before cumulative effect of change in
accounting principle....................................... $ 0.30 $ 0.74 $ 1.85
Cumulative effect of change in accounting principle.......... - - (0.04)
--------- --------- ---------
Basic earnings per common share.............................. $ 0.30 $ 0.74 $ 1.81
--------- --------- ---------
--------- --------- ---------
Diluted earnings before cumulative effect of change in
accounting principle....................................... $ 0.30 $ 0.73 $ 1.65
Cumulative effect of change in accounting principle.......... - - (0.03)
--------- --------- ---------
Diluted earnings per common share............................ $ 0.30 $ 0.73 $ 1.62
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-16
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--INCOME TAXES
The components of the provision for income taxes for the years ended
December 29, 1996, December 28, 1997 and January 3, 1999 before change in
accounting principle are as follows (amounts in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
1996:
Federal...................................................... $ 5,200 250 5,450
State........................................................ 1,050 50 1,100
--------- ----------- ---------
Total...................................................... $ 6,250 300 6,550
--------- ----------- ---------
--------- ----------- ---------
1997:
Federal...................................................... $ 8,090 3,850 11,940
State........................................................ 1,630 55 1,685
--------- ----------- ---------
Total...................................................... $ 9,720 3,905 13,625
--------- ----------- ---------
--------- ----------- ---------
1998:
Federal...................................................... $ 36,035 (3,861) 32,174
State........................................................ 9,296 (2,170) 7,126
--------- ----------- ---------
Total...................................................... $ 45,331 (6,031) 39,300
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
A reconciliation of the Federal statutory income tax rate to the effective
income tax rate applied to earnings before income taxes in the accompanying
consolidated statements of earnings for the years ended December 29, 1996,
December 28, 1997 and January 3, 1999 follows:
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Tax at federal statutory rate......................................... 35.0% 35.0% 35.0%
Increase (decrease) in taxes due to:
Rate differential................................................... (0.7) - -
State income tax, net of federal benefit............................ 3.9 4.0 4.1
FICA tip and targeted jobs tax credits.............................. (2.2) (10.1) (3.4)
Nondeductible goodwill................................................ - 2.0 1.0
Other, net............................................................ (0.1) 1.5 -
--------- --------- ---------
Effective tax rate.................................................... 35.9% 32.4% 36.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 28,
1997 and January 3, 1999 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
FOR FISCAL YEAR END
----------------------
1997 1998
---------- ----------
<S> <C> <C>
FICA tip credits not yet taken for federal tax purposes............... $ 5,772 $ 2,392
Asset impairment and other charges recorded for financial statement
purposes but not yet taken for tax purposes......................... 6,618 10,311
Other................................................................. 589 7,092
---------- ----------
Total deferred tax assets............................................. 12,979 19,795
---------- ----------
Depreciation and amortization taken for tax purposes in excess of
amounts taken for financial reporting purposes...................... (25,713) (25,499)
Other................................................................. (1,497) (2,496)
---------- ----------
Deferred tax liability................................................ $ (14,231) $ (8,200)
---------- ----------
---------- ----------
</TABLE>
A valuation allowance for deferred tax assets has not been recorded as of
December 28, 1997 or January 3, 1999. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based upon these factors, management believes it is more
likely than not the Company will realize the benefits of the deductible
differences.
NOTE 13--INTEREST EXPENSE
Following is a summary of interest cost incurred and interest cost
capitalized as a component of the cost of construction in progress (amounts in
thousands):
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Interest cost capitalized.................................... $ 1,572 $ 2,509 $ 1,426
Interest cost expensed....................................... 11,348 20,504 25,313
--------- --------- ---------
Total interest incurred...................................... $ 12,920 $ 23,013 $ 26,739
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 14--STOCK OPTION PLANS
The 1988 stock option plan (the "Stock Option Plan") and the 1993 and 1995
Stock Incentive Plans (the "Stock Incentive Plans") provide for the granting of
nonqualified and incentive options for up to 1,974,375 shares, 450,000 shares
and 3,600,000 shares, respectively, of common stock of the Company to key
officers, directors and employees. Generally, options awarded under the Stock
Option Plan and Stock Incentive Plans are granted at prices which equate to fair
market value on the date of the grant, are exercisable over three to ten years,
and expire ten years subsequent to award.
F-18
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--STOCK OPTION PLANS (CONTINUED)
The 1992 DF&R Stock Option Plan (the "DF&R Option Plan") provides for the
granting of 1,000,000 shares of common stock to key officers, directors and
employees. Options awarded under the DF&R Option Plan prior to the merger were
adjusted based on the exchange ratio of 1.5 shares of the Company's common stock
for each share of DF&R common stock. Options awarded under the DF&R Option Plan
are generally granted at prices which equate to fair market value on the date of
grant. With limited exceptions, all options are generally exercisable beginning
one year from the date of grant with annual vesting periods and terminate not
later than five years from the date of grant. Management does not anticipate
granting any additional options under the DF&R Option Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans. Had compensation cost for the Company's
stock option plans been determined based upon the fair value methodology
prescribed under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company's net earnings and
diluted earnings per share would have been reduced by $2.1 million or $0.05 per
share in 1996, $2.3 million or $0.05 per share in 1997 and $0.6 million or $0.01
per share in 1998. The effects of either recognizing or disclosing compensation
cost under SFAS 123 may not be representative of the effects on reported net
earnings for future years. The fair value of the options granted during 1998 is
estimated as $7.37 on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: dividend yield 0.33%, volatility of 50%,
risk-free interest rate of 5.0% and an expected life of 6.7 years. Further
information relating to total options is as follows:
<TABLE>
<CAPTION>
AVERAGE
SHARES PRICE
----------- ---------
<S> <C> <C>
Outstanding at December 31, 1995....................................... 2,790,673 $ 13.44
Granted in 1996........................................................ 726,587 19.72
Exercised in 1996...................................................... (779,198) 3.25
Canceled in 1996....................................................... (243,870) 21.48
----------- ---------
Outstanding at December 29, 1996....................................... 2,494,192 17.66
Granted in 1997........................................................ 1,412,694 14.46
Exercised in 1997...................................................... (334,296) 6.66
Canceled in 1997....................................................... (574,460) 19.15
----------- ---------
Outstanding at December 28, 1997....................................... 2,998,130 17.04
Granted in 1998........................................................ 183,425 13.15
Exercised in 1998...................................................... (15,885) 9.42
Canceled in 1998....................................................... (1,149,880) 17.10
----------- ---------
Outstanding at January 3, 1999......................................... 2,015,790 $ 16.60
----------- ---------
----------- ---------
</TABLE>
F-19
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--STOCK OPTION PLANS (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICE RANGE SHARES LIFE PRICE SHARES PRICE
------------ ---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 5.01-$10.00........................ 9,375 9.5 years $ 8.63 375 $ 8.33
$10.01-$15.00........................ 937,013 8.0 years 13.45 45,653 12.77
$15.01-$20.00........................ 694,390 5.6 years 18.23 116,300 17.26
$20.01-$25.00........................ 334,464 7.0 years 21.18 27,847 21.16
$25.01-$30.00........................ 40,548 7.0 years 25.48 900 25.25
---------- ---------- ----------- --------- -----------
Total................................ 2,015,790 7.0 years $ 16.60 191,075 $ 16.78
---------- ---------- ----------- --------- -----------
---------- ---------- ----------- --------- -----------
</TABLE>
NOTE 15--EMPLOYEE BENEFIT PLANS
A noncontributory Employee Stock Ownership Plan (the "Plan") covers
substantially all full-time employees. In accordance with the terms of the Plan,
the Company may make contributions to the Plan in amounts as determined by the
Board of Directors. Participants become 20% vested in their accounts after three
years of service, escalating 20% each year thereafter until they are fully
vested. Contribution expense related to the Plan was $0.3 million in 1996, $0 in
1997 and $0.5 million in 1998.
The Avado Brands, Inc. Profit Sharing Plan and Trust, established in
accordance with Section 401(k) of the Internal Revenue Code, allows eligible
participating employees to defer receipt of a portion of their compensation and
contribute such amount to one or more investment funds. Employee contributions
are matched by the Company dollar for dollar for the first 2% of the employee's
income deferred. Matching funds vest at the rate of 20% each year, beginning
after three years of service. Company contributions were $0.4 million in 1996,
$0.5 million in 1997 and $0.4 million in 1998.
NOTE 16--SHAREHOLDERS' EQUITY
The Board of Directors, from time to time and depending on market
conditions, authorizes the purchase of common shares. In 1998, the Company
purchased 7.3 million shares of its common stock for $92.0 million, including
one of the equity forward contracts discussed below.
In 1998, third parties purchased a total of 8.3 million shares of the
Company's common stock at an average price per share of $13.36 (or a total
acquisition cost of $110.9 million) pursuant to four equity forward contracts.
Upon expiration of the agreements, the Company has the option to (i) acquire the
shares at the third parties' average acquisition cost as described above or (ii)
instruct the third parties to sell the stock in the market and settle in cash
any appreciation or depreciation in the market value of the stock at the sale
date compared to the acquisition cost described above. Any such appreciation or
depreciation in the value of the shares will be reflected in equity and will not
impact net earnings. One of these contracts for 2.0 million shares was settled
in December 1998, and the Company exercised its option to acquire the related
shares for $29.9 million. At January 3, 1999, three equity forward contracts
covering 6.3 million shares were pending settlement. The third parties' total
acquisition price for these shares of $81.8 million, net of a $10.7 million
collateral deposit made by the Company with a
F-20
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SHAREHOLDERS' EQUITY (CONTINUED)
third party, is reflected as "Temporary equity, net" in the 1998 consolidated
balance sheet. The remaining contracts expire in March through July of 1999.
NOTE 17--COMMITMENTS AND CONTINGENCIES
Under the Company's insurance programs, coverage is obtained for significant
exposures as well as those risks required to be insured by law or contract. It
is the Company's preference to retain a significant portion of certain expected
losses related primarily to workers' compensation, physical loss to property and
comprehensive general liability. Provisions for losses expected under these
programs are recorded based on estimates of the aggregate liability for claims
incurred.
The Company is contingently liable for letters of credit aggregating
approximately $4.3 million and is co-guarantor of a $5.0 million revolving
credit facility relating to one of its joint ventures with Belgo. At January 3,
1999, $1.0 million was outstanding under this facility.
In connection with Applebee's divestiture transactions completed during
1998, the Company remains contingently liable for lease obligations relating to
67 restaurants. Assuming that each respective purchaser became insolvent, an
event management believes to be highly unlikely, the Company could be liable for
lease payments extending through 2035 with minimum lease payments totaling $48.0
million. In the event of default, the franchisor has the contractual right to
assume the obligations under the leases. In the event the Company becomes liable
for any such obligations, it may have certain rights to the leased properties.
Management believes that the ultimate disposition of these contingent
liabilities should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
In 1997, two lawsuits were filed by persons seeking to represent a class of
shareholders of the Company who purchased shares of the Company's common stock
between May 26, 1995 and September 24, 1996. Each plaintiff named the Company
and certain of its officers and directors as defendants. The complaints alleged
acts of fraudulent misrepresentation by the defendants which induced the
plaintiffs to purchase the Company's common stock and alleged illegal insider
trading by certain of the defendants, each of which allegedly resulted in losses
to the plaintiffs and similarly situated shareholders of the Company. The
complaints each sought damages and other relief. In 1998, one of these suits was
dismissed. Although the ultimate outcome of the remaining lawsuit cannot be
determined at this time, the Company believes that the allegations therein are
without merit and intends to vigorously defend itself.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
F-21
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--RELATED PARTY TRANSACTIONS
In 1998, the Board of Directors approved loans to certain executive officers
of the Company. At January 3, 1999, the Company held notes receivable from the
Chief Executive Officer, totaling $7.9 million. The principal balances of the
notes are due in November and December of 2000 or earlier upon demand of the
Company and bear interest at 7.0% per annum with interest payment due at
maturity. The Company also holds notes receivable from two other executive
officers totaling $0.1 million. The notes are due in October and November of
1999 and bear interest at 5.06% per annum with interest payment due at maturity.
NOTE 19--GUARANTOR SUBSIDIARIES
The Company's senior notes and revolving credit facilities are fully and
unconditionally guaranteed on a joint and several basis by substantially all of
its wholly-owned subsidiaries. The Company's indebtedness is not guaranteed by
its non-wholly owned subsidiaries. These non-guarantor subsidiaries primarily
include certain partnerships of which the Company is typically a 90% owner. At
January 3, 1999 and April 4, 1999 (unaudited), these partnerships in the
non-guarantor subsidiaries owned 36 and 40, respectively, of the Company's
restaurants. Accordingly, condensed consolidating balance sheets as of December
28, 1997, January 3, 1999 and April 4, 1999 (unaudited), and condensed
consolidating statements of earnings and cash flows for the fiscal years ended
December 28, 1997 and January 3, 1999 and the thirteen-week periods ended March
29, 1998 (unaudited) and April 4, 1999 (unaudited) are provided for such
guarantor and non-guarantor subsidiaries. For the fiscal year ended December 29,
1996, substantially all of the Company's subsidiaries were guarantors of its
indebtedness and, as such, condensed consolidated financial information related
to fiscal 1996 is not applicable. Separate financial statements and other
disclosures concerning the guarantor and non-guarantor subsidiaries are not
presented because management has determined that they are not material to
investors. There are no contractual restrictions on the ability of the guarantor
subsidiaries to make distributions to the Company.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FISCAL YEAR ENDED 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Restaurant sales........................................ $ 776,410 $ 31,910 $ - $ 808,320
Restaurant operating expenses........................... 665,347 28,533 - 693,880
General and administrative expenses..................... 38,136 1,481 - 39,617
----------- ------- ----- ------------
Operating income........................................ 72,927 1,896 - 74,823
----------- ------- ----- ------------
Other income (expense).................................. (32,085) (665) - (32,750)
Earnings before income taxes............................ 40,842 1,231 - 42,073
Income taxes............................................ 13,200 425 - 13,625
----------- ------- ----- ------------
Net earnings............................................ $ 27,642 $ 806 $ - $ 28,448
----------- ------- ----- ------------
----------- ------- ----- ------------
</TABLE>
F-22
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FISCAL YEAR ENDED 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Restaurant sales........................................ $ 785,300 $ 77,392 $ - $ 862,692
Restaurant operating expenses........................... 673,968 67,003 - 740,971
General and administrative expenses..................... 42,385 3,765 - 46,150
Asset revaluation and other special charges............. 2,940 - - 2,940
----------- ------- ------------- ------------
Operating income........................................ 66,007 6,624 - 72,631
----------- ------- ------------- ------------
Other income (expense).................................. 35,427 (1,014) - 34,413
Earnings before income taxes and cumulative effect of
change in accounting principle........................ 101,434 5,610 - 107,044
Income taxes............................................ 37,400 1,900 - 39,300
----------- ------- ------------- ------------
Earnings before cumulative effect of change in
accounting principle.................................. 64,034 3,710 - 67,744
Cumulative effect of change in accounting principle, net
of tax benefit........................................ 1,461 - - 1,461
----------- ------- ------------- ------------
Net earnings............................................ $ 62,573 $ 3,710 $ - $ 66,283
----------- ------- ------------- ------------
----------- ------- ------------- ------------
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
THIRTEEN WEEKS ENDED MARCH 29, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Restaurant sales........................................ $ 225,414 $ 16,262 $ - $ 241,676
Restaurant operating expenses........................... 192,759 13,868 - 206,627
General and administrative expenses..................... 12,218 697 - 12,915
----------- ------- ------------- ------------
Operating income........................................ 20,437 1,697 - 22,134
----------- ------- ------------- ------------
Other income (expense).................................. 39,615 (385) - 39,230
Earnings before income taxes and cumulative effect of
change in accounting principle........................ 60,052 1,312 - 61,364
Income taxes............................................ 22,375 450 - 22,825
----------- ------- ------------- ------------
Earnings before cumulative effect of change in
accounting principle.................................. 37,677 862 - 38,539
Cumulative effect of change in accounting principle, net
of tax benefit........................................ 1,461 - - 1,461
----------- ------- ------------- ------------
Net earnings............................................ $ 36,216 $ 862 $ -- $ 37,078
----------- ------- ------------- ------------
----------- ------- ------------- ------------
</TABLE>
F-23
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
THIRTEEN WEEKS ENDED APRIL 4, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Restaurant sales........................................ $ 140,188 $ 23,887 $ - $ 164,075
Restaurant operating expenses........................... 117,698 20,727 - 138,425
General and administrative expenses..................... 8,624 1,216 - 9,840
----------- ------- ----- ------------
Operating income........................................ 13,866 1,944 - 15,810
----------- ------- ----- ------------
Other income (expense).................................. (6,432) (276) - (6,708)
Earnings before income taxes............................ 7,434 1,668 - 9,102
Income taxes............................................ 2,575 575 - 3,150
----------- ------- ----- ------------
Net earnings............................................ $ 4,859 $ 1,093 $ - $ 5,952
----------- ------- ----- ------------
----------- ------- ----- ------------
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
FISCAL YEAR END 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets.......................................... $ 361,516 $ 890 $ - $ 362,406
Premises and equipment, net............................. 253,701 30,138 - 283,839
Goodwill, net........................................... 116,141 22,262 - 138,403
Other assets............................................ 18,826 815 - 19,641
Intercompany investments................................ 38,647 - (38,647) -
Intercompany advances................................... 12,299 - (12,299) -
----------- ------- ------------ ------------
$ 801,130 $ 54,105 $ (50,946) $ 804,289
----------- ------- ------------ ------------
----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities..................................... $ 63,652 $ 1,639 $ - $ 65,291
Long-term liabilities................................... 401,696 1,520 - 403,216
Intercompany payables................................... - 12,299 (12,299) -
Convertible preferred securities........................ 115,000 - - 115,000
Shareholders' equity.................................... 220,782 38,647 (38,647) 220,782
----------- ------- ------------ ------------
$ 801,130 $ 54,105 $ (50,946) $ 804,289
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
F-24
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
FISCAL YEAR END 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets.......................................... $ 99,129 $ 1,856 $ - $ 100,985
Premises and equipment, net............................. 309,919 57,668 - 367,587
Goodwill, net........................................... 116,014 21,991 - 138,005
Investments carried at equity........................... 16,106 - - 16,106
Other assets............................................ 47,588 326 - 47,914
Intercompany investments................................ 44,699 - (44,699) -
Intercompany advances................................... 33,103 - (33,103) -
----------- ------- ------------ ------------
$ 666,558 $ 81,841 $ (77,802) $ 670,597
----------- ------- ------------ ------------
----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities..................................... $ 235,497 $ 3,621 $ - $ 239,118
Long-term liabilities................................... 132,937 418 - 133,355
Intercompany payables................................... - 33,103 (33,103) -
Convertible preferred securities........................ 115,000 - - 115,000
Temporary equity, net................................... 71,095 - - 71,095
Shareholders' equity.................................... 112,029 44,699 (44,699) 112,029
----------- ------- ------------ ------------
$ 666,558 $ 81,841 $ (77,802) $ 670,597
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 4, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets.......................................... $ 62,448 $ 1,629 $ - $ 64,077
Premises and equipment, net............................. 319,311 63,228 - 382,539
Goodwill, net........................................... 115,277 21,850 - 137,127
Investments carried at equity........................... 17,095 - - 17,095
Other assets............................................ 39,882 1,429 - 41,311
Intercompany investments................................ 46,819 - (46,819) -
Intercompany advances................................... 37,841 - (37,841) -
----------- ------- ------------ ------------
$ 638,673 $ 88,136 $ (84,660) $ 642,149
----------- ------- ------------ ------------
----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities..................................... $ 233,559 $ 3,242 $ - $ 236,801
Long-term liabilities................................... 133,432 234 - 133,666
Intercompany payables................................... - 37,841 (37,841) -
Convertible preferred securities........................ 115,000 - - 115,000
Temporary equity, net................................... 39,849 - - 39,849
Shareholders' equity.................................... 116,833 46,819 (46,819) 116,833
----------- ------- ------------ ------------
$ 638,673 $ 88,136 $ (84,660) $ 642,149
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
F-25
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR END 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities............... $ 61,345 $ 1,391 $ - $ 62,736
Cash flows from investing activities:
Capital expenditures.................................. (159,890) (13,073) - (172,963)
Proceeds from disposal of assets, net................. 5,798 - - 5,798
Other investing activities............................ (151,500) (605) - (152,105)
----------- --------------- ------------ ------------
Net cash used in investing activities................... (305,592) (13,678) - (319,270)
Cash flows from financing activities:
Net proceeds from (repayment of) revolving credit
agreements.......................................... 165,500 - - 165,500
Purchase of treasury stock............................ (22,995) - - (22,995)
Proceeds from (payment of) intercompany advances...... (12,299) 12,299 - -
Other financing activities............................ 112,609 - - 112,609
----------- --------------- ------------ ------------
Net cash provided by financing activities............... 242,815 12,299 - 255,114
----------- --------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents.... (1,432) 12 - (1,420)
Cash and cash equivalents at the beginning of the
year.................................................. 3,903 20 - 3,923
----------- --------------- ------------ ------------
Cash and cash equivalents at the end of the year........ $ 2,471 $ 32 $ - $ 2,503
----------- --------------- ------------ ------------
----------- --------------- ------------ ------------
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities............... $ 32,256 $ 8,761 $ - $ 41,017
Cash flows from investing activities:
Capital expenditures.................................. (113,166) (29,675) - (142,841)
Proceeds from disposal of assets, net................. 373,814 - - 373,814
Other investing activities............................ (39,680) - - (39,680)
----------- --------------- ------------ ------------
Net cash used in investing activities................... 220,968 (29,675) - 191,293
Cash flows from financing activities:
Net repayment of revolving credit agreements.......... (114,726) - - (114,726)
Purchase of treasury stock............................ (92,028) - - (92,028)
Proceeds from (payment of) intercompany advances...... (20,936) 20,936 - -
Other financing activities............................ (20,843) - - (20,843)
----------- --------------- ------------ ------------
Net cash provided by financing activities............... (248,533) 20,936 - (227,597)
----------- --------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents.... 4,691 22 - 4,713
Cash and cash equivalents at the beginning of the
period................................................ 2,471 32 - 2,503
----------- --------------- ------------ ------------
Cash and cash equivalents at the end of the period...... $ 7,162 $ 54 $ - $ 7,216
----------- --------------- ------------ ------------
----------- --------------- ------------ ------------
</TABLE>
F-26
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THIRTEEN WEEKS ENDED MARCH 29, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities............... $ 12,264 $ 1,182 $ - $ 13,446
Cash flows from investing activities:
Capital expenditures.................................. (31,079) (9,009) - (40,088)
Proceeds from disposal of assets, net................. 414 - - 414
Other investing activities............................ (6,439) - - (6,439)
----------- ------- ------------- -------------
Net cash used in investing activities................... (37,104) (9,009) - (46,113)
Cash flows from financing activities:
Net proceeds from (repayment of) revolving credit
agreements.......................................... 32,966 - - 32,966
Purchase of treasury stock............................ (113) - - (113)
Proceeds from (payment of) intercompany advances...... (7,834) 7,834 - -
Other financing activities............................ (458) - - (458)
----------- ------- ------------- -------------
Net cash provided by financing activities............... 24,561 7,834 - 32,395
----------- ------- ------------- -------------
Net increase (decrease) in cash and cash equivalents.... (279) 7 - (272)
Cash and cash equivalents at the beginning of the
period................................................ 2,471 32 - 2,503
----------- ------- ------------- -------------
Cash and cash equivalents at the end of the period...... $ 2,192 $ 39 $ - $ 2,231
----------- ------- ------------- -------------
----------- ------- ------------- -------------
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THIRTEEN WEEKS ENDED APRIL 4, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities............... $ 7,192 $ 1,633 $ - $ 8,825
Cash flows from investing activities:
Capital expenditures.................................. (15,808) (6,365) - (22,173)
Proceeds from disposal of assets, net................. 45,643 - - 45,643
Other investing activities............................ (3,049) - - (3,049)
----------- --------------- ------------ ------------
Net cash used in investing activities................... 26,786 (6,365) - 20,421
Cash flows from financing activities:
Net proceeds from (repayment of) revolving credit
agreements.......................................... (3,009) - - (3,009)
Purchase of treasury stock............................ (32,435) - - (32,435)
Proceeds from (payment of) intercompany advances...... (4,738) 4,738 - -
Other financing activities............................ (224) - - (224)
----------- --------------- ------------ ------------
Net cash provided by financing activities............... (40,406) 4,738 - (35,668)
----------- --------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents.... (6,428) 6 - (6,422)
Cash and cash equivalents at the beginning of the
year.................................................. 7,162 54 - 7,216
----------- --------------- ------------ ------------
Cash and cash equivalents at the end of the year........ $ 734 $ 60 $ - $ 794
----------- --------------- ------------ ------------
----------- --------------- ------------ ------------
</TABLE>
F-27
<PAGE>
AVADO BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1997:
Restaurant sales............................................ $ 171,453 $ 202,889 $ 215,739 $ 218,239 $ 808,320
Gross profit(1)............................................. $ 71,269 $ 85,940 $ 90,549 $ 85,904 $ 333,662
Net earnings................................................ $ 7,268 $ 10,224 $ 10,660 $ 296 $ 28,448
Basic earnings per share.................................... $ 0.19 $ 0.27 $ 0.28 $ 0.01 $ 0.74
Diluted earnings per share.................................. $ 0.19 $ 0.25 $ 0.26 $ 0.01 $ 0.73
1998:
Restaurant sales............................................ $ 241,676 $ 239,843 $ 204,442 $ 176,731 $ 862,692
Gross profit(1)............................................. $ 95,711 $ 95,136 $ 79,965 $ 70,917 $ 341,729
Net earnings (loss)(2)...................................... $ 38,539 $ 6,325 $ 24,438 $ (1,558) $ 67,744
Basic earnings (loss) per share(2).......................... $ 0.99 $ 0.17 $ 0.67 $ (0.05) $ 1.85
Diluted earnings (loss) per share(2)........................ $ 0.85 $ 0.17 $ 0.58 $ (0.05) $ 1.65
</TABLE>
- ------------------------
(1) The Company defines gross profit as total restaurant sales less the cost of
food and beverage and payroll and benefits. These costs represent the
expenses associated directly with providing the Company's products and
services.
(2) Amounts are presented before the cumulative effect of change in accounting
principle related to preopening expenses.
NOTE 21--SUBSEQUENT EVENTS (UNAUDITED)
The Company had completed the divestiture of 254 of its 279 Applebee's
restaurants, including the divestiture of 21 restaurants for proceeds of $35.1
million during the thirteen weeks ended April 4, 1999. On May 3, 1999, the
divestiture of the Applebee's restaurants was completed.
F-28
<PAGE>
, 1999
$100,000,000
AVADO BRANDS, INC.
11 3/4% SENIOR SUBORDINATED NOTES DUE 2009
---------------------
PROSPECTUS
---------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-851, et. seq., of the Georgia Business Corporation Code (the
"Code") authorizes the Company to indemnify its directors, officers, employees,
and agents in certain circumstances. Section 14-2-856 expressly allows the
Company to provide, with shareholder approval, indemnification rights that are
broader than otherwise provided under the Code. Article Eight of the Company's
Bylaws provides for broader indemnification rights than expressly provided under
the Code. The following is a summary of the material provisions of Article
Eight.
Article Eight requires the Company to indemnify persons who are parties to
any civil, criminal, administrative, or investigative action, suit, or
proceeding by reason of the fact that such person was or is a director of the
Company. Except as noted in the next paragraph, directors are entitled to be
indemnified against expenses (including but not limited to attorney's fees and
court costs), and against any judgments, fines and amounts paid in settlement
actually and reasonably incurred by them. Directors are also entitled to have
the Company advance any such expenses prior to final disposition of the
proceeding, upon an undertaking to repay the Company if it is ultimately
determined that they are not entitled to indemnification.
Under Article Eight, indemnification will be disallowed under the following
four exceptions to limitation of directors' liability under Section 14-2-202 of
the Code: (i) any appropriation, in violation of the director's duties, of any
business opportunity of the Company, (ii) acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) liability under
Section 14-2-832 of the Code (dealing with unlawful distributions), and (iv) any
transaction from which the director received an improper personal benefit.
The Board of Directors also has the authority to extend to officers,
employees, and agents the same indemnification rights held by directors, subject
to all of the accompanying conditions and obligations. The Board of Directors
has extended indemnification rights to all of its executive officers.
The Company, upon authorization of the Board of Directors, has the power to
enter into an agreement or agreements providing to any person who was or is a
director, officer, employee, or agent of the Company indemnification rights
substantially the same as those provided to directors under Article Eight. The
Company has entered into indemnity agreements with its directors and executive
officers.
The Company has the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the Company
against any liability asserted against him or incurred by him in any such
capacity, whether or not the Company now has the power to indemnify him against
such liability under Article Eight.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of the Company, as amended October 13, 1998 (included as
Exhibit 3.1 to the Company's annual report on Form 10-K for the year ended January 3, 1999, previously
filed with the Commission and incorporated herein by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.2 Bylaws of the Company (included as Exhibit 3.2 to the Company's annual report on Form 10-K for the year
ended January 3, 1999, previously filed with the Commission and incorporated herein by reference).
4.1 Indenture dated as of June 22, 1999, among the Company, the Guarantors and SunTrust Bank, Atlanta, as
Trustee (including form of Exchange Note).
4.2 Registration Rights Agreement dated as of June 22, 1999 among the Company, the Guarantors and the
Initial Purchasers.
4.3 Form of Exchange Note (included in Exhibit 4.1).
5. Opinion of Kilpatrick Stockton LLP.
8. Tax Opinion of Kilpatrick Stockton LLP.
10. Credit Agreement dated as of June 22, 1999, among the Company, Wachovia Bank National Association as
Administrative Agent and Wachovia Bank National Association and the other Banks listed as signatories
thereto.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
24. Power of Attorney (included in Signature Pages).
25. Statement of Eligibility of Trustee under the Trust Indenture Act on Form T-1.
99.1 Form of Transmittal Letter.
(b) Financial Statement Schedules
None.
(c) Reports, Opinions or Appraisals
Not Applicable.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) (i) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(ii) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
II-2
<PAGE>
a court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This include information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2nd, 1999.
<TABLE>
<S> <C> <C>
AVADO BRANDS, INC.
By: /s/ TOM E. DUPREE, JR.
-----------------------------------------
Name: Tom E. DuPree, Jr.
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S>
Chairman of the Board and
/s/ TOM E. DUPREE, JR. Chief Executive Officer
- ------------------------------ (Principal Executive
Tom E. DuPree, Jr. Officer)
Chief Financial Officer,
/s/ ERICH J. BOOTH Corporate Treasurer and
- ------------------------------ Director (Principal
Erich J. Booth Financial and Accounting
Officer)
/s/ JOHN L. MOORHEAD
- ------------------------------ Director
John L. Moorhead
- ------------------------------ Director
Ruth G. Shaw
/s/ THOMAS R. WILLIAMS, SR.
- ------------------------------ Director
Thomas R. Williams, Sr.
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
DON PABLO'S HOLDING CORP.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S>
/s/ ROBERT A. ANDREOTTOLA Chief Executive Officer
- ------------------------------ (Principal Executive
Robert A. Andreottola Officer)
Vice President of Finance,
/s/ MICHAEL ANDREWS Chief Financial Officer
- ------------------------------ and Treasurer
Michael Andrews (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
DON PABLO'S OPERATING CORP.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S>
/s/ ROBERT A. ANDREOTTOLA Chief Executive Officer
- ------------------------------ (Principal Executive
Robert A. Andreottola Officer)
Vice President of Finance,
/s/ MICHAEL ANDREWS Chief Financial Officer
- ------------------------------ and Treasurer
Michael Andrews (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
DON PABLO'S LIMITED, INC.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: PRESIDENT, SECRETARY AND TREASURER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S>
President, Secretary,
Treasurer and Director
/s/ LOUIS J. PROFUMO (Principal Executive
- ------------------------------ Officer and Principal
Louis J. Profumo Financial and Accounting
Officer)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
DON PABLO'S OF TEXAS, LP
By: Don Pablo's Operating Corp.
General Partner
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S>
/s/ ROBERT A. ANDREOTTOLA Chief Executive Officer
- ------------------------------ (Principal Executive
Robert A. Andreottola Officer)
Vice President of Finance,
/s/ MICHAEL ANDREWS Chief Financial Officer
- ------------------------------ and Treasurer
Michael Andrews (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
CANYON CAFE OPERATING CORP.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President and Chief
/s/ MICHAEL B. LIEDBERG Executive Officer
- ------------------------------ (Principal Executive
Michael B. Liedberg Officer)
Vice President of Finance,
/s/ DOUGLAS TOOL Chief Financial Officer
- ------------------------------ and Treasurer (Principal
Douglas Tool Financial and Accounting
Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
CANYON CAFE TX GENERAL, INC.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President and Chief
/s/ MICHAEL B. LIEDBERG Executive Officer
- ------------------------------ (Principal Executive
Michael B. Liedberg Officer)
Vice President of Finance,
/s/ DOUGLAS TOOL Chief Financial Officer
- ------------------------------ and Treasurer (Principal
Douglas Tool Financial and Accounting
Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
CANYON CAFE OF TEXAS, LP
By: Canyon Cafe TX General, Inc.
General Partner
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President and Chief
/s/ MICHAEL B. LIEDBERG Executive Officer
- ------------------------------ (Principal Executive
Michael B. Liedberg Officer)
Vice President of Finance,
/s/ DOUGLAS TOOL Chief Financial Officer
- ------------------------------ and Treasurer (Principal
Douglas Tool Financial and Accounting
Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
CANYON CAFE LIMITED, INC.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: PRESIDENT, SECRETARY AND TREASURER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Secretary,
Treasurer and Director
/s/ LOUIS J. PROFUMO (Principal Executive
- ------------------------------ Officer and Principal
Louis J. Profumo Financial and Accounting
Officer)
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
AVADO VENTURES, INC.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: PRESIDENT, SECRETARY AND TREASURER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Secretary,
Treasurer and Director
/s/ LOUIS J. PROFUMO (Principal Executive
- ------------------------------ Officer and Principal
Louis J. Profumo Financial and Accounting
Officer)
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
AVADO PROPERTIES, INC.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: PRESIDENT, SECRETARY AND TREASURER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Secretary,
Treasurer and Director
/s/ LOUIS J. PROFUMO (Principal Executive
- ------------------------------ Officer and Principal
Louis J. Profumo Financial and Accounting
Officer)
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
MCCORMICK & SCHMICK HOLDING CORP.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND ASSISTANT
SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
/s/ DOUGLAS L. SCHMICK President and Director
- ------------------------------ (Principal Executive
Douglas L. Schmick Officer)
Vice President of Finance,
/s/ JERRY R. KELSO Chief Financial Officer,
- ------------------------------ Secretary and Treasurer
Jerry R. Kelso (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
MCCORMICK & SCHMICK OPERATING CORP.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND ASSISTANT
SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
/s/ DOUGLAS L. SCHMICK President and Director
- ------------------------------ (Principal Executive
Douglas L. Schmick Officer)
Vice President of Finance,
/s/ JERRY R. KELSO Chief Financial Officer,
- ------------------------------ Secretary and Treasurer
Jerry R. Kelso (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
MCCORMICK & SCHMICK TX GENERAL, INC.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND ASSISTANT
SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
/s/ DOUGLAS L. SCHMICK President and Director
- ------------------------------ (Principal Executive
Douglas L. Schmick Officer)
Vice President of Finance,
/s/ JERRY R. KELSO Chief Financial Officer,
- ------------------------------ Secretary and Treasurer
Jerry R. Kelso (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
MCCORMICK & SCHMICK OF TEXAS LP
By: McCormick & Schmick TX General, Inc.
General Partner
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND ASSISTANT
SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
/s/ DOUGLAS L. SCHMICK President and Director
- ------------------------------ (Principal Executive
Douglas L. Schmick Officer)
Vice President of Finance,
/s/ JERRY R. KELSO Chief Financial Officer,
- ------------------------------ Secretary and Treasurer
Jerry R. Kelso (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
MCCORMICK & SCHMICK LIMITED, INC.
By: /s/ LOUIS J. PROFUMO
-----------------------------------------
Name: Louis J. Profumo
Title: SENIOR VICE PRESIDENT AND ASSISTANT
SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
/s/ DOUGLAS L. SCHMICK President and Director
- ------------------------------ (Principal Executive
Douglas L. Schmick Officer)
Vice President of Finance,
/s/ JERRY R. KELSO Chief Financial Officer,
- ------------------------------ Secretary and Treasurer
Jerry R. Kelso (Principal Financial and
Accounting Officer)
/s/ LOUIS J. PROFUMO
- ------------------------------ Director
Louis J. Profumo
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
MCCORMICK & SCHMICK'S SCP VIII, INC.
By: /s/ JERRY R. KELSO
-----------------------------------------
Name: Jerry R. Kelso
Title: VICE PRESIDENT OF FINANCE
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
/s/ WILLIAM P. MCCORMICK President and Director
- ------------------------------ (Principal Executive
William P. McCormick Officer)
/s/ JERRY R. KELSO Vice President of Finance
- ------------------------------ (Principal Financial and
Jerry R. Kelso Accounting Officer)
/s/ DOUGLAS L. SCHMICK
- ------------------------------ Director
Douglas L. Schmick
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
MCCORMICK & SCHMICK'S RMP III, INC.
By: /s/ JERRY R. KELSO
-----------------------------------------
Name: Jerry R. Kelso
Title: VICE PRESIDENT OF FINANCE
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
/s/ WILLIAM P. MCCORMICK President and Director
- ------------------------------ (Principal Executive
William P. McCormick Officer)
/s/ JERRY R. KELSO Vice President of Finance
- ------------------------------ (Principal Financial and
Jerry R. Kelso Accounting Officer)
/s/ DOUGLAS L. SCHMICK
- ------------------------------ Director
Douglas L. Schmick
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
HOPS GRILL & BAR, INC.
By: /s/ TERENCE M. TERENZI
-----------------------------------------
Name: Terence M. Terenzi
TITLE: VICE PRESIDENT-FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Chief Operating
/s/ THOMAS A. SCHELLDORF Officer and Director
- ------------------------------ (Principal Executive
Thomas A. Schelldorf Officer)
Vice President-Finance,
Chief Financial Officer,
/s/ TERENCE M. TERENZI Secretary, Treasurer and
- ------------------------------ Director (Principal
Terence M. Terenzi Financial and Accounting
Officer)
/s/ TOM E. DUPREE, JR.
- ------------------------------ Director
Tom E. DuPree, Jr.
/s/ ERICH J. BOOTH
- ------------------------------ Director
Erich J. Booth
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
CYPRESS COAST CONSTRUCTION CORPORATION
By: /s/ TERENCE M. TERENZI
-----------------------------------------
Name: Terence M. Terenzi
TITLE: VICE PRESIDENT-FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Chief Operating
/s/ THOMAS A. SCHELLDORF Officer and Director
- ------------------------------ (Principal Executive
Thomas A. Schelldorf Officer)
Vice President-Finance,
Chief Financial Officer,
/s/ TERENCE M. TERENZI Secretary, Treasurer and
- ------------------------------ Director (Principal
Terence M. Terenzi Financial and Accounting
Officer)
/s/ TOM E. DUPREE, JR.
- ------------------------------ Director
Tom E. DuPree, Jr.
/s/ ERICH J. BOOTH
- ------------------------------ Director
Erich J. Booth
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
HOPS MARKETING, INC.
By: /s/ TERENCE M. TERENZI
-----------------------------------------
Name: Terence M. Terenzi
TITLE: VICE PRESIDENT-FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Chief Operating
/s/ THOMAS A. SCHELLDORF Officer and Director
- ------------------------------ (Principal Executive
Thomas A. Schelldorf Officer)
Vice President-Finance,
Chief Financial Officer,
/s/ TERENCE M. TERENZI Secretary, Treasurer and
- ------------------------------ Director (Principal
Terence M. Terenzi Financial and Accounting
Officer)
/s/ TOM E. DUPREE, JR.
- ------------------------------ Director
Tom E. DuPree, Jr.
/s/ ERICH J. BOOTH
- ------------------------------ Director
Erich J. Booth
</TABLE>
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
HOPS OF SOUTHWEST FLORIDA, INC.
By: /s/ TERENCE M. TERENZI
-----------------------------------------
Name: Terence M. Terenzi
TITLE: VICE PRESIDENT-FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Chief Operating
/s/ THOMAS A. SCHELLDORF Officer and Director
- ------------------------------ (Principal Executive
Thomas A. Schelldorf Officer)
Vice President-Finance,
Chief Financial Officer,
/s/ TERENCE M. TERENZI Secretary, Treasurer and
- ------------------------------ Director (Principal
Terence M. Terenzi Financial and Accounting
Officer)
/s/ TOM E. DUPREE, JR.
- ------------------------------ Director
Tom E. DuPree, Jr.
/s/ ERICH J. BOOTH
- ------------------------------ Director
Erich J. Booth
</TABLE>
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
HOPS OF SOUTHWEST FLORIDA, LTD.
By: Hops of Southwest Florida, Inc.,
General Partner
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ TERENCE M. TERENZI
------------------------------------
Name: Terence M. Terenzi
TITLE: VICE PRESIDENT-FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Chief Operating
/s/ THOMAS A. SCHELLDORF Officer and Director
- ------------------------------ (Principal Executive
Thomas A. Schelldorf Officer)
Vice President-Finance,
Chief Financial Officer,
/s/ TERENCE M. TERENZI Secretary, Treasurer and
- ------------------------------ Director (Principal
Terence M. Terenzi Financial and Accounting
Officer)
/s/ TOM E. DUPREE, JR.
- ------------------------------ Director
Tom E. DuPree, Jr.
/s/ ERICH J. BOOTH
- ------------------------------ Director
Erich J. Booth
</TABLE>
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 2, 1999.
<TABLE>
<S> <C> <C>
HOPS OF BRADENTON, LTD.
By: Hops of Southwest Florida, Inc.,
General Partner
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ TERENCE M. TERENZI
------------------------------------
Name: Terence M. Terenzi
TITLE: VICE PRESIDENT-FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis J. Profumo his attorney-in-fact, with power
of substitution for him in any and all capacities, to sign any amendments to
this Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 2nd day of July, 1999.
<TABLE>
<C> <S> <C>
President, Chief Operating
/s/ THOMAS A. SCHELLDORF Officer and Director
- ------------------------------ (Principal Executive
Thomas A. Schelldorf Officer)
Vice President-Finance,
Chief Financial Officer,
/s/ TERENCE M. TERENZI Secretary, Treasurer and
- ------------------------------ Director (Principal
Terence M. Terenzi Financial and Accounting
Officer)
/s/ TOM E. DUPREE, JR.
- ------------------------------ Director
Tom E. DuPree, Jr.
/s/ ERICH J. BOOTH
- ------------------------------ Director
Erich J. Booth
</TABLE>
II-27
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBIT PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company, as amended October 13, 1998
(included as Exhibit 3.1 to the Company's annual report on Form 10-K for the year ended
January 3, 1999, previously filed with the Commission and incorporated herein by
reference).
3.2 Bylaws of the Company (included as Exhibit 3.2 to the Company's annual report on Form 10-K
for the year ended January 3, 1999, previously filed with the Commission and incorporated
herein by reference).
4.1 Indenture dated as of June 22, 1999, among the Company, the Guarantors and SunTrust Bank,
Atlanta, as Trustee (including form of Exchange Note).
4.2 Registration Rights Agreement dated as of June 22, 1999 among the Company, the Guarantors
and the Initial Purchasers.
4.3 Form of Exchange Note (included in Exhibit 4.1).
5. Opinion of Kilpatrick Stockton LLP.
8. Tax Opinion of Kilpatrick Stockton LLP
10. Credit Agreement dated as of June 22, 1999, among the Company, Wachovia Bank National
Association as Administrative Agent and Wachovia Bank National Association and the other
Banks listed as signatories thereto.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP (included in Part II).
24. Powers of Attorney (included in Signature Pages)
25. Statement of Eligibility of Trustee under the Trust Indenture Act on Form T-1.
99.1 Form of Transmittal Letter.
</TABLE>
<PAGE>
Exhibit 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVADO BRANDS, INC.,
as Issuer,
the GUARANTORS named herein,
as Guarantors,
and
SUNTRUST BANK, ATLANTA,
as Trustee
INDENTURE
---------
Dated as of June 22, 1999
$100,000,000
11 3/4% Senior Subordinated Notes due 2009
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1)................................................................ 7.10
(a)(2)............................................................. 7.10
(a)(3)............................................................. N.A.
(a)(4)............................................................. N.A.
(a)(5)............................................................. 7.08; 7.10
(b)................................................................ 7.08; 7.10; 13.02
(c)................................................................ N.A.
311(a)................................................................... 7.11
(b)................................................................ 7.11
(c)................................................................ N.A.
312(a)................................................................... 2.05
(b)................................................................ 13.03
(c)................................................................ 13.03
313(a)................................................................... 7.06
(b)(1)............................................................. 7.06
(b)(2)............................................................. 7.06
(c)................................................................ 7.06; 13.02
(d)................................................................ 7.06
314(a)................................................................... 4.08; 4.10; 13.02
(b)................................................................ N.A.
(c)(1)............................................................. 7.02; 13.04; 13.05
(c)(2)............................................................. 7.02; 13.04; 13.05
(c)(3)............................................................. N.A.
(d)................................................................ N.A.
(e)................................................................ 13.05
(f)................................................................ N.A.
315(a)................................................................... 7.01(b)
(b)................................................................ 7.05
(c)................................................................ 7.01
(d)................................................................ 6.05; 7.01(c)
(e)................................................................ 6.11
316(a)(last sentence).................................................... 2.09
(a)(1)(A).......................................................... 6.05
(a)(1)(B).......................................................... 6.04
(a)(2)............................................................. 9.05
(b)................................................................ 6.07
(c)................................................................ 9.05
317(a)(1)................................................................ 6.08
(a)(2)............................................................. 6.09
(b)................................................................ 2.04
318(a)................................................................... 13.01
(c)................................................................ 13.01
</TABLE>
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of the Indenture
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions........................................................................1
SECTION 1.02. Incorporation by Reference of TIA.................................................31
SECTION 1.03. Rules of Construction.............................................................32
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating...................................................................32
SECTION 2.02. Execution and Authentication......................................................33
SECTION 2.03. Registrar and Paying Agent........................................................34
SECTION 2.04. Paying Agent To Hold Assets in Trust..............................................35
SECTION 2.05. Holder Lists......................................................................36
SECTION 2.06. Transfer and Exchange.............................................................36
SECTION 2.07. Replacement Securities............................................................38
SECTION 2.08. Outstanding Securities............................................................38
SECTION 2.09. Treasury Securities...............................................................39
SECTION 2.10. Temporary Securities..............................................................39
SECTION 2.11. Cancellation......................................................................39
SECTION 2.12. Defaulted Interest................................................................40
SECTION 2.13. CUSIP Number......................................................................40
SECTION 2.14. Restrictive Legends...............................................................40
SECTION 2.15. Book-Entry Provisions for Global Security.........................................42
SECTION 2.16. Special Transfer Provisions.......................................................44
SECTION 2.17. Deposit of Moneys.................................................................46
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee................................................................47
SECTION 3.02. Selection of Securities To Be Redeemed............................................47
SECTION 3.03. Notice of Redemption..............................................................47
SECTION 3.04. Effect of Notice of Redemption....................................................49
SECTION 3.05. Deposit of Redemption Price.......................................................49
SECTION 3.06. Securities Redeemed in Part.......................................................49
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE FOUR
COVENANTS
<S> <C> <C>
SECTION 4.01. Payment of Securities.............................................................50
SECTION 4.02. Maintenance of Office or Agency...................................................50
SECTION 4.03. Limitation on Restricted Payments.................................................50
SECTION 4.04. Limitation on Indebtedness........................................................54
SECTION 4.05. Corporate Existence...............................................................57
SECTION 4.06. Payment of Taxes and Other Claims.................................................57
SECTION 4.07. Maintenance of Properties and Insurance...........................................58
SECTION 4.08. Compliance Certificate; Notice of Default.........................................58
SECTION 4.09. Compliance with Laws..............................................................59
SECTION 4.10. Reports to Holders................................................................60
SECTION 4.11. Waiver of Stay, Extension or Usury Laws...........................................60
SECTION 4.12. Limitations on Transactions with Shareholders and Affiliates......................61
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries........................................................62
SECTION 4.14. Limitation on Liens...............................................................64
SECTION 4.15. Change of Control.................................................................65
SECTION 4.16. Limitation on Asset Sales.........................................................67
SECTION 4.17. Prohibition on Incurrence of Senior Subordinated Debt.............................70
SECTION 4.18. Limitation of Guarantees by Restricted Subsidiaries...............................70
SECTION 4.19. Payment for Consents..............................................................72
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Consolidation, Merger and Sale of Assets..........................................72
SECTION 5.02. Successor Corporation Substituted.................................................74
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.................................................................75
SECTION 6.02. Acceleration......................................................................77
SECTION 6.03. Other Remedies....................................................................78
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.04. Waiver of Past Defaults...........................................................78
SECTION 6.05. Control by Majority...............................................................78
SECTION 6.06. Limitation on Suits...............................................................79
SECTION 6.07. Rights of Holders To Receive Payment..............................................79
SECTION 6.08. Collection Suit by Trustee........................................................80
SECTION 6.09. Trustee May File Proofs of Claim..................................................80
SECTION 6.10. Priorities........................................................................81
SECTION 6.11. Undertaking for Costs.............................................................81
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.................................................................82
SECTION 7.02. Rights of Trustee.................................................................83
SECTION 7.03. Individual Rights of Trustee......................................................84
SECTION 7.04. Trustee's Disclaimer..............................................................85
SECTION 7.05. Notice of Default.................................................................85
SECTION 7.06. Reports by Trustee to Holders.....................................................85
SECTION 7.07. Compensation and Indemnity........................................................86
SECTION 7.08. Replacement of Trustee............................................................87
SECTION 7.09. Successor Trustee by Merger, Etc..................................................88
SECTION 7.10. Eligibility; Disqualification.....................................................88
SECTION 7.11. Preferential Collection of Claims Against Company.................................89
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of the Company's Obligations..........................................89
SECTION 8.02. Legal Defeasance and Covenant Defeasance..........................................91
SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance.............................92
SECTION 8.04. Application of Trust Money........................................................95
SECTION 8.05. Repayment to the Company..........................................................95
SECTION 8.06. Reinstatement.....................................................................96
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders........................................................96
SECTION 9.02. With Consent of Holders...........................................................97
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 9.03. Effect on Senior Debt.............................................................99
SECTION 9.04. Compliance with TIA...............................................................99
SECTION 9.05. Revocation and Effect of Consents.................................................99
SECTION 9.06. Notation on or Exchange of Securities............................................100
SECTION 9.07. Trustee To Sign Amendments, Etc..................................................100
ARTICLE TEN
SUBORDINATION OF SECURITIES
SECTION 10.01. Securities Subordinated to Senior Debt...........................................101
SECTION 10.02. Suspension of Payment When Senior Debt Is in Default.............................101
SECTION 10.03. Securities Subordinated to Prior Payment of All Senior Debt on
Dissolution, Liquidation or Reorganization of Company.........................103
SECTION 10.04. Payments May Be Paid Prior to Dissolution........................................105
SECTION 10.05. Holders To Be Subrogated to Rights of Holders of Senior Debt.....................105
SECTION 10.06. Obligations of the Company Unconditional.........................................106
SECTION 10.07. Notice to Trustee................................................................106
SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent...................107
SECTION 10.09. Trustee's Relation to Senior Debt................................................107
SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of the Company
or Holders of Senior Debt.....................................................108
SECTION 10.11. Securityholders Authorize Trustee To Effectuate Subordination of
Securities....................................................................108
SECTION 10.12. This Article Ten Not To Prevent Events of Default................................109
SECTION 10.13. Trustee's Compensation Not Prejudiced............................................109
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
SECTION 11.01. Unconditional Guarantee..........................................................109
SECTION 11.02. Limitations on Guarantees........................................................111
SECTION 11.03. Execution and Delivery of Guarantee..............................................111
SECTION 11.04. Release of a Guarantor...........................................................112
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11.05. Waiver of Subrogation............................................................113
SECTION 11.06. Immediate Payment................................................................114
SECTION 11.07. No Set-Off.......................................................................114
SECTION 11.08. Obligations Absolute.............................................................114
SECTION 11.09. Obligations Continuing...........................................................114
SECTION 11.10. Obligations Not Reduced..........................................................115
SECTION 11.11. Obligations Reinstated...........................................................115
SECTION 11.12. Obligations Not Affected.........................................................115
SECTION 11.13. Waiver...........................................................................117
SECTION 11.14. No Obligation To Take Action Against the Company.................................117
SECTION 11.15. Dealing with the Company and Others..............................................117
SECTION 11.16. Default and Enforcement..........................................................118
SECTION 11.17. Amendment, Etc...................................................................118
SECTION 11.18. Acknowledgment...................................................................118
SECTION 11.19. Costs and Expenses...............................................................119
SECTION 11.20. No Merger or Waiver; Cumulative Remedies.........................................119
SECTION 11.21. Survival of Obligations..........................................................119
SECTION 11.22. Guarantee in Addition to Other Obligations.......................................119
SECTION 11.23. Severability.....................................................................120
SECTION 11.24. Successors and Assigns...........................................................120
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Debt......................120
SECTION 12.02. Suspension of Guarantee Obligations When Guarantor Senior Debt Is in
Default.......................................................................121
SECTION 12.03. Guarantee Obligations Subordinated to Prior Payment of All Guarantor
Senior Debt on Dissolution, Liquidation or Reorganization of Such
Guarantor.....................................................................121
SECTION 12.04. Payments May Be Paid Prior to Dissolution........................................123
SECTION 12.05. Holders of Guarantee Obligations To Be Subrogated to Rights of
Holders of Guarantor Senior Debt..............................................124
SECTION 12.06. Obligations of the Guarantors Unconditional......................................124
SECTION 12.07. Notice to Trustee................................................................125
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 12.08. Reliance on Judicial Order or Certificate of Liquidating Agent...................126
SECTION 12.09. Trustee's Relation to Guarantor Senior Debt......................................126
SECTION 12.10. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantors or Holders of Guarantor Senior Debt................................127
SECTION 12.11. Holders Authorize Trustee To Effectuate Subordination of Guarantee
Obligations...................................................................127
SECTION 12.12. This Article Twelve Not To Prevent Events of Default.............................128
SECTION 12.13. Trustee's Compensation Not Prejudiced............................................128
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls.....................................................................128
SECTION 13.02. Notices..........................................................................129
SECTION 13.03. Communications by Holders with Other Holders.....................................130
SECTION 13.04. Certificate and Opinion as to Conditions Precedent...............................130
SECTION 13.05. Statements Required in Certificate or Opinion....................................130
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar........................................131
SECTION 13.07. Legal Holidays...................................................................131
SECTION 13.08. Governing Law....................................................................131
SECTION 13.09. No Adverse Interpretation of Other Agreements....................................132
SECTION 13.10. No Recourse Against Others.......................................................132
SECTION 13.11. Successors.......................................................................132
SECTION 13.12. Duplicate Originals..............................................................132
SECTION 13.13. Severability.....................................................................132
Signatures ......................................................................................S-1
Exhibit A - Form of Note
Exhibit B Form of Exchange Note
Exhibit C - Form of Guarantee
Exhibit D - Form of Certificate for Transfers to Non-QIB Accredited Investors
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Exhibit E - Form of Certificate for Transfers Pursuant to Regulation S
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be
part of the Indenture
-vii-
<PAGE>
INDENTURE dated as of June 22, 1999 among AVADO BRANDS, INC.,
a Georgia corporation (the "COMPANY"), as issuer, each of the Guarantors named
herein, as Guarantors, and SUNTRUST BANK, ATLANTA, as trustee (the "TRUSTEE").
The Company has duly authorized the creation of an issue of 11
3/4% Senior Subordinated Notes due 2009 and, when and if issued as provided in
the Registration Rights Agreement, Exchange Notes, and, to provide therefor, the
Company has duly authorized the execution and delivery of this Indenture. All
things necessary to make the Securities, when duly issued and executed by the
Company and authenticated and delivered hereunder, the valid and binding
obligations of the Company and to make this Indenture a valid and binding
agreement of the Company have been done.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACCELERATION NOTICE" has the meaning set forth in Section
6.02.
"ACCREDITED INVESTOR" has the meaning set forth in Section
2.16(a).
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person
existing at the time such person merged with or into or became a Restricted
Subsidiary.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the
aggregate net income (or loss) of the Company and its consolidated Restricted
Subsidiaries for such period determined in conformity with GAAP; PROVIDED that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication):
(1) the net income (or loss) of any person that is not a
Restricted Subsidiary, except to the extent of the
<PAGE>
-2-
amount of dividends or other distributions that both (i) are actually
paid in cash to the Company or any of its Restricted Subsidiaries by
such person during such period and (ii) when taken together with all
other dividends and distributions paid during such period in cash to
the Company or any of its Restricted Subsidiaries by such person, are
not in excess of the Company's or any of its Restricted Subsidiaries'
pro rata share of such other person's aggregate net income earned
during such period;
(2) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (iii) of the
first paragraph of the "Limitation on Restricted Payments" covenant
described above (and in such case, except to the extent includable
pursuant to clause (1) above), the net income of any person accrued
prior to the date it becomes a Restricted Subsidiary or is merged into
or consolidated with the Company or any of its Restricted Subsidiaries
or all or substantially all of the property and assets of such person
are acquired by the Company or any of its Restricted Subsidiaries;
(3) the net income (or loss) of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not
permitted by its charter or any agreement, instrument, judgment,
decree, order, statute, rule, or governmental regulation applicable to
such Restricted Subsidiary;
(4) any net gains or losses (on an after-tax basis)
attributable to Asset Sales; and
(5) all net after-tax extraordinary gains and extraordinary
losses.
"AFFILIATE" means, as applied to any person, any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as applied to any person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and
<PAGE>
-3-
policies of such person, whether through the ownership of voting securities, by
contract, or otherwise.
"AFFILIATE TRANSACTION" has the meaning set forth in Section
4.12.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"AGENT MEMBERS" has the meaning set forth in Section 2.15.
"ASSET ACQUISITION" means:
(1) an investment by the Company or any of its Restricted
Subsidiaries in any other person pursuant to which such person shall
become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; or
(2) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any person other than the
Company or any of its Restricted Subsidiaries that constitute
substantially all of a division or line of business, or one or more
restaurant properties, of such person.
"ASSET DISPOSITION" means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of:
(1) all or substantially all of the Capital Stock of any
Restricted Subsidiary; or
(2) all or substantially all of the assets that constitute a
division or line of business, or one or more restaurant properties, of
the Company or any of its Restricted Subsidiaries.
"ASSET SALE" means any sale, transfer, or other disposition
(including by way of merger, consolidation, or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries of all or any of its property, business, or assets
(including, without limitation, the Capital Stock of any Re-
<PAGE>
-4-
stricted Subsidiary); PROVIDED that the following shall not be included in the
definition of "Asset Sale":
(1) any transaction or series of related transactions for
which the Company or any Restricted Subsidiary of the Company receives
aggregate consideration of less than $1.0 million;
(2) any conveyance, sale, lease, transfer, or other
disposition by a Restricted Subsidiary of the Company or any or all of
its assets (upon voluntary liquidation or otherwise) to the Company or
a Restricted Subsidiary of the Company;
(3) any conveyance, sale, lease, transfer, or other
disposition by the Company or any Restricted Subsidiary of the Company
in the ordinary course of business of assets acquired and held for
resale in the ordinary course of business (in no event shall the
conveyance, sale, lease, transfer, or other disposition of a restaurant
property by the Company or any Restricted Subsidiary of the Company be
considered in the ordinary course of business for purposes of this
Indenture);
(4) any conveyance, sale, lease, transfer, or other
disposition by the Company and its Restricted Subsidiaries of assets
pursuant to and in accordance with the provisions described in Section
5.01;
(5) any sale by the Company or any Restricted Subsidiary of
the Company of damaged, worn out, or other obsolete property in the
ordinary course of business;
(6) any abandonment by the Company or any Restricted
Subsidiary of the Company of assets and properties that are no longer
useful in its business and cannot be sold; or
(7) any transfer by the Company or any Restricted Subsidiary
of the Company of any Capital Stock of any Restricted Subsidiary of the
Company to the Company or any Restricted Subsidiary of the Company.
"AVERAGE LIFE" means at any date of determination with respect
to any Note, the quotient obtained by dividing:
<PAGE>
-5-
(1) the sum of the products of (i) the number of years from
such date of determination to the dates of each successive scheduled
principal payment of such Note and (ii) the amount of such principal
payment by
(2) the sum of all such principal payments.
"BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar
federal, state or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, as to any Person, the board of
directors of such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and to
be in full force and effect on the date of such certification, and delivered to
the Trustee.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
any other day on which banking institutions in The City of New York are required
or authorized by law or other governmental action to be closed.
"CAPITAL STOCK" means with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's capital stock or other ownership
interests, whether now outstanding or issued after the Issue Date, including,
without limitation, all common stock and preferred stock.
"CAPITALIZED LEASE" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" means the rental obligations, as aforesaid,
under such lease.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government
<PAGE>
-6-
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 thereof;
(2) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having one
of the two highest ratings obtainable from either Standard & Poor's
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("MOODY'S");
(3) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a
rating of at least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing
within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign
bank having at the date of acquisition thereof combined capital and
surplus of not less than $250.0 million;
(5) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause
(1) above entered into with any bank meeting the qualifications
specified in clause (4) above; and
(6) investments in money market funds which invest
substantially all their assets in securities of the types described in
clauses (1) through (5) above.
"CEDEL" means Cedel Bank, S.A.
"CHANGE OF CONTROL" means such time as:
(1) a "person" or "group" (within the meaning of sections
13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of more than 50% of
the total Voting Stock of the Company on a fully diluted basis; or
<PAGE>
-7-
(2) individuals who at the beginning of any period of two
consecutive calendar years constituted the board of directors (together
with any new directors whose election by the board of directors or
whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the board
of directors then still in office who either were members of the board
of 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 members of the board of
directors then in office.
"CHANGE OF CONTROL OFFER" has the meaning set forth in Section
4.15.
"CHANGE OF CONTROL PAYMENT" has the meaning set forth in
Section 4.15.
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth in
Section 4.15.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter shall
mean such successor corporation.
"CONSOLIDATED EBITDA" means, for any period, the sum of the
amounts for such period of:
(1) Adjusted Consolidated Net Income;
(2) Consolidated Interest Expense;
(3) income taxes, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income (other than income taxes
(either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets);
(4) depreciation expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income;
<PAGE>
-8-
(5) amortization expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income; and
(6) all other non-cash items reducing Adjusted Consolidated
Net Income, less all non-cash items increasing Adjusted Consolidated
Net Income, all as determined on a consolidated basis for the Company
and its Restricted Subsidiaries in conformity with GAAP;
PROVIDED that, if any Restricted Subsidiary is not a Wholly-Owned Restricted
Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to:
(i) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by
(ii) the quotient of (A) the number of shares of outstanding
common stock of such Restricted Subsidiary not owned on the last day of
such period by the Company or any of its Restricted Subsidiaries
divided by (B) the total number of shares of outstanding common stock
of such Restricted Subsidiary on the last day of such period.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, on any
Transaction Date, the ratio of the aggregate amount of Consolidated EBITDA for
the four fiscal quarters for which financial information in respect thereof is
available immediately prior to such Transaction Date (the "REFERENCE PERIOD") to
the aggregate Consolidated Fixed Charges during such Reference Period.
In making the foregoing calculation:
(1) PRO FORMA effect shall be given to:
(i) any Indebtedness Incurred subsequent to the end
of the Reference Period and prior to the Transaction Date;
(ii) any Indebtedness Incurred during such Reference
Period to the extent such Indebtedness is outstanding at the
Transaction Date; and
<PAGE>
-9-
(iii) any Indebtedness to be Incurred on the
Transaction Date, in each case as if such Indebtedness had
been Incurred on the first day of such Reference Period and
after giving PRO FORMA effect to the application of the
proceeds thereof as if such application had occurred on such
first day;
(2) Consolidated Interest Expense attributable to interest
on any Indebtedness (whether existing or being Incurred) computed on a
PRO FORMA basis and bearing a floating interest rate shall be computed
as if the rate in effect on the Transaction Date (taking into account
any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months)
had been the applicable rate for the entire period;
(3) there shall be excluded from Consolidated Fixed Charges
any Consolidated Fixed Charges related to any amount of Indebtedness,
Redeemable Stock, or obligations under leases that was outstanding
during such Reference Period or thereafter but that is not outstanding
or is to be repaid on the Transaction Date, except for Consolidated
Interest Expense accrued (as adjusted pursuant to clause (2) above)
during such Reference Period under a revolving credit or similar
working capital facility in the ordinary course for working capital
purposes;
(4) PRO FORMA effect shall be given to Asset Dispositions
and Asset Acquisitions (including giving PRO FORMA effect to the
application of proceeds of any Asset Disposition and the Consolidated
EBITDA relating to such Asset Acquisitions or Asset Dispositions) that
occur during such Reference Period or thereafter and on or prior to the
Transaction Date as if they had occurred and such proceeds had been
applied on the first day of such Reference Period;
(5) with respect to any such Reference Period commencing
prior to the Issue Date, the issuance of the Securities shall be deemed
to have taken place on the first day of such Reference Period; and
(6) PRO FORMA effect shall be given to asset dispositions
and asset acquisitions (including giving PRO FORMA
<PAGE>
-10-
effect to the application of proceeds of any asset disposition) that
have been made by any person that has become a Restricted Subsidiary
or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period or subsequent to such period
and prior to the Transaction Date and that would have constituted
Asset Dispositions or Asset Acquisitions had such transactions
occurred when such person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period;
PROVIDED that to the extent that clause (4) or (6) above requires that PRO FORMA
effect be given to an asset acquisition or asset disposition, such PRO FORMA
calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date the person, or division or line of business of
the Person, or restaurant property, that is acquired or disposed of, for which
financial information is available.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum
(without duplication) of:
(1) Consolidated Interest Expense for such period; and
(2) the product of (x) cash and non-cash dividends (except
dividends payable solely in shares of Capital Stock that are not
Redeemable Stock) paid, declared, accrued, or accumulated on any
Redeemable Stock and (y) a fraction, the numerator of which is one and
the denominator of which is one minus the sum of the currently
effective combined Federal, state, local, and foreign tax rate of the
Company and its Restricted Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
aggregate amount of:
(1) interest in respect of Indebtedness (including
amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting; all
commissions, discounts, and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing; the net costs
associated with Interest Rate Agreements; and Indebtedness
<PAGE>
-11-
that is guaranteed by the Company or any of its Restricted
Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued, or scheduled
to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; EXCLUDING, HOWEVER, any amount of
such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (3) of the definition
thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted
Consolidated Net Income pursuant to clause (3) of the definition
thereof); and
(2) the amount of dividends accrued or payable by such
person or any of its consolidated Restricted Subsidiaries in respect of
preferred stock (other than by Restricted Subsidiaries of such person
to such person or such person's Wholly-Owned Restricted Subsidiaries).
"CONSOLIDATED NET WORTH" means, at any date of determination,
stockholders' equity of the Company and its Restricted Subsidiaries (which shall
be as of a date not more than 90 days prior to the date of such computation),
less:
(1) amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness;
(2) cost of treasury stock; and
(3) the principal amount of any promissory notes receivable
from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries, each item to be determined in conformity with
GAAP (excluding the effects of foreign currency exchange adjustments
under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"COVENANT DEFEASANCE" has the meaning set forth in Section
8.02.
"CREDIT AGREEMENT" means the Credit Agreement dated as of June
22, 1999, between the Company, the lenders party thereto in their capacities as
lenders thereunder and Wachovia Bank, N.A., as agent, together with the related
documents
<PAGE>
-12-
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (PROVIDED that such increase in borrowings is
permitted by Section 4.04) or adding Restricted Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect against fluctuation in currency values.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"DEFAULT NOTICE" has the meaning set forth in Section 10.02.
"DEPOSITORY" shall mean The Depository Trust Company, New
York, New York, or a successor thereto registered under the Exchange Act or
other applicable statute or regulation.
"DESIGNATED SENIOR DEBT" means:
(1) Indebtedness under or in respect of the Credit
Agreement; and
(2) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the Company.
"EUROCLEAR" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
<PAGE>
-13-
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXCESS PROCEEDS" has the meaning set forth in Section 4.16.
"EXCESS PROCEEDS OFFER" has the meaning set forth in Section
4.16.
"EXCESS PROCEEDS PAYMENT" has the meaning set forth in Section
4.16.
"EXCESS PROCEEDS PAYMENT DATE" has the meaning set forth in
Section 4.16.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"EXCHANGE NOTES" means the notes to be issued in exchange for
the Notes (the terms of which are identical to the Notes except that the
Exchange Notes shall be registered under the Securities Act, and shall not
contain the restrictive legend on the face of the form of the Notes).
"EXCHANGE OFFER" means the registration by the Company under
the Securities Act pursuant to a registration statement of the offer by the
Company to each Holder of the Notes to exchange all the Notes held by such
Holder for the Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Notes held by such Holder, all in accordance
with the terms and conditions of the Registration Rights Agreement.
"FAIR MARKET VALUE" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Board of Directors of the Company delivered to the
Trustee.
"FORWARD EQUITY CONTRACTS" means (1) the master agreement
(with attached schedule) dated as of August 12, 1998, as amended, and the
confirmation thereto dated September 9,
<PAGE>
-14-
1998 between Cooperative Centrale Raiffeisen-Boerenleenbank B.A. and the Company
and (2) the master agreement (with attached schedule) dated as of July 22, 1998,
and the confirmation thereto dated July 28, 1998 between SunTrust Bank, Atlanta
and the Company.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including, without
limitation, 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 contained herein shall
be computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions herein shall be made without giving effect
to:
(1) the amortization of any expenses incurred in connection
with the offering of the Securities; and
(2) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion
Nos. 16 and 17.
"GLOBAL SECURITY" shall mean a Security which is executed by
the Company and authenticated and delivered by the Trustee to the Depository or
pursuant to the Depository's instruction, all in accordance with this Indenture
and pursuant to a written order, which shall be registered in the name of the
Depository or its nominee.
"GUARANTEE" means any obligation, contingent or otherwise, of
any person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
person:
(1) 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, or
by agreement to keep-well, to purchase assets, goods, securities, or
services, to
<PAGE>
-15-
take-or-pay, or to maintain financial statement conditions
or otherwise); or
(2) 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 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.
"GUARANTEE" means each guarantee by a Guarantor of the
Company's obligations under the Securities and this Indenture.
"GUARANTEE OBLIGATIONS" has the meaning set forth in Section
12.01.
"GUARANTOR" means:
(1) each of the Company's Subsidiaries that guarantees
the Securities on the Issue Date; and
(2) each of the Company's Restricted Subsidiaries that in
the future executes a supplemental indenture in which such Restricted
Subsidiary agrees to be bound by the terms of this Indenture as a
Guarantor;
PROVIDED that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of this Indenture.
"GUARANTOR SENIOR DEBT" means, with respect to any Guarantor:
the principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of
<PAGE>
-16-
payment to the Guarantee of such Guarantor. Without limiting the generality of
the foregoing, "Guarantor Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(1) all monetary obligations of every nature of such
Guarantor under, or with respect to, the Credit Agreement, including,
without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities (and guarantees thereof);
(2) the guarantee by such Guarantor of the Company's
obligations under the 9-3/4% Senior Notes;
(3) all Interest Rate Agreements (and guarantees thereof);
and
(4) all obligations (and guarantees thereof) under Currency
Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall
not include:
(1) any Indebtedness of such Guarantor to a Subsidiary of
such Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of such Guarantor or any
Subsidiary of such Guarantor (including, without limitation, amounts
owed for compensation) other than a shareholder who is also a lender
(or an Affiliate of a lender) under the Credit Agreement;
(3) Indebtedness to trade creditors and other amounts
incurred in connection with obtaining goods, materials or services;
(4) Indebtedness represented by Redeemable Stock;
<PAGE>
-17-
(5) any liability for federal, state, local or other taxes
owed or owing by such Guarantor;
(6) that portion of any Indebtedness incurred in violation
of the provisions set forth under Section 4.04 (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of
this clause (6) if the holder(s) of such obligation or their
representative shall have received an Officers' Certificate of the
Company to the effect that the incurrence of such Indebtedness does not
(or, in the case of revolving credit indebtedness, that the incurrence
of the entire committed amount thereof at the date on which the initial
borrowing thereunder is made would not) violate such provisions of this
Indenture);
(7) Indebtedness which, when incurred and without respect
to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to the Company; and
(8) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of such
Guarantor.
"INCUR" means, with respect to any Indebtedness, to incur,
create, issue, assume, guarantee, or otherwise become liable for, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness;
PROVIDED that the Indebtedness of a Person existing at the time such Person
became a Subsidiary or a Restricted Subsidiary, as the case may be, shall be
deemed to have been Incurred by such Subsidiary or Restricted Subsidiary, as the
case may be, at such time.
"INDEBTEDNESS" means with respect to any Person at any date of
determination (without duplication):
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(3) all obligations of such person in respect of letters of
credit or other similar instruments (including reimbursement
obligations with respect thereto);
<PAGE>
-18-
(4) all obligations of such person to pay the deferred and
unpaid purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course
of business);
(5) all obligations of such person as lessee under
Capitalized Leases;
(6) all Indebtedness of other persons secured by a Lien on
any asset or such person, whether or not such Indebtedness is assumed
by such person; PROVIDED that the amount of such Indebtedness shall be
the lesser of (i) the fair market value of such asset at such date of
determination and (ii) the amount of such Indebtedness;
(7) all Indebtedness of other persons guaranteed by such
person to the extent such Indebtedness is guaranteed by such person;
(8) all Redeemable Stock of such person; and
(9) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements.
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, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation;
PROVIDED
(1) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined
in conformity with GAAP; and
(2) that Indebtedness shall not include any liability for
federal, state, local, or other taxes.
"INDENTURE" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
<PAGE>
-19-
"INDEPENDENT FINANCIAL ADVISOR" means a firm:
(1) which does not, and whose directors, officers and
employees or Affiliates do not, have a direct or indirect financial
interest in the Company; and
(2) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for
which it is to be engaged.
"INITIAL PURCHASERS" means BancBoston Robertson Stephens Inc.,
J.P. Morgan Securities Inc. and Wachovia Securities, Inc.
"INTEREST PAYMENT DATE" means the stated maturity of an
installment of interest on the Securities.
"INTEREST RATE AGREEMENTS" means any obligations of any Person
pursuant to any interest rate swaps, caps, collars, and similar arrangements
providing protection against fluctuations in interest rates. For purposes of
this Indenture, the amount of such obligations shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such person, based on the assumption that such obligation had terminated at the
end of such fiscal quarter, and in making such determination, if any agreement
relating to such obligation provides for the netting of amounts payable by and
to such Person thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the amount of
such obligations shall be the net amount so determined, plus any premium due
upon default by such person.
"INVESTMENT" means any direct or indirect advance, loan, or
other extension of credit (other than advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
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, bonds, notes,
debentures or other similar instruments issued by any other Person.
For purposes of the definition of "Unrestricted Subsidiary"
and Section 4.03:
<PAGE>
-20-
(1) "Investment" shall include the fair market value of the
assets (net of liabilities) of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted
Subsidiary and shall exclude the fair market value of the assets (net
of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
(2) any property transferred to or from any person 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
(3) 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 Adjusted Consolidated Net Income.
"ISSUE DATE" means June 22, 1999, the date of original
issuance of the Securities.
"LEGAL DEFEASANCE" has the meaning set forth in Section 8.02.
"LIEN" means any mortgage, pledge, security interest,
encumbrance, lien, or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, any option or other agreement to sell, or any filing of or any agreement
to give any security interest).
"MATURITY DATE" means June 15, 2009.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred
<PAGE>
-21-
payment obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of:
(1) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related
to such Asset Sale;
(2) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole;
(3) payments made to repay Indebtedness or any other
obligation outstanding at the time of such Asset Sale that either (i)
is secured by a Lien on the property or assets sold or (ii) is required
to be paid as a result of such sale; and
(4) appropriate amounts to be provided by the Company or any
Restricted Subsidiary as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters, and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in
conformity with GAAP.
"9-3/4% SENIOR NOTES" means the Company's 9-3/4% Senior Notes
due 2006 outstanding on the Issue Date.
"NON-PAYMENT DEFAULT" has the meaning set forth in Section
10.02.
"NOTES" means the 11 3/4% Senior Subordinated Notes due 2009
of the Company issued on the Issue Date and authenticated and delivered under
this Indenture pursuant to Section 2.02 of this Indenture.
"OBLIGATIONS" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements,
<PAGE>
-22-
damages and other liabilities payable under the documentation governing any
Indebtedness.
"OFFERING" means the offering of the Securities.
"OFFICER" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Controller, or the Secretary or Assistant Secretary
of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed by two
Officers of the Company or of a Guarantor, as applicable.
"OPINION OF COUNSEL" means a written opinion from legal
counsel, which opinion and counsel are reasonably acceptable to the Trustee.
"PAYING AGENT" has the meaning set forth in Section 2.03.
"PAYMENT BLOCKAGE PERIOD" has the meaning set forth in Section
10.02.
"PAYMENT DEFAULT" has the meaning set forth in Section 10.02.
"PERMITTED INDEBTEDNESS" has the meaning set forth in Section
4.04.
"PERMITTED INVESTMENTS" means:
(1) Investments by the Company or any Restricted Subsidiary
of the Company in any Person that is or will become immediately after
such Investment a Restricted Subsidiary of the Company or that will
merge or consolidate into the Company or a Restricted Subsidiary of the
Company;
(2) Investments in the Company by any Restricted Subsidiary
of the Company; PROVIDED that any Indebtedness evidencing such
Investment is unsecured and subordinated, pursuant to a written
agreement, to the Company's obligations under the Securities and this
Indenture;
(3) Investments in cash and Cash Equivalents;
<PAGE>
-23-
(4) loans and advances to employees and officers of the
Company and its Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes not in excess of $10.0 million
at any one time outstanding;
(5) Currency Agreements and Interest Rate Agreements entered
into in the ordinary course of the Company's or its Restricted
Subsidiaries' businesses and otherwise in compliance with this
Indenture;
(6) additional Investments (including joint ventures) (in
addition to Investments existing on the Issue Date) not to exceed $15.0
million at any one time outstanding;
(7) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors
or customers;
(8) Investments made by the Company or its Restricted
Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with Section 4.16; and
(9) Investments existing on the Issue Date.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments, governmental charges, or
claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which
a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made;
(2) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens
arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
<PAGE>
-24-
(3) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security;
(4) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds, and other obligations
of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(5) easements, rights-of-way, municipal and zoning
ordinances, and similar charges, encumbrances, title defects, or other
irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted
Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon
real or personal property acquired after the Issue Date; PROVIDED that
(i) such Lien is created solely for the purpose of
securing Indebtedness Incurred:
(A) to finance the cost (including the cost
of improvement or construction) of the item of
property or assets subject thereto (or to refinance
unsecured Indebtedness Incurred to finance such cost)
and such Lien is created prior to, at the time of or
within twelve months after the later of the
acquisition, the completion of construction or the
commencement of full operation of such property; or
(B) to refinance any Indebtedness previously
so secured;
(ii) the principal amount of the Indebtedness secured
by such Lien does not exceed 100% of such cost; and
(iii) any such Lien shall not extend to or cover any
property or assets other than such item of property or assets
and any improvements on such item;
<PAGE>
-25-
(7) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole;
(8) Liens encumbering property or assets under construction
arising from obligations of the Company or any Restricted Subsidiary to
make progress or partial payments relating to such construction;
(9) any interest or title of a lessor in the property
subject to any Capitalized Lease or operating lease;
(10) Liens arising from filing Uniform Commercial Code
financing statements regarding leases;
(11) Liens on property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation
becomes, or becomes part of, any Restricted Subsidiary;
(12) Liens in favor or the Company or any Restricted
Subsidiary;
(13) Liens arising from the rendering of a final judgment or
order against the Company or any Restricted Subsidiary of the Company
that does not give rise to an Event of Default;
(14) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating
to such letters of credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customers duties in
connection with the importation of goods;
(16) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are either within the general parameters
customary in the industry and incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements and forward contracts, options,
futures contracts, futures options, or similar agreements or
arrangements designed to protect the Company or any of its
<PAGE>
-26-
Restricted Subsidiaries from fluctuations in the price of commodities;
(17) Liens arising out of conditional sale, title retention,
consignment, or similar arrangements for the sale of goods entered into
by the Company or any of its Restricted Subsidiaries in the ordinary
course of business in accordance with the past practices of the Company
and its Restricted Subsidiaries prior to the Issue Date; and
(18) Liens on or sales of receivables.
"PERSON" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or joint venture,
or a governmental agency or political subdivision thereof.
"PHYSICAL SECURITIES" has the meaning provided in Section
2.01. Physical Securities are sometimes referred to herein as certificated
Securities.
"PRIVATE PLACEMENT LEGEND" means the legend initially set
forth on the Securities in the form set forth in the first paragraph of Section
2.14.
"PUBLIC EQUITY OFFERING" means an underwritten public offering
of Capital Stock of the Company (other than Redeemable Stock) pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" has the meaning
specified in Rule 144A under the Securities Act.
"RECORD DATE" means the applicable record date specified in
the Securities.
"REDEEMABLE STOCK" means any class or series of Capital Stock
of any person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity
of the Securities;
(2) redeemable at the option of the holder of such class or
series of Capital Stock at any time prior to the Stated Maturity of the
Securities; or
<PAGE>
-27-
(3) convertible into or exchangeable for Capital Stock
referred to in clause (1) or (2) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Securities;
PROVIDED that any Capital Stock that would not constitute Redeemable
Stock but for provisions thereof giving holders thereof the right to
require such person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to
the Stated Maturity of the Securities shall not constitute Redeemable
Stock if the "asset sale" or "change of control" provisions applicable
to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Sections 4.15 and 4.16
and such Capital Stock specifically provides that such person will not
repurchase or redeem any such stock pursuant to such provision prior to
the Company's repurchase of such Securities as are required to be
repurchased pursuant to Sections 4.15 and 4.16. Notwithstanding the
foregoing, Capital Stock shall not be deemed to be Redeemable Stock if
it may only be so redeemed solely in consideration of Capital Stock
that is not Redeemable Stock.
"REDEMPTION DATE" when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"REDEMPTION PRICE" when used with respect to any Security to
be redeemed, means the price fixed for such redemption, payable in immediately
available funds, pursuant to this Indenture and the Securities.
"REGISTRAR" has the meaning set forth in Section 2.03.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the Issue Date by and among the Company, the Guarantors
and the Initial Purchasers.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S GLOBAL SECURITY" has the meaning set forth in
Section 2.01
<PAGE>
-28-
"RELATED PARTY TRANSACTION" has the meaning set forth in
Section 4.12.
"REPRESENTATIVE" means the indenture trustee or other trustee,
agent or representative in respect of any Designated Senior Debt; PROVIDED that
if, and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"RESPONSIBLE OFFICER" means, when used with respect to the
Trustee, any corporate trust officer in the corporate trust department of the
Trustee (or any successor group of the Trustee) with direct responsibility for
the administration of this Indenture and also means with respect to a particular
corporate trust matter any other officer to whom such corporate trust matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"RESTRICTED INVESTMENT" means any Investment other than a
Permitted Investment.
"RESTRICTED PAYMENT" has the meaning set forth in Section
4.03.
"RESTRICTED PERIOD" has the meaning set forth in Section 2.01.
"RESTRICTED SECURITY" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act; PROVIDED that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Security constitutes a Restricted Security.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A under the Securities Act.
"RULE 144A GLOBAL SECURITY" has the meaning set forth in
Section 2.01
"SECURITIES" means the Notes and the Exchange Notes treated as
a single class of securities, as amended or supplemented
<PAGE>
-29-
from time to time in accordance with the terms hereof, that are issued pursuant
to this Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any successor statute or statutes thereto.
"SECURITYHOLDER" or "HOLDER" means the Person in whose name a
Security is registered on the Registrar's books.
"SENIOR DEBT" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities.
Without limiting the generality of the foregoing, "Senior
Debt" shall also include the principal of, premium, if any, interest (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on, and all other
amounts owing in respect of:
(1) all monetary obligations of every nature of the Company
under, or with respect to, the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities
(and guarantees thereof);
(2) all monetary obligations of the Company under the 9-3/4%
Senior Notes;
(3) all Interest Rate Agreements (and guarantees thereof);
and
(4) all obligations (and guarantees thereof) under Currency
Agreements;
<PAGE>
-30-
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not
include:
(1) any Indebtedness of the Company to a Subsidiary of the
Company;
(2) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of the Company or any
Subsidiary of the Company (including, without limitation, amounts owed
for compensation) other than a shareholder who is also a lender (or an
Affiliate of a lender) under the Credit Agreement;
(3) Indebtedness to trade creditors and other amounts
incurred in connection with obtaining goods, materials or services;
(4) Indebtedness represented by Redeemable Stock;
(5) any liability for federal, state, local or other taxes
owed or owing by the Company;
(6) that portion of any Indebtedness incurred in violation
of Section 4.04 (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the
holder(s) of such obligation or their representative shall have
received an Officers' Certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving
credit Indebtedness, that the incurrence of the entire committed amount
thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of this Indenture);
(7) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is
without recourse to the Company; and
(8) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of the
Company.
<PAGE>
-31-
"STATED MATURITY" means:
(1) with respect to any Indebtedness, the date specified in
such Indebtedness as the fixed date on which the final installment of
principal of such Indebtedness is due and payable; and
(2) with respect to any scheduled installment of principal
of or interest on any Indebtedness, the date specified in such
Indebtedness as the fixed date on which such installment is due and
payable.
"SUBSIDIARY" means, with respect to any Person, any
corporation, association, or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"TIA" means the Trust Indenture act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb), as amended, as in effect on the date of the execution
of this Indenture until such time as this Indenture is qualified under the
TIA, and thereafter as in effect on the date on which this Indenture is
qualified under the TIA, except as otherwise provided in Section 9.04.
"TRANSACTION DATE" means, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"TRUSTEE" means the party named as such in this Indenture
unless a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" means (1) 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 (2) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; PROVIDED that either
<PAGE>
-32-
(x) the Subsidiary to be so designated has total assets of $1,000, or less; or
(y) if such Subsidiary has assets greater than $1,000, that such designation
would be permitted under Section 4.03. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; PROVIDED
that immediately after giving effect to such designation (x) the Company could
Incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 4.04 and (y) no Default or Event of 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.
Avado Financing I shall be designated as an Unrestricted
Subsidiary as of the Issue Date.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations of, and
obligations guaranteed by, the United States of America 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.
"U.S. LEGAL TENDER" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"VOTING STOCK" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors, managers, or other voting members of the governing body of such
Person.
"WHOLLY-OWNED" means, with respect to any Subsidiary of any
Person, such Subsidiary if all of the outstanding common stock or other similar
equity ownership interests (but not including preferred stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly by
such person.
SECTION 1.02. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a
<PAGE>
-33-
part of, this Indenture. The following TIA terms used in this Indenture have the
following meanings:
"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITY HOLDER" means a Holder or a
Securityholder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee.
"OBLIGOR" on the indenture securities means the Company, any
Guarantor or any other obligor on the 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 Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. 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) words in the singular include the plural, and words in
the plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
<PAGE>
-34-
ARTICLE TWO
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of EXHIBIT A and the Exchange Notes and the
Trustee's certificate of authentication shall be substantially in the form of
EXHIBIT B. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. The Company and the Trustee shall approve
the form of the Securities and any notation, legend or endorsement on them. Each
Security shall be dated the date of its authentication. At the time of issuance,
each Security shall have an executed Guarantee from each of the then existing
Guarantors endorsed thereon substantially in the form of EXHIBIT C.
The terms and provisions contained in the Securities, annexed
hereto as EXHIBITS A and B, and the Guarantees shall constitute, and are hereby
expressly made, a part of this Indenture and, to the extent applicable, the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent Global Securities in
registered form, substantially in the form set forth in EXHIBIT A, deposited
with the Trustee, as custodian for the Depository, duly executed by the Company
and authenticated by the Trustee as hereinafter provided, and shall bear the
legends set forth in Section 2.14 (the "RULE 144A GLOBAL SECURITY"). Securities
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more Global Securities in registered form, substantially in the
form set forth in Exhibit A, deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided, and shall bear the legends set forth in Section 2.14 (the
"REGULATION S GLOBAL SECURITY"). The aggregate principal amount of the Global
Securities may from time to time be increased or
<PAGE>
-35-
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided.
Through including the 40th day after the later of the
commencement of the Offering and the Issue Date (the "RESTRICTED PERIOD"),
beneficial interests in the Regulation S Global Security may be held only
through Euroclear and Cedel (as indirect participants in the Depositary Trust
Company), unless transferred to a person that takes delivery through a Rule 144A
Global Security in accordance with Section 2.15.
Securities issued in exchange for interests in the Global
Securities pursuant to Section 2.15 may be issued in the form of permanent
certificated Securities in registered form (the "PHYSICAL SECURITIES") and shall
bear the first legend set forth in Section 2.14. All Securities offered and sold
in reliance on Regulation S shall remain in the form of a Global Security until
the consummation of the Exchange Offer pursuant to the Registration Rights
Agreement.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Securities for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Security was an Officer
at the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall nevertheless be valid.
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.
The Trustee shall authenticate Notes for original issue on the
Issue Date in the aggregate principal amount not to exceed $100,000,000 upon
receipt of a written order of the Company in the form of an Officers'
Certificate which shall specify the amount of Securities to be authenticated and
the date on which the Securities are to be authenticated. The aggregate
<PAGE>
-36
principal amount of Securities outstanding at any time may not exceed
$100,000,000, except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Unless otherwise
provided in the appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
and Affiliates of the Company.
The Securities shall be issuable only in registered form
without coupons in denominations of $1,000 and any integral multiples thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency in the Borough
of Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("REGISTRAR"), (b)
Securities may be presented or surrendered for payment ("PAYING AGENT") and (c)
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company may also from time to time designate one or
more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED, HOWEVER, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such purposes. The
Company may act as its own Registrar or Paying Agent except that for the
purposes of Articles Three and Eight and Sections 4.15 and 4.16, neither the
Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company, upon notice to the Trustee, may have one or more
co-Registrars and one or more additional paying agents reasonably acceptable to
the Trustee. The term "Paying Agent" includes any additional paying agent. The
Company hereby initially appoints the Trustee as Registrar and Paying Agent
until such time as the Trustee has resigned or a successor has been appointed in
accordance with the terms of this Indenture.
<PAGE>
-37-
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
provide written notice to the Trustee, in advance, of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that, subject to Article Ten and Article Twelve,
each Paying Agent shall hold in trust for the benefit of Holders or the Trustee
all assets held by the Paying Agent for the payment of principal of, or interest
on, the Securities (whether such assets have been distributed to it by the
Company or any other obligor on the Securities), and shall notify the Trustee of
any Default or Event of Default by the Company (or any other obligor on the
Securities) in making any such payment. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate such assets and hold them as a separate trust
fund. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default or payment
Event of Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent shall
have no further liability for such assets.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee on or before 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
Holders, which list may be conclusively relied upon by the Trustee.
<PAGE>
-38-
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Subject to the provisions of Sections 2.14 and 2.15,
when Securities are presented to the Registrar or a co-Registrar with a request
to register the transfer of such Securities or to exchange such Securities for
an equal principal amount of Securities of other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; PROVIDED, HOWEVER,
that the Securities surrendered for registration of transfer or exchange shall
be duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registrations of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-Registrar's
request. No service charge shall be made for any registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith. The
Registrar or co-Registrar shall not be required to register the transfer of or
exchange of any Security (i) during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Securities and
ending at the close of business on the day of such mailing, (ii) selected for
redemption in whole or in part pursuant to Article Three, except the unredeemed
portion of any Security being redeemed in part, and (iii) during a Change of
Control Offer or an Excess Proceeds Offer if such Security is tendered pursuant
to such Change of Control Offer or Excess Proceeds Offer and not withdrawn. A
Global Security may be transferred, in whole but not in part, in the manner
provided in this Section 2.06(a), only to a nominee of the Depository for such
Global Security, or to the Depository, or a successor Depository for such Global
Security selected or approved by the Company, or to a nominee of such successor
Depository.
(b) If at any time the Depository for the Global Security
or Securities notifies the Company that it is unwilling or unable to continue as
Depository for such Global Security or Securities or the Company becomes aware
that the Depository has ceased to be a clearing agency registered under the
Exchange Act, the Company shall appoint a successor Depository with respect to
such Global Security or Securities. If a successor
<PAGE>
-39-
Depository for such Global Security or Securities has not been appointed within
120 days after the Company receives such notice or becomes aware of such
ineligibility, the Company shall execute, and the Trustee, upon receipt of an
Officers' Certificate for the authentication and delivery of Securities, shall
authenticate and deliver, Securities in definitive form, in an aggregate
principal amount at maturity equal to the principal amount at maturity of the
Global Security representing such Securities, in exchange for such Global
Security. The Company shall reimburse the Registrar, the Depository and the
Trustee for expenses they incur in documenting such exchanges and issuances of
Securities in definitive form.
The Company may at any time and in its sole discretion
determine that the Securities shall no longer be represented by such Global
Security or Securities. In such event the Company will execute, and the Trustee,
upon receipt of a written order for the authentication and delivery of
individual Securities in exchange in whole or in part for such Global Security
or Securities, will authenticate and deliver individual Securities in definitive
form in an aggregate principal amount equal to the principal amount of such
Global Security or Securities in exchange for such Global Security or
Securities.
In any exchange provided for in any of the preceding two
paragraphs, the Company will execute and the Trustee will authenticate and
deliver individual Securities in definitive registered form in authorized
denominations. Upon the exchange of a Global Security for individual Securities,
such Global Security shall be cancelled by the Trustee. Securities issued in
exchange for a Global Security pursuant to this Section 2.06(b) shall be
registered in such names and in such authorized denominations as the Depository
for such Global Security, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Securities to the Persons in whose names such Securities are so registered.
None of the Company, the Trustee, any Paying Agent or the
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
<PAGE>
-40-
SECTION 2.07. REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee 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 Trustee and the Company are furnished evidence of
such loss, theft or destruction satisfactory to them, together with an indemnity
bond or other indemnity, sufficient in the judgment of both the Company and the
Trustee, to protect the Company, the Trustee or any Agent from any loss which
any of them may suffer if a Security is replaced. The Company may charge such
Holder for its reasonable out-of-pocket expenses in replacing a Security
pursuant to this Section 2.07, including reasonable fees and expenses of
counsel.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company, any of the Guarantors or any of their
respective Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a BONA FIDE purchaser or a protected purchaser. A mutilated Security
ceases to be outstanding upon surrender of such Security and replacement thereof
pursuant to Section 2.07. If the principal amount of any Security is considered
paid under Section 4.01, it ceases to be outstanding and interest ceases to
accrue.
If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or a Subsidiary) holds U.S. Legal Tender sufficient to
pay all of the principal and interest due on the Securities payable on that
date, then on and after that date such Securities cease to be outstanding and
interest on them ceases to accrue.
<PAGE>
-41-
SECTION 2.09. TREASURY SECURITIES.
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, any of its Subsidiaries or any of their
respective Affiliates shall be disregarded, except that, for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities that a Responsible Officer of the
Trustee has actual knowledge are so owned shall be disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities. Until such exchange, temporary Securities shall be entitled to the
same rights, benefits and privileges as definitive Securities. Notwithstanding
the foregoing, so long as the Securities are represented by a Global Security,
such Global Security may be in typewritten form.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for registration of transfer,
exchange or payment. The Trustee, or at the direction of the Trustee, the
Registrar or the Paying Agent (other than the Company or a Subsidiary), and no
one else, shall cancel and shall destroy all Securities surrendered for
registration of transfer, exchange, payment or cancellation. Subject to Section
2.07, the Company may not issue new Securities to replace Securities that it has
paid or delivered to the Trustee for cancellation. If the Company or any
Guarantor shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the Indebtedness represented by such
Securities unless and until the
<PAGE>
-42-
same are surrendered to the Trustee for cancellation pursuant to this Section
2.11.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the
Securities, it shall, unless the Trustee fixes another record date pursuant to
Section 6.10, pay the defaulted interest, plus (to the extent lawful) any
interest payable on the defaulted interest, in any lawful manner. The Company
may pay the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day next preceding the
date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before any such subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Securities may use a "CUSIP"
number, and if so, the Trustee shall use the CUSIP number in notices of
redemption or exchange as a convenience to Holders; PROVIDED, HOWEVER, that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities.
SECTION 2.14. RESTRICTIVE LEGENDS.
Each Global Security and Physical Security that constitutes a
Restricted Security or is sold in compliance with Regulation S shall bear the
following legend (the "PRIVATE PLACEMENT LEGEND") on the face thereof until
after the second anniversary of the later of the Issue Date and the last date on
which the Company or any Affiliate of the Company was the owner of such Security
(or any predecessor security) (or such shorter period of time as permitted by
Rule 144(k) under the Securities Act or any successor provision thereunder) (or
such longer period of time as may be required under the Securities Act or
applicable state securities laws in the opinion of counsel for
<PAGE>
-43-
the Company, unless otherwise agreed by the Company and the Holder thereof):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE
THE UNITED STATES TO AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO
SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
-44-
Each Global Security shall also bear the following legend on
the face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR
BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE
OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), 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 HEREON 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 CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS
OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE
INDENTURE GOVERNING THIS SECURITY.
SECTION 2.15. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.
(a) Each Global Security initially shall (i) be
registered in the name of the Depository or the nominee of such Depository, (ii)
be delivered to the Trustee as custodian for such Depository and (iii) bear
legends as set forth in Section 2.14.
Members of, or participants in, the Depository ("AGENT
MEMBERS") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository, or the Trustee as its
custodian, or under any Global Security, and the Depository may be treated by
the Company,
<PAGE>
-45-
the Trustee and any agent of the Company or the Trustee as the absolute owner of
each 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 Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in any Global Security may
be transferred or, subject to Section 2.01, exchanged for Physical Securities in
accordance with the rules and procedures of the Depository and the provisions of
Section 2.16. In addition, Physical Securities shall be transferred to all
beneficial owners in exchange for their beneficial interests in any Global
Security if (i) the Depository notifies the Company that it is unwilling or
unable to continue as Depository for the Global Securities and a successor
depositary is not appointed by the Company within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a written request from the Depository or the Trustee to issue Physical
Securities.
(c) In connection with any transfer or exchange of a
portion of the beneficial interest in any Global Security to beneficial owners
pursuant to paragraph (b), the Registrar shall (if one or more Physical
Securities are to be issued) reflect on its books and records the date and a
decrease in the principal amount of such Global Security in an amount equal to
the principal amount of the beneficial interest in such Global Security to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of an entire Global
Security to beneficial owners pursuant to paragraph (b), such Global Security
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in such Global Security, an equal aggregate principal
<PAGE>
-46-
amount of Physical Securities of authorized denominations.
(e) Any Physical Security constituting a Restricted
Security delivered in exchange for an interest in a Global Security pursuant to
paragraph (b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x)
and (c) of Section 2.16, bear the legend regarding transfer restrictions
applicable to the Physical Securities set forth in Section 2.14.
(f) The Holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.16. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED
INVESTORS AND NON-U.S. PERSONS. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to any institutional accredited investor (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) (an "ACCREDITED
INVESTOR") which is not a QIB or to any Non-U.S.
Person:
(i)the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears
the Private Placement Legend, if (x) the transferee certifies that it
is not an Affiliate of the Company and the requested transfer is after
the second anniversary of the later of the (a) Issue Date and (b) the
last date on which the Company or an Affiliate of the Company was the
owner of such Security (or any predecessor Security) or such shorter
period of time as permitted by Rule 144(k) under the Securities Act or
any successor provision thereunder or (y) (1) in the case of a transfer
to an Accredited Investor which is not a QIB (excluding Non-U.S.
Persons), the proposed transferee has delivered to the Registrar a
certificate substantially in the form of EXHIBIT D hereto or (2) in the
case of a transfer to a Non-U.S. Person, the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
EXHIBIT E hereto and such other information that the Trustee may
reasonably request in order to
<PAGE>
-47-
confirm that such transaction is being made pursuant to an exemption
from or in a transaction not subject to the registration requirements
of the Securities Act; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Security, the Registrar shall register
the transfer of any Security constituting a Restricted Security, whether
or not such Security bears a Private Placement Legend upon receipt by
the Registrar of (x) the certificate, if any, required by paragraph (i)
above and (y) instructions given in accordance with the Depository's and
the Registrar's procedures, whereupon (a) the Registrar shall reflect on
its books and records the date and (if the transfer does not involve a
transfer of outstanding Physical Securities) a decrease in the principal
amount of the applicable Global Security in an amount equal to the
principal amount of the beneficial interest in such Global Security to
be transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities of like tenor
and amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply
with respect to the registration of any proposed transfer of a Security
constituting a Restricted Security to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Security stating, or has otherwise advised
the Company and the Registrar in writing, that the sale has been made
in compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Security stating,
or has otherwise advised the Company and the Registrar in writing, that
it is purchasing the Security for its own account or an account with
respect to which it exercises sole investment discretion and that it
and any such account is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations
<PAGE>
-48-
in order to claim the exemption from registration provided by Rule
144A; and
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in a Global Security, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the applicable Global Security in an amount equal
to the principal amount of the Physical Securities to be transferred,
and the Trustee shall cancel the Physical Securities so transferred.
(c) PRIVATE PLACEMENT LEGEND. Upon the registration of
transfer, exchange or replacement of Securities not bearing the Private
Placement Legend, the Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the registration of transfer, exchange or
replacement of Securities bearing the Private Placement Legend, the Registrar
shall deliver only Securities that bear the Private Placement Legend unless (i)
the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.16 exists
or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(d) GENERAL. By its acceptance of any Security bearing
the Private Placement Legend, each Holder of such Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.15 or this Section
2.16 in accordance with its customary procedures. The Company shall have the
right to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
<PAGE>
-49-
SECTION 2.17. DEPOSIT OF MONEYS.
Prior to 10:00 a.m. New York City time on each Interest
Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and
Excess Proceeds Payment Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change
of Control Payment Date and Excess Proceeds Payment Date, as the case may be, in
a timely manner which permits the Paying Agent to remit payment to the Holders
on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Payment Date and Excess Proceeds Offer Payment Date, as the case may be.
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to
Paragraph 6 or Paragraph 7 of the Securities, it shall notify the Trustee in
writing of the Redemption Date, the Redemption Price and the principal amount of
the applicable Securities to be redeemed. The Company shall give notice of
redemption to the Paying Agent and Trustee at least 30 days but not more than 60
days before the Redemption Date (unless a shorter notice shall be agreed to by
the Trustee in writing), together with an Officers' Certificate stating that
such redemption will comply with the conditions contained herein.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
In the event that less than all of the Securities are to be
redeemed at any time, selection of such Securities for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Securities are listed or, if such
Securities are not then listed on a national securities exchange, on a PRO RATA
basis, by lot or by such method as the Trustee in its sole discretion shall deem
fair and appropriate; PROVIDED, HOWEVER, that no Securities of a principal
amount of $1,000 or less shall be redeemed in part; and PROVIDED, FURTHER, that
if a
<PAGE>
-50-
partial redemption is made with the net cash proceeds of a Public Equity
Offering, selection of the Securities or portions thereof for redemption shall
be made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis
as is practicable (subject to the procedures of the Depository), unless such
method is otherwise prohibited.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail, postage
prepaid, to each Holder whose Securities are to be redeemed at its registered
address. At the Company's request at least 40 days before a Redemption Date
(unless a shorter period shall be acceptable to the Trustee), the Trustee shall
give the notice of redemption in the Company's name and at the Company's
expense. Each notice of redemption shall identify the Securities to be redeemed
and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(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 plus
accrued interest, if any;
(5) that, unless the Company defaults in making the
redemption payment, interest on Securities called for redemption ceases
to accrue on and after the Redemption Date, and the only remaining
right of the Holders of such Securities is to receive payment of the
Redemption Price upon surrender to the Paying Agent of the Securities
redeemed;
(6) if any Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that, after
the Redemption Date, and upon surrender of such Security, a new
Security or Securities in aggregate principal amount equal to the
unredeemed portion thereof will be issued;
<PAGE>
-51-
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption; and
(8) the Paragraph of the Securities pursuant to which the
Securities are to be redeemed.
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.
The notice, if mailed in a manner herein provided, shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption in whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price plus accrued interest, if any. Upon surrender
to the Trustee or Paying Agent, such Securities called for redemption shall be
paid at the Redemption Price (which shall include accrued interest thereon to
the Redemption Date), but installments of interest, the maturity of which is on
or prior to the Redemption Date, shall be payable to Holders of record at the
close of business on the relevant Record Dates.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or before 10:00 a.m. New York time on the Redemption Date,
the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to
pay the Redemption Price plus accrued interest, if any, of all Securities to be
redeemed on that date.
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such Redemption Price plus accrued
interest, if any, interest on the
<PAGE>
-52-
Securities to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Securities are presented for payment.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is to be redeemed in part
only, the Trustee shall upon written instruction from the Company authenticate
for the Holder a new Security or Securities in a principal amount equal to the
unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest on the
Securities in the manner provided in the Securities. An installment of principal
of or interest on the Securities shall be considered paid on the date it is due
if the Trustee or Paying Agent holds on that date money designated for and
sufficient to pay the installment. Interest on the Securities will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, The
City of New York, the office or agency required under Section 2.03. The Company
shall give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in Section
13.02.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations. The Company will give prompt written notice to the Trustee of any
such designa-
<PAGE>
-53-
tion or rescission and of any change in the location of any such other office or
agency.
The Company hereby initially designates the Trustee at its
address c/o First National Bank of Chicago, Corporate Trust, 8th Floor, 14 Wall
Street, Suite 4607, New York, New York 10005, Attn: Frank Ballentine as such
office of the Company in accordance with Section 2.03.
SECTION 4.03. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on
its Capital Stock (other than pro rata dividends or distributions
payable solely in shares of its or such Restricted Subsidiary's Capital
Stock (other than Redeemable Stock) of the same class held by such
holders or in options, warrants, or other rights to acquire such shares
of Capital Stock) held by persons other than the Company or any of its
Wholly-Owned Restricted Subsidiaries;
(2) purchase, redeem, retire, or otherwise acquire for value
any shares of Capital Stock of the Company or any Restricted Subsidiary
(including options, warrants, or other rights to acquire such shares of
Capital Stock) held by persons other than the Company or any of its
Wholly-Owned Restricted Subsidiaries;
(3) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Securities; or
(4) make any Investment that is a Restricted Investment
(each of such payments or any other actions described in clauses (1)
through (4) being referred to as a "RESTRICTED PAYMENT") if, at the
time of, and after giving effect to, the proposed Restricted Payment:
(i) a Default or Event of Default shall have occurred
and be continuing;
<PAGE>
-54-
(ii) the Company could not Incur at least $1.00 of
Indebtedness (other than Permitted Indebtedness) pursuant to Section
4.04; or
(iii) the aggregate amount expended for all Restricted Payments
(the amount so expended, if other than in cash, to be determined in
good faith by the board of directors, whose determination shall be
conclusive and evidenced by a Board Resolution) after the Issue Date
shall exceed the sum of:
(A) 50% of the aggregate amount of the
Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of such
amount) (determined by excluding income created by
transfers of assets received by the Company or a
Restricted Subsidiary from an Unrestricted
Subsidiary) accrued on a cumulative basis during the
period (taken as one accounting period) beginning on
the first day of the fiscal quarter in which the
Issue Date occurs and ending on the last day of the
last fiscal quarter preceding the Transaction Date,
PLUS
(B) the aggregate net proceeds (including
the fair market value of non-cash proceeds as
determined in good faith by the Board of Directors)
received by the Company from the issuance and sale of
its Capital Stock (other than Redeemable Stock) to a
person who is not a Subsidiary of the Company,
(including Capital Stock of the Company (other than
Redeemable Stock) issued upon the conversion of
convertible Indebtedness, in exchange for outstanding
Indebtedness or upon the exercise of any options,
warrants or other rights to acquire Capital Stock
(other than Redeemable Stock) of the Company), PLUS
(C) without duplication, the sum of:
(I) the aggregate amount returned
in cash on or with respect to Investments
(other than Permitted Investments) made
subsequent to the Issue Date whether through
interest payments, principal
<PAGE>
-55-
payments, dividends or other distributions
or payments;
(II) the net cash proceeds received
by the Company or any Restricted Subsidiary
of the Company from the disposition of all
or any portion of such Investments (other
than to a Subsidiary of the Company); and
(III) upon redesignation of an
Unrestricted Subsidiary as a Restricted
Subsidiary, the fair market value of such
Subsidiary (valued in each case as provided
in the definition of "Investments");
PROVIDED, HOWEVER, that the sum of clauses (I), (II)
and (III) above shall not exceed the aggregate amount
of all such Investments made by the Company or any
Restricted Subsidiary in the relevant person or
Unrestricted Subsidiary subsequent to the Issue Date,
PLUS
(D) $10.0 million.
The foregoing provision shall not take into account, and shall not be violated
by reason of:
(1) the payment of any dividend within 60 days after the date
of declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance, or other
acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Securities including premium,
if any, and accrued and unpaid interest, with the proceeds of, or in
exchange for, permitted refinancing indebtedness;
(3) the repurchase, redemption or other acquisition of Capital
Stock of the Company in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Capital Stock (other
than Redeemable Stock) of the Company;
<PAGE>
-56-
(4) the acquisition of Indebtedness of the Company that is
subordinated in right of payment to the Securities in exchange for, or
out of the proceeds of a substantially concurrent offering of, shares
of the Capital Stock of the Company (other than Redeemable Stock);
(5) the purchase, redemption, acquisition, cancellation, or
other retirement for value of shares of Capital Stock of the Company,
options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or
employees (or their estates or beneficiaries under their estates), upon
death, disability, retirement, termination of employment, or pursuant
to any agreement under which such shares of stock or related rights
were issued;
(6) payments or distributions pursuant to or in connection
with a consolidation, merger, or transfer of assets that complies with
the provisions of this Indenture applicable to mergers, consolidations,
and transfers of all or substantially all of the property and assets of
the Company; or
(7) the payment of amounts due with respect to the Forward
Equity Contracts in effect on the Issue Date;
PROVIDED that, except in the case of clauses (1) and (3), no Default or Event of
Default shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
Notwithstanding the foregoing, in the event of an issuance of
Capital Stock (other than Redeemable Stock) of the Company and (1) the
repurchase, redemption, or other acquisition of Capital Stock out of the
proceeds of such issuance or (2) the acquisition of Indebtedness that is
subordinated in right of payment to the Securities out of the proceeds of such
issuance, then, in calculating whether the conditions of clause (4)(iii) above
have been met with respect to any subsequent Restricted Payments, the proceeds
of any such issuance shall be included under such clause (4)(iii) only to the
extent such proceeds are not applied as described in clause (1) or (2) of this
paragraph.
<PAGE>
-57-
SECTION 4.04. LIMITATION ON INDEBTEDNESS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(other than Permitted Indebtedness); PROVIDED, HOWEVER, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the Incurrence of any such Indebtedness, the Company or any
Restricted Subsidiary that is a Guarantor may Incur Indebtedness (including,
without limitation, Acquired Indebtedness) and any Restricted Subsidiary that is
not a Guarantor may Incur Acquired Indebtedness, in each case if on the date of
the Incurrence of such Indebtedness, after giving effect to the Incurrence
thereof, the Consolidated Fixed Charge Coverage Ratio of the Company would be
greater than 2.0 to 1.0.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following
(each, "PERMITTED INDEBTEDNESS"):
(1) Indebtedness of the Company and any Guarantor
outstanding at any time in an aggregate principal amount not to exceed
an amount equal to $150.0 million under the Credit Agreement, less any
amount of Indebtedness permanently repaid as provided in Section 4.16;
(2) Indebtedness under the Securities and the related
Guarantees;
(3) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date;
(4) Indebtedness to the Company or any of its Wholly-Owned
Restricted Subsidiaries as long as such Indebtedness continues to be
owed to the Company or any of its Wholly-Owned Restricted Subsidiaries;
(5) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund, Indebtedness then
outstanding, other than Indebtedness Incurred under clause (1) or (4)
above or clause (6) or (7) below, and any refinancings thereof in an
amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, fees, and expenses); PROVIDED that
Indebtedness the proceeds of which are used to refinance or refund the
Securities or Indebtedness that is PARI PASSU
<PAGE>
-58-
with, or subordinated in right of payment to, the Securities shall only
be permitted under this clause (5) if:
(i) in the case where the Indebtedness to be refinanced is
PARI PASSU with the Securities, such new Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made PARI PASSU with, or
subordinate in right of payment to, the Securities;
(ii) in the case where the Indebtedness to be refinanced is
subordinated in right of payment to the Securities, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is
expressly made subordinate in right of payment to the Securities at
least to the extent that the Indebtedness to be refinanced is
subordinated to the Securities; and
(iii) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the
Stated Maturity of the Indebtedness to be refinanced or refunded, and
the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or
refunded;
(6) Indebtedness:
(i) in respect of performance, surety or appeal bonds
provided in the ordinary course of business consistent with past
practice;
(ii) under Currency Agreements and Interest Rate Agreements;
PROVIDED that, in the case of Currency Agreements that relate to other
Indebtedness, such Currency Agreements do not increase the Indebtedness
of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities, and compensation payable thereunder; and
(iii) arising from agreements providing for indemnification,
adjustment of purchase price, or similar obligations, or from
guarantees or letters of credit, bankers' acceptances, surety bonds, or
performance bonds securing any obligations of the Company or any of its
Re-
<PAGE>
-59-
stricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets, or
Restricted Subsidiary (other than guarantees of Indebtedness Incurred
by any person acquiring all or any portion of such business, assets, or
Restricted Subsidiary for the purpose of financing such acquisition),
in a principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with
such disposition; and
(7) Indebtedness of the Company and its Restricted
Subsidiaries not to exceed $20.0 million at any time outstanding.
For purposes of determining compliance with this Section 4.04:
(1) in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the
clauses of the preceding paragraph, the Company, in its sole
discretion, shall classify (or later reclassify) such item of
Indebtedness and only be required to include the amount and type of
such Indebtedness in one such clause; and
(2) the amount of Indebtedness issued at a price that is less
than the principal amount thereof shall be equal to the amount of the
liability in respect thereof determined in conformity with GAAP.
Accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Redeemable Stock in the form of additional shares of the same class of
Redeemable Stock will not be deemed to be an Incurrence of Indebtedness or an
issuance of Redeemable Stock for purposes of this Section 4.04.
SECTION 4.05. CORPORATE EXISTENCE.
Except as otherwise permitted by Article Five, the Company
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate, partnership or other
existence of each of its Restricted Subsidiaries in accordance with the
respec-
<PAGE>
-60-
tive organizational documents of each such Restricted Subsidiary and the rights
(charter and statutory) and material franchises of the Company and each of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right, franchise or corporate existence with
respect to each such Restricted Subsidiary if the Board of Directors of the
Company shall determine that the loss thereof is not, and will not be, adverse
in any material respect to the Holders.
SECTION 4.06. 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, (a) all material taxes,
assessments and governmental charges levied or imposed upon it or any of its
Restricted Subsidiaries or upon the income, profits or property of it or any of
its Restricted Subsidiaries and (b) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability or Lien upon the property of it or any of its Restricted 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, (i) the applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate provision has been made or
(ii) where the failure to effect such payment or discharge is not adverse in any
material respect to the Holders.
SECTION 4.07. MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) The Company shall cause all material properties owned by
or leased by it or any of its Restricted Subsidiaries used or useful to the
conduct of its business or the business of any of its Restricted Subsidiaries,
taken as a whole, to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all repairs, renewals, replacements, and betterments thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; PROVIDED,
HOWEVER, that nothing in this Section 4.07 shall prevent the Company or any of
its Restricted Subsidiaries from discontinuing the use, operation or maintenance
of any of such properties, or disposing of any of them, if such discontinuance
or disposal is, in the
<PAGE>
-61-
judgment of the Board of Directors of the Company or any such Restricted
Subsidiary desirable in the conduct of the business of the Company or any such
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders; PROVIDED, FURTHER, that nothing in this
Section 4.07 shall prevent the Company or any of its Restricted Subsidiaries
from discontinuing or disposing of any properties to the extent otherwise
permitted by this Indenture.
(b) The Company shall maintain, and shall cause its Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions, as are, in the Company's reasonable judgment,
customarily carried by similar businesses of similar size, including property
and casualty loss, workers' compensation and interruption of business insurance.
SECTION 4.08. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company and each Guarantor shall deliver to the
Trustee, within 90 days after the close of each fiscal year of the Company
(which is currently the Sunday closest to December 31) an Officers' Certificate
stating that a review of the activities of the Company or the applicable
Guarantor has been made under the supervision of the signing Officers with a
view to determining whether it has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
or the applicable Guarantor during such preceding fiscal year has kept,
observed, performed and fulfilled each and every such covenant and no Default or
Event of Default occurred during such year and at the date of such certificate
there is no Default or Event of Default that has occurred and is continuing or,
if such signers do know of such Default or Event of Default, the certificate
shall describe its status with particularity. The applicable Officers'
Certificate shall also notify the Trustee should the Company or any Guarantor
elect to change the manner in which it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to
Section 4.10 shall be accompanied by a written report of the Company's certified
independent accountants (who shall be a
<PAGE>
-62-
firm of established national reputation) that in conducting their audit of such
financial statements nothing has come to their attention that would lead them to
believe that the Company has violated any provisions of Article Four, Five or
Six of this Indenture insofar as they relate to accounting matters or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall deliver to the Trustee, forthwith upon
becoming aware of any Default or Event of Default in the performance of any
covenant, agreement or condition contained in this Indenture, an Officers'
Certificate specifying the Default or Event of Default and describing its status
with particularity.
SECTION 4.09. 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, 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 would not in the aggregate have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries taken as a whole.
SECTION 4.10. REPORTS TO HOLDERS.
Whether or not required by the rules and regulations of the
Commission, so long as any Securities are outstanding, the Company will furnish
the Holders of Securities:
(1) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K if the Company were required to file such forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its consolidated
Subsidiaries and, with respect to the annual information
<PAGE>
-63-
only, a report thereon by the Company's certified independent
accountants; and
(2) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods specified in the
Commission's rules and regulations.
In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any Securities remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
SECTION 4.11. WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each of the Company and each Guarantor covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury law or other law that would prohibit or
forgive the Company or such Guarantor from paying all or any portion of the
principal of and/or interest on the Securities or the Guarantee of any such
Guarantor as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Indenture, and (to the extent that it may lawfully do so) each hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 4.12. LIMITATIONS ON TRANSACTIONS WITH SHAREHOLDERS AND
AFFILIATES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into, re-
<PAGE>
-64-
new, or extend any transaction (including, without limitation, the purchase,
sale, lease, or exchange of property or assets, or the rendering of any service)
with any holder (or any Affiliate of such holder) of 5% or more of any class of
Capital Stock of the Company or with any Affiliate of the Company or any
Restricted Subsidiary (each, a "RELATED PARTY TRANSACTION"), except upon fair
and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than could be obtained, at the time of such transaction or at the
time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a person that is not such a holder or an
Affiliate.
Without limiting the foregoing:
(1) any Related Party Transaction or series of Related Party
Transactions with an aggregate value in excess of $1.0 million must
first be approved pursuant to a Board Resolution by a majority of the
Board of Directors of the Company who are disinterested in the subject
matter of the transaction; and
(2) with respect to any Related Party Transaction or series
of Related Party Transactions with an aggregate value in excess of
$10.0 million, the Company must first obtain a favorable written
opinion from an independent financial advisor of national reputation as
to the fairness, from a financial point of view, of such transaction to
the Company or such Restricted Subsidiary, as the case may be.
The foregoing limitation does not limit, and shall not apply
to:
(1) any transaction between the Company and any of its
Wholly-Owned Restricted Subsidiaries or between Wholly-Owned Restricted
Subsidiaries of the Company;
(2) the payment of reasonable and customary regular fees to
directors of the Company who are not employees of the Company;
(3) any Restricted Payments not prohibited by Section 4.03; or
(4) any loans or advances by the Company to employees of the
Company or a Restricted Subsidiary in the ordi-
<PAGE>
-65-
nary course of business and in furtherance of the Company's business.
SECTION 4.13. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any kind of consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions permitted
by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary;
(2) pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary;
(3) make loans or advances to the Company or any other
Restricted Subsidiary; or
(4) transfer any of its property or assets to the Company or
any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances
or restrictions:
(1) existing on the Issue Date in the Credit Agreement, the
Indenture, or any other agreements in effect on the Issue Date, and any
extensions, refinancings, renewals, or replacements of any of the
foregoing; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals, or replacements are no less
favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed, or replaced;
(2) existing under or by reason of applicable law;
(3) existing with respect to any person or the property or
assets of such person acquired by the Company or any Restricted
Subsidiary and existing at the time of such acquisition, which
encumbrances or restrictions (i) are
<PAGE>
-66-
not applicable to any person or the property or assets of any person
other than such person or the property or assets of such person so
acquired and (ii) were not put in place in anticipation of such
acquisition, and any extensions, refinancings, renewals, or
replacements of any of the foregoing; PROVIDED that the encumbrances
and restrictions in any such extensions, refinancings, renewals, or
replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect
and that are being extended, refinanced, renewed, or replaced;
(4) in the case of clause (4) of the first paragraph of this
covenant;
(i) that restrict in a customary manner the subletting,
assignment, or transfer of any property or asset that is a lease,
license, conveyance, or contract or similar property or asset;
(ii) existing 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
(iii) not relating to any Indebtedness, and, in each of cases
(i), (ii), or (iii), arising or agreed to in the ordinary course of
business and that do not, individually or in the aggregate, detract
from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company or any Restricted
Subsidiary; or
(5) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary.
Nothing contained in the preceding paragraph shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming, or
suffering to exist any Liens otherwise permitted by Section 4.14 or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
<PAGE>
-67-
SECTION 4.14. LIMITATION ON LIENS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, Incur, assume or permit or suffer
to exist any Liens of any kind against or upon any property or assets of the
Company or any of its Restricted Subsidiaries whether owned on the Issue Date or
acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise
convey any right to receive income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Securities,
the Securities are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens; and
(2) in all other cases, the Securities are equally and ratably
secured, except for:
(i) Liens existing as of the Issue Date to the extent and in
the manner such Liens are in effect on the Issue Date;
(ii) Liens securing Senior Debt and Liens securing Guarantor
Senior Debt;
(iii) Liens securing the Securities and the Guarantees;
(iv) Liens of the Company or a Wholly-Owned Restricted
Subsidiary of the Company on assets of any Restricted Subsidiary of the
Company;
(v) Liens securing Indebtedness which is Incurred to
refinance any Indebtedness which has been secured by a Lien permitted
under this Indenture and which has been Incurred in accordance with the
provisions of this Indenture; PROVIDED, HOWEVER, that such Liens: (A)
are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being refinanced; and (B) do not extend to or cover any
property or assets of the Company or any of its Restricted Subsidiaries
not securing the Indebtedness so refinanced; and
<PAGE>
-68-
(vi) Permitted Liens.
SECTION 4.15. CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder shall
have the right to require the repurchase of its Securities by the Company in
cash pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at a
purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the date of purchase (the "CHANGE OF CONTROL PAYMENT").
Prior to the mailing of the notice to Holders provided for in the succeeding
paragraph, but in any event within 30 days following any Change of Control, the
Company covenants to:
(1) repay in full all Indebtedness of the Company that would
prohibit the repurchase of the Securities as provided for in the
succeeding paragraph; or
(2) obtain any requisite consents under instruments
governing any such Indebtedness of the Company to permit the repurchase
of the Securities as provided for in the succeeding paragraph. The
Company shall first comply with clause (1) above before it shall be
required to repurchase Securities pursuant to this Section 4.15.
Within 30 days of the Change of Control, the Company shall
mail a notice to the Trustee and each Holder stating:
(1) that a Change of Control has occurred (and a brief
description of the events resulting in such Change of Control), that
the Change of Control Offer is being made pursuant to this Section 4.15
and that all Securities validly tendered will be accepted for payment;
(2) the purchase price and the date of purchase (which shall
be the date 20 business days from the date such notice is mailed) (the
"CHANGE OF CONTROL PAYMENT DATE");
(3) that any Security not tendered will continue to accrue
interest pursuant to its terms;
(4) that, unless the Company defaults in the payment of the
Change of Control Payment, any Security accepted for payment pursuant
to the Change of Control Offer shall
<PAGE>
-69-
cease to accrue interest on and after the Change of Control Payment
Date;
(5) that Holders electing to have any Security or portion
thereof purchased pursuant to the Change of Control Offer will be
required to surrender such Security, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of such
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the business day immediately
preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on
the third business day immediately preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission, or letter
setting forth the name of such Holder, the principal amount of
Securities delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Securities purchased; and
(7) that Holders whose Securities are being purchased only
in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; PROVIDED that each
Security purchased and each new Security issued shall be in a principal
amount of $1,000 or integral multiples thereof.
On the Change of Control Payment Date, the Company shall:
(1) accept for payment Securities or portions thereof
tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent money sufficient to pay
the purchase price of all Securities or portions thereof so accepted;
and
(3) deliver, or cause to be delivered, to the Trustee, all
Securities or portions thereof so accepted together with an officers'
certificate specifying the Securities or portions thereof accepted for
payment by the Company.
<PAGE>
-70-
The Paying Agent shall promptly mail, to the holders of
Securities so accepted, payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail to such Holders a new Security
equal in principal amount to any unpurchased portion of the Securities
surrendered; PROVIDED that each Security purchased and each new Security issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date. For purposes of
this Section 4.15, the Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in the event that a Change of Control occurs and
the Company is required to repurchase the Securities pursuant to this Section
4.15.
SECTION 4.16. LIMITATION ON ASSET SALES.
The Company shall not effect or permit any Asset Sale unless:
(1) such Asset Sale is effected at least fair market value
(as determined in good faith by the Board of Directors);
(2) in the case of any Asset Sale or series of related Asset
Sales for a total consideration in excess of $10.0 million, at least
80% of the consideration is received in cash; and
(3) in the event and to the extent that the Net Cash
Proceeds received by the Company or any of its Restricted Subsidiaries
from one or more Asset Sales occurring on or after the Issue Date
exceed $10.0 million;
then the Company shall or shall cause the relevant Restricted Subsidiary to:
(1) within 270 days after the date Net Cash Proceeds so
received exceed $10.0 million:
(i) apply an amount equal to such excess Net Cash Proceeds
to permanently repay Senior Debt, Guarantor Sen-
<PAGE>
-71-
ior Debt or Indebtedness of any Restricted Subsidiary that is not a
Guarantor in each case owing to a person other than the Company or any
of its Restricted Subsidiaries and, in the case of repayment of
Indebtedness arising under the Credit Agreement or any other revolving
credit facility, effect a permanent reduction in the commitments or
availability under the Credit Agreement or such other facility; or
(ii) invest an equal amount, or the amount not so applied
pursuant to clause (i) (or enter into a definitive agreement committing
so to invest within 270 days after the date of receipt of such Net Cash
Proceeds and investing within 360 days of the receipt of such Net Cash
Proceeds), in property or assets of a nature or type or that are used
in a business similar or related to the nature or type of the property
and assets of, or the business of, the Company and its Restricted
Subsidiaries existing on the date of such investment (as determined in
good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution); and
(2) apply (no later than the end of the periods referred to
in clause (1)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (1)) as provided below. The amount of such excess
Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 270-day period as set forth in clause (1) of the
preceding sentence and not applied as so required by the end of such
period (or, with respect to such Net Cash Proceeds committed to be
applied, such 360-day period) shall constitute "EXCESS PROCEEDS."
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer
totals at least $10.0 million, the Company must, not later than the fifteenth
Business Day of such month, make an offer (an "EXCESS PROCEEDS OFFER") to
purchase from the Holders on a pro rata basis an aggregate principal amount of
Securities equal to the Excess Proceeds on such date, at a purchase price equal
to 100% of the principal amount of the Securities, plus, in each case, accrued
interest (if any) to the date of purchase (the "EXCESS PROCEEDS PAYMENT").
<PAGE>
-72-
The Company shall commence an Excess Proceeds Offer by mailing
a notice to the Trustee and each Holder stating:
(1) that the Excess Proceeds Offer is being made pursuant to
this Section 4.16 and that all Securities validly tendered will be
accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall
be the date 20 Business Days from the date such notice is mailed) (the
"EXCESS PROCEEDS PAYMENT DATE");
(3) that any Security not tendered will continue to accrue
interest pursuant to its terms;
(4) that, unless the Company defaults in the payment of the
Excess Proceeds Payment, any Security accepted for payment pursuant to
the Excess Proceeds Offer shall cease to accrue interest on and after
the Excess Proceeds Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to the Excess Proceeds Offer will be required to surrender the
Security, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of the Security completed, to the
Paying Agent at the address specified in the notice prior to the close
of business on the Business Day immediately preceding the Excess
Proceeds Payment Date;
(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Excess Proceeds
Payment Date, a telegram, facsimile transmission, or letter setting
forth the name of such Holder, the principal amount of Securities
delivered for purchase and a statement that such Holder is withdrawing
his election to have such Securities purchased; and
(7) that Holders whose Securities are being purchased only
in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; PROVIDED that each
Security purchased
<PAGE>
-73-
and each new Security issued shall be in a principal amount of $1,000
or any integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall:
(1) accept for payment on a pro rata basis Securities or
portions thereof tendered pursuant to the Excess Proceeds Offer;
(2) deposit with the Paying Agent money sufficient to pay
the purchase price of all Securities or portions thereof so accepted;
and
(3) deliver, or cause to be delivered, to the Trustee all
Securities or portions thereof so accepted together with an Officers'
Certificate specifying the Securities or portions thereof accepted for
payment by the Company.
The Paying Agent shall promptly mail to the Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Security
equal in principal amount to any unpurchased portion of the Security
surrendered; PROVIDED that each Security purchased and each new Security issued
shall be in a principal amount of $1,000 or any integral multiples thereof. The
Company will publicly announce the results of the Excess Proceeds Offer as soon
as practicable after the Excess Proceeds Payment Date. For purposes of this
Section 4.16, the Trustee shall act as the Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable, in the event that such Excess Proceeds are
received by the Company pursuant to this Section 4.16 and the Company is
required to repurchase Securities as described above.
SECTION 4.17. PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED
DEBT.
The Company shall not, and shall not permit any Restricted
Subsidiary that is a Guarantor to, Incur or suffer to exist Indebtedness that is
senior in right of payment to the Securities or such Guarantor's Guarantee, as
the case may be,
<PAGE>
-74-
and subordinate in right of payment to any other Indebtedness of the Company or
such Guarantor, as the case may be.
SECTION 4.18. LIMITATION OF GUARANTEES BY RESTRICTED SUBSIDIARIES.
The Company shall not permit any of its Restricted
Subsidiaries, directly or indirectly, by way of the pledge of any intercompany
note or otherwise, to assume, guarantee or in any other manner become liable
with respect to any Indebtedness of the Company or any other Restricted
Subsidiary of the Company (other than Permitted Indebtedness of a Restricted
Subsidiary of the Company), unless, in any such case:
(1) such Restricted Subsidiary executes and delivers a
supplemental indenture to this Indenture, providing a guarantee of
payment of the Securities by such Restricted Subsidiary; and
(2) (i) if any such assumption, guarantee or other liability
of such Restricted Subsidiary is provided in respect of Senior Debt,
the guarantee or other instrument provided by such Restricted
Subsidiary in respect of such Senior Debt may be senior to the
Guarantee pursuant to subordination provisions no less favorable to the
Holders of the Securities than those contained in this Indenture; and
(ii) if such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Indebtedness that is
expressly subordinated to the Securities, the guarantee or other
instrument provided by such Restricted Subsidiary in respect of such
subordinated Indebtedness shall be subordinated to the Guarantee
pursuant to subordination provisions no less favorable to the Holders
of the Securities than those contained in the Indenture.
Notwithstanding the foregoing, any such Guarantee by a
Restricted Subsidiary of the Securities shall provide by its terms that it shall
be automatically and unconditionally released and discharged, without any
further action required on the part of the Trustee or any Holder, upon:
(1) the unconditional release of such Restricted Subsidiary
from its liability in respect of the Indebted-
<PAGE>
-75-
ness in connection with which such Guarantee was executed and delivered
pursuant to the preceding paragraph; or
(2) any sale or other disposition (by merger or otherwise)
to any person which is not a Restricted Subsidiary of the Company of
all of the Company's Capital Stock in, or all or substantially all of
the assets of, such Restricted Subsidiary; PROVIDED that (i) such sale
or disposition of such Capital Stock or assets is otherwise in
compliance with the terms of this Indenture and (ii) such assumption,
guarantee or other liability of such Restricted Subsidiary has been
released by the holders of the other Indebtedness so guaranteed.
SECTION 4.19. PAYMENT FOR CONSENTS.
Neither the Company nor any of its Subsidiaries shall directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee, or otherwise, to any Holder of any Security for or as an
inducement to any consent, waiver, or amendment of any of the terms or
provisions of this Indenture or the Securities unless such consideration is
offered to be paid or agreed to be paid to all Holders of the Securities that
consent, waive, or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver, or agreement.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. CONSOLIDATION, MERGER AND SALE OF ASSETS.
The Company shall not consolidate with, merge with or into, or
sell, convey, transfer, lease, or otherwise dispose of all or substantially all
of its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to any Person (other than a
consolidation with or merger with or into a Wholly-Owned Restricted Subsidiary
with a positive net worth; PROVIDED that, in connection with any such merger of
the Company with a Wholly-Owned Restricted Subsidiary, no consideration (other
than common stock in the surviving person or the Company) shall
<PAGE>
-76-
be issued or distributed to the stockholders of the Company) or permit any
Person to merge with or into the Company unless:
(1) the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property
and assets of the Company shall be a corporation organized and validly
existing under the laws of the United States of America or any state
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of
the obligations of the Company on all of the Securities and under this
Indenture;
(2) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a
PRO FORMA basis, the Company or any Person becoming the successor
obligor of the Securities, as the case may be, shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Company immediately prior to such transaction;
(4) immediately after giving effect to such transaction on a
PRO FORMA basis, the consolidated resulting surviving or transferee
entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 4.04; and
(5) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (3)) and Opinion of Counsel, in each case
stating that such consolidation, merger, or transfer and such
supplemental indenture complies with this provision and that all
conditions precedent provided for herein relating to such transaction
have been complied with; PROVIDED, HOWEVER, that clause (3) above does
not apply if, in the good faith determination of the Board of Directors
of the Company, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the
state of incorporation of the Company; and PROVIDED FURTHER that any
such trans-
<PAGE>
-77-
action shall not have as one of its purposes the evasion of the
limitations contained in this Section 5.01.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with this
Section 5.01, in which the Company is not the continuing corporation, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture and the Securities with the same effect as if such
surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to
be released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.16)
shall not, and the Company shall not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantor unless:
(1) the entity formed by or surviving any such consolidation
or merger (if other than the Guarantor) or to which such sale, lease,
conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia;
(2) such entity assumes by supplemental indenture all of the
obligations of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and
the use of any net proceeds therefrom on a PRO FORMA basis, the Company
could satisfy the provisions of clause (4) of the first paragraph of
this Section 5.01.
Any merger or consolidation of a Guarantor with and into the
Company (with the Company being the surviving entity) or any merger or
consolidation of a Guarantor and a Restricted Subsidiary of the Company (with a
Guarantor being the surviving
<PAGE>
-78-
entity) need only comply with clause (5) of the first paragraph of this Section
5.01.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with
Section 5.01 in which the Company or any Guarantor, as applicable, is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company or such Guarantor is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or such Guarantor under this
Indenture and the Securities or the Guarantee, as applicable, with the same
effect as if such surviving entity had been named as such.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following shall be an "EVENT OF DEFAULT":
(1) the failure to pay the principal of (or premium if any,
on) any Securities, when the same becomes due and payable at maturity,
upon acceleration, redemption, mandatory repurchase or otherwise
(whether or not such payment shall be prohibited by Article Ten or
Twelve of this Indenture);
(2) the failure to pay interest on any Securities when the
same becomes due and payable, and such default continues for a period
of 30 days (whether or not such payment shall be prohibited by Article
Ten or Twelve of this Indenture);
(3) a default in the performance of or breach of any other
covenant or agreement contained in this Indenture, with respect to the
Securities and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or by the Holders
of 25% or more
<PAGE>
-79-
in aggregate principal amount of the Securities specifying the default
(and demanding that such default be remedied);
(4) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Restricted Subsidiary having an
outstanding principal amount of $10.0 million or more in the aggregate
for all such issues of all such persons, whether such Indebtedness now
exists or shall hereafter be created:
(i) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and/or
(ii) the failure to make a principal payment at the final (buy
not any interim) fixed maturity;
(5) any final judgment or order (not covered by insurance)
for the payment of money in excess of $10.0 million in the aggregate
for all such final judgments or orders (treating any deductibles,
self-insurance, or retention as not so covered) is rendered against the
Company or any Restricted Subsidiary and shall not be paid or
discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such persons to exceed $10.0 million
during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(6) a court having jurisdiction in the premises enters a
decree or order for (i) relief in respect of the Company or any
Restricted Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency, or other similar law now or hereafter in
effect; (ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator, or similar official of the Company or
any Restricted Subsidiary or for all or substantially all of the
property and assets of the Company or any Restricted Subsidiary; or
(iii) the winding up or liquidation of its affairs or any Restricted
Subsidiary, and, in each case, such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days;
<PAGE>
-80-
(7) the Company or any Restricted Subsidiary (i) commences a
voluntary case under any applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect or consents to the entry of an
order for relief in an involuntary case or proceeding under any such
law, (ii) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator, or
similar official of the Company or any Restricted Subsidiary or for all
or substantially all of the property and assets of the Company or any
Restricted Subsidiary, (iii) effects any general assignment for the
benefit of its creditors or (iv) takes any corporate action to
authorize or effect any of the foregoing; or
(8) any Guarantee of a Restricted Subsidiary ceases to be in
full force and effect or any Guarantee of a Restricted Subsidiary is
declared to be null and void and unenforceable or any Guarantee of a
Restricted Subsidiary is found to be invalid or any Guarantor that is a
Restricted Subsidiary denies its liability under its Guarantee (other
than by reason of release of such Guarantor in accordance with the
terms of this Indenture).
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default
specified in clause (6) or (7) of Section 6.01 above with respect to the
Company) occurs and is continuing, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of outstanding Securities may declare the
principal of and accrued interest on all the Securities to be due and payable by
notice in writing to the Company (and the Trustee if given by the Holders)
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "ACCELERATION NOTICE"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement or five (5) Business Days
after receipt by the Company and the Representative under the Credit Agreement
of such Acceleration Notice but only if such Event of Default is then
continuing. In the event of a declaration of acceleration because an Event of
Default set forth in clause (4) of Section 6.01 above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if
<PAGE>
-81-
the event of default or payment default triggering such Event of Default
pursuant to such clause (4) shall be remedied or cured by the Company and/or the
relevant Restricted Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (6) or (7) of Section 6.01
above with respect to the Company occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of the
outstanding 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
Holder.
At any time after a declaration of acceleration with respect
to the Securities as described in the preceding paragraph, the Holders of a
majority in principal amount of the Securities may rescind and cancel such
declaration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due solely
because of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances,
including counsel fees and expenses, and any other amounts due to the Trustee
under Section 7.07 and (v) in the event of the cure or waiver of an Event of
Default of the type described in clause (6) or (7) of Section 6.01, the Trustee
shall have received an Officers' Certificate and an Opinion of Counsel that such
Event of Default has been cured or waived. No such rescission shall affect any
subsequent Default or Event of Default or impair any right consequent thereto.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity 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.
<PAGE>
-82-
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 cumulative to the
extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of not
less than a majority in principal amount of the outstanding Securities by notice
to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default or Event of Default in the payment of principal
of or interest on any Security as specified in clauses (1) and (2) of Section
6.01. The Company shall deliver to the Trustee an Officers' Certificate stating
that the requisite percentage of Holders have consented to such waiver and
attaching copies of such consents. When a Default or Event of Default is waived,
it is cured and ceases.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of not less than a majority in principal amount of
the outstanding Securities may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it. Subject to Section 7.01, however, the Trustee may
refuse to follow any direction that conflicts with any law or this Indenture,
that the Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; PROVIDED
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
In the event the Trustee takes any action or follows any
direction pursuant to this Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction.
<PAGE>
-83-
SECTION 6.06. LIMITATION ON SUITS.
A Securityholder may not pursue any remedy with respect to
this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holder or Holders of at least 25% in principal
amount of the outstanding Securities make a written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders offer and, if requested, provide
to the Trustee indemnity satisfactory to the Trustee 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 and, if requested, the
provision of indemnity; and
(5) during such 60-day period the Holder or Holders of a
majority in principal amount of the outstanding Securities do not give
the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.
SECTION 6.07. 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 a
Security, on or after the respective due dates expressed in such Security, 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 the Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal or interest
specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole amount
of
<PAGE>
-84-
principal and accrued interest and fees remaining unpaid, together with interest
on overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate PER ANNUM
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due to the Trustee under Section 7.07.
SECTION 6.09. 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 (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due to the Trustee under Section 7.07) and the Securityholders allowed
in any judicial proceedings relating to the Company, its creditors or its
property and shall be entitled and empowered to collect and receive any monies
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any such judicial proceedings is hereby
authorized by each Securityholder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Securityholders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agent and counsel, and any other amounts due the Trustee under Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
<PAGE>
-85-
Second: subject to Articles Ten and Twelve, to Holders for
interest accrued on the Securities, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for interest;
Third: subject to Articles Ten and Twelve, to Holders for
principal amounts due and unpaid on the Securities, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Securities for principal; and
Fourth: to the Company or, if applicable, the Guarantors, as
their respective interests may appear.
The Trustee, upon prior notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
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, 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 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than
10% in principal amount of the outstanding Securities.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent trustee would ex-
<PAGE>
-86-
ercise or use under the circumstances in the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth herein or in the TIA and no duties, covenants,
responsibilities or obligations shall be implied in this Indenture
against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
(including Officers' Certificates) or opinions (including Opinions of
Counsel) furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) Notwithstanding anything to the contrary herein, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph
(b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or to take or omit
to take any action under this Indenture or take any action at the request or
direction of Holders if it shall have reasonable grounds for believing that
re-
<PAGE>
-87-
payment of such funds is not assured to it and indemnity satisfactory to the
Trustee is not provided.
(e) Every provision of this Indenture that in any way
relates to the Trustee is subject to this Section 7.01.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in a separate writing with
the Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) In the absence of bad faith, negligence or willful
misconduct on the part of the Trustee, the Trustee shall not be responsible for
the application of any money by any Paying Agent other than the Trustee.
SECTION 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01:
(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, or both,
which shall conform to the provisions of Section 13.05. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
(other than an agent who is an employee of the Trustee) 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 reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection from li-
<PAGE>
-88-
ability in respect of 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,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
(g) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate
(including any Officers' Certificate), statement, instrument, opinion
(including any Opinion of Counsel), notice, request, direction,
consent, order, bond, debenture, or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit and, if the
Trustee shall determine to make such further inquiry or investigation,
it shall be entitled, upon reasonable notice to the Company, to examine
the books, records, and premises of the Company, personally or by agent
or attorney.
(h) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder.
(i) The permissive rights of the Trustee to do things
enumerated in this Indenture shall not be construed as duties.
SECTION 7.03. 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, its
Subsidiaries (including the Guarantors), or their respective Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same with
like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
<PAGE>
-89-
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Guarantees
or the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Company in this Indenture or any document issued in connection with the
sale of Securities or any statement in the Securities other than the Trustee's
certificate of authentication. The Trustee makes no representations with respect
to the effectiveness or adequacy of this Indenture.
SECTION 7.05. NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing
and the Trustee receives actual notice of such Default or Event of Default, the
Trustee shall mail to each Securityholder notice of the uncured Default or Event
of Default within 60 days after such Default or Event of Default occurs. Except
in the case of a Default or an Event of Default in payment of principal of, or
interest on, any Security, including an accelerated payment and the failure to
make payment on the Change of Control Payment Date pursuant to a Change of
Control Offer or the Excess Proceeds Payment Date pursuant to an Excess Proceeds
Offer, the Trustee may withhold the notice if and so long as the Board of
Directors, the executive committee, or a trust committee of directors and/or
Responsible Officers, of the Trustee in good faith determines that withholding
the notice is in the interest of the Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each June 15, beginning with the first
June 15 following the date of this Indenture, the Trustee shall, to the
extent that any of the events described in TIA Section 313(a) occurred within
the previous twelve months, but not otherwise, mail to each Securityholder a
brief report dated as of such date that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Sections 313(b), 313(c) and 313(d).
A copy of each report at the time of its mailing to
Securityholders shall be mailed to the Company and filed with the Commission and
each securities exchange, if any, on which the Securities are listed.
<PAGE>
-90-
The Company shall notify the Trustee if the Securities become
listed on any securities exchange or of any delisting thereof and the Trustee
shall comply with TIA Section 313(d).
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its services hereunder. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances (including reasonable fees and expenses of
counsel) incurred or made by it in addition to the compensation for its
services, except any such disbursements, expenses and advances as may be
attributable to the Trustee's negligence, bad faith or willful misconduct. Such
expenses shall include the reasonable fees and expenses of the Trustee's agents
and counsel.
The Company shall indemnify the Trustee and its agents,
employees, officers, stockholders and directors for, and hold them harmless
against, any loss, liability or expense incurred by them except for such actions
to the extent caused by any negligence, bad faith or willful misconduct on their
part, arising out of or in connection with the acceptance or administration of
this trust including the reasonable costs and expenses of defending themselves
against or investigating any claim or liability in connection with the exercise
or performance of any of the Trustee's rights, powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee or any of its agents, employees, officers, stockholders and directors
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 may,
subject to the approval of the Trustee, defend the claim and the Trustee shall
cooperate in the defense. The Trustee and its agents, employees, officers,
stockholders and directors subject to the claim may have separate counsel and
the Company shall pay the reasonable fees and expenses of such counsel;
PROVIDED, HOWEVER, that the Company will not be required to pay such fees and
expenses if, subject to the approval of the Trustee, it assumes the Trustee's
defense and there is no conflict of interest between the Company and the Trustee
and its agents, employees, officers, stockholders and directors subject to the
claim in connection with such
<PAGE>
-91-
defense as reasonably determined by the Trustee. The Company need not pay for
any settlement made without its written consent, which consent shall not be
unreasonably withheld. The Company need not reimburse any expense or indemnify
against any loss or liability to the extent incurred by the Trustee through its
negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a senior claim prior to the Securities against all
money or property held or collected by the Trustee, in its capacity as Trustee.
The obligations of the Company and the Guarantors under this Section shall not
be subordinated to the payment of Senior Debt pursuant to Article Ten or Article
Twelve except assets or money held in trust to pay principal of or interest on
particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in clause (6) or (7) of Section 6.01 occurs, such
expenses and the compensation for such services shall be paid to the extent
allowed under any Bankruptcy Law.
Notwithstanding any other provision in this Indenture, the
foregoing provisions of this Section 7.07 shall survive the satisfaction and
discharge of this Indenture or the appointment of a successor Trustee.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the Company
in writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee
and may appoint a successor Trustee. The Company may 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 becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company
<PAGE>
-92-
shall notify each Holder of such event and shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.07, all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; PROVIDED that such
corporation shall be otherwise qualified and eligible under this Article Seven.
<PAGE>
-93-
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies
the requirement of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). 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. In
addition, if the Trustee is a corporation included in a bank holding company
system, the Trustee, independently of the bank holding company, shall meet
the capital requirements of TIA Section 310(a)(2). The Trustee shall comply
with TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded from
the operation of TIA Section 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 Section 310(b)(1) are met. The provisions of TIA
Section 310 shall apply to the Company and any other obligor of the Securities.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee, in its capacity as Trustee hereunder, shall
comply with TIA Section 311(a), excluding any creditor relationship listed in
TIA Section 311(b). A Trustee who has resigned or been removed shall be
subject to TIA Section 311(a) to the extent indicated.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. TERMINATION OF THE COMPANY'S OBLIGATIONS.
The Company may terminate its obligations under the Securities
and this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.01, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid or Securities for whose payment U.S. Legal Tender has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee for
cancellation
<PAGE>
-94-
and the Company has paid all sums payable by it hereunder, or if:
(a) either (i) pursuant to Article Three, the Company shall
have given notice to the Trustee and mailed a notice of redemption to
each Holder of the redemption of all of the Securities in accordance
with the provisions hereof or (ii) all Securities have otherwise become
due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to
be deposited with the Trustee or a trustee satisfactory to the Trustee,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders of that purpose, U.S. Legal Tender in such
amount as is sufficient without consideration of reinvestment of such
interest, to pay principal of, premium, if any, and interest on the
outstanding Securities to maturity or redemption; PROVIDED that the
Trustee shall have been irrevocably instructed to apply such U.S. Legal
Tender to the payment of said principal, premium, if any, and interest
with respect to the Securities and PROVIDED, FURTHER, that from and
after the time of deposit, the money deposited shall not be subject to
the rights of holders of Senior Debt or Guarantor Senior Debt pursuant
to the provisions of Article Ten or Twelve, as the case may be;
(c) no Default or Event of Default with respect to this
Indenture or the Securities shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute
a default under, any other instrument or agreement (including, without
limitation, the Credit Agreement) to which the Company is a party or by
which it is bound;
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent providing for or relating to the termination of
the Company's obligations under the Securities and this Indenture have
been complied
<PAGE>
-95-
with. Such Opinion of Counsel shall also state that such satisfaction
and discharge does not result in a default under the Credit Agreement
or any other material agreement or instrument then known to such
counsel that binds or affects the Company.
Subject to the next sentence and notwithstanding the foregoing
paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01,
4.02, 7.07, 8.05 and 8.06 shall survive until the Securities are no longer
outstanding pursuant to the last paragraph of Section 2.08. After the Securities
are no longer outstanding, the Company's obligations in Sections 7.07, 8.05 and
8.06 shall survive.
After such delivery or irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under the Securities and this Indenture except for those surviving obligations
specified above.
SECTION 8.02. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
(a) The Company may, at its option by Board Resolution of
the board of directors of the Company, at any time, elect to have either
paragraph (b) or (c) below applied to all outstanding Securities upon compliance
with the conditions set forth in Section 8.03.
(b) Upon the Company's exercise under paragraph (a)
hereof of the option applicable to this paragraph (b), the Company and each of
the Guarantors shall, subject to the satisfaction of the conditions set forth in
Section 8.03, be deemed to have been discharged from their respective
obligations with respect to all outstanding Securities and the corresponding
Guarantees on the date the conditions set forth below are satisfied
(hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Securities, which shall thereafter be deemed to
be "outstanding" only for the purposes of Section 8.04 hereof and the other
Sections of this Indenture referred to in (i) and (ii) below, and to have
satisfied all its other obligations under such Securities and this Indenture
(and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), and Holders of the Securities and
any amounts deposited under Section 8.03 hereof shall
<PAGE>
-96-
cease to be subject to any obligations to, or the rights of, any holder of
Senior Debt under Article Ten or otherwise, except for the following provisions,
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Securities to receive solely from the trust
fund described in Section 8.04 hereof, and as more fully set forth in such
Section, payments in respect of the principal of and interest on such Securities
when such payments are due, (ii) the Company's obligations with respect to such
Securities under Article Two and Section 4.02 hereof, (iii) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (iv) this Article Eight. Subject to
compliance with this Article Eight, the Company may exercise its option under
this paragraph (b) notwithstanding the prior exercise of its option under
paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a)
hereof of the option applicable to this paragraph (c), the Company and each of
the Guarantors shall, subject to the satisfaction of the conditions set forth in
Section 8.03 hereof, be released from their obligations, if any, under the
covenants contained in Sections 4.03, 4.04 and Sections 4.12 through 4.18 and
Article Five hereof with respect to the outstanding Securities and the
corresponding Guarantees on and after the date the conditions set forth below
are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Securities shall not be deemed outstanding for accounting purposes) and Holders
of the Securities and any amounts deposited under Section 8.03 hereof shall
cease to be subject to any obligations to, or the rights of, any holder of
Senior Debt under Article Ten or otherwise. For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Securities, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under
<PAGE>
-97-
Section 6.01(c) hereof, but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby. In addition, upon the
Company's exercise under paragraph (a) hereof of the option applicable to this
paragraph (c), subject to the satisfaction of the conditions set forth in
Section 8.03 hereof, Sections 6.01(3), 6.01(4) and 6.01(5) shall not constitute
Events of Default.
SECTION 8.03. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT
DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02(b) or 8.02(c) hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in U.S. dollars,
non-callable U.S. Government Obligations or a combination thereof which
through the scheduled payment of principal and interest in respect
thereof in accordance with their terms, will provide, not later than
one day before the due date of any payment on the Securities, U.S.
Legal Tender, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the Securities on the stated date for payment
thereof or on the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02(b) hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of the
execution 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 Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at
<PAGE>
-98-
the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of an election under Section 8.02(c) hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that the Holders of the Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event
of Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which will be used to defease the Securities
pursuant to this Article Eight concurrently with such incurrence) or
insofar as Sections 6.01(6) and 6.01(7) hereof are concerned, at any
time in the period ending on the 91st day after the date of such
deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture, the Credit Agreement or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent hereunder provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that (i) the trust
<PAGE>
-99-
funds will not be subject to any rights of any holders of Senior Debt,
including, without limitation, those arising under this Indenture, and
(ii) assuming no intervening bankruptcy of the Company between the date
of deposit and the 91st day following the deposit and that no Holder is
an insider of the Company, after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
Bankruptcy Law.
Notwithstanding the foregoing, the Opinion of Counsel required
by clause (b) above of this Section 8.03 need not be delivered if all Securities
not theretofore delivered to the Trustee for cancellation (i) have become due
and payable or (ii) will become due and payable on the Maturity Date within one
year 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.
SECTION 8.04. APPLICATION OF TRUST MONEY.
The Trustee or Paying Agent shall hold in trust U.S. Legal
Tender or U.S. Government Obligations deposited with it pursuant to this Article
Eight, and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of
principal of and interest on the Securities.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or
U.S. Government Obligations deposited pursuant to Section 8.03 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article Eight to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon the Company's written request any U.S. Legal Tender or U.S. Government
Obligations held by it as provided in Section 8.03 hereof which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
<PAGE>
-100-
SECTION 8.05. REPAYMENT TO THE COMPANY.
The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal or interest that
remains unclaimed for two years; PROVIDED that the Trustee or such Paying Agent,
before being required to make any payment, may at the expense of the Company
cause to be published once in a newspaper of general circulation in The City of
New York or mail to each Holder entitled to such money notice that such money
remains unclaimed and that after a date specified therein which shall be at
least 30 days from the date of such publication or mailing any unclaimed balance
of such money then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with this Article
Eight 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 Eight until such time as the Trustee or Paying Agent is
permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in
accordance with this Article Eight; PROVIDED that if the Company has made any
payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the U.S. Legal
Tender or U.S. Government Obligations held by the Trustee or Paying Agent.
<PAGE>
-101-
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
Subject to Section 9.03, the Company, the Guarantors and the
Trustee, together, may amend or supplement this Indenture, the Securities or the
Guarantees without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency, so long
as such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect. In
formulating its opinion on such matters, the Trustee will be entitled
to rely on such evidence as it deems appropriate, including, without
limitation, solely an Opinion of Counsel;
(2) to evidence the succession in accordance with Article
Five hereof of another Person to the Company and the assumption by any
such successor of the covenants of the Company herein and in the
Securities;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee;
(5) to provide for uncertificated Securities in addition to
or in place of certificated Securities; or
(6) to make any other change that does not materially
adversely affect the rights of any Securityholders hereunder;
PROVIDED that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
<PAGE>
-102-
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Sections 6.07 and 9.03, the Company, the Guarantors
and the Trustee, together, with the written consent of the Holder or Holders of
at least a majority in aggregate principal amount of the outstanding Securities,
may amend or supplement this Indenture, the Securities or the Guarantees,
without notice to any other Securityholders. Subject to Sections 6.07 and 9.03,
the Holder or Holders of a majority in aggregate principal amount of the
outstanding Securities may waive compliance by the Company with any provision of
this Indenture, the Securities or the Guarantees without notice to any other
Securityholder. Without the consent of each Securityholder affected, however, no
amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
may:
(1) change the stated maturity of the principal of, or any
installment of interest on, any Security;
(2) reduce the principal amount of, or premium, if any, or
interest on, any Security;
(3) change the place or currency of payment of principal of,
or premium, if any, or interest on, any Security,
(4) impair the right to institute suit for the enforcement
of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the redemption date) of any Security;
(5) reduce the above-stated percentage of outstanding
Securities the consent of whose Holders is necessary to modify or amend
this Indenture;
(6) waive a default in the payment of principal of, premium,
if any, or interest on the Securities;
(7) reduce the percentage or aggregate principal amount of
an outstanding Security the consent of whose Holders is necessary for
waiver of compliance with certain provisions of this Indenture or for
waiver of certain defaults;
(8) after the Company's obligation to purchase Securities
arises thereunder, amend, change or modify in any
<PAGE>
-103-
material respect the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control or make and
consummate an Excess Proceeds Offer with respect to any Asset Sale that
has been consummated or, after such Change of Control has occurred or
such Asset Sale has been consummated, modify any of the provisions or
definitions with respect thereto; or
(9) modify or change any provision of this Indenture or the
related definitions affecting the subordination or ranking of the
Securities or any Guarantee in a manner which adversely affects 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,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall give to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures upon request. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
SECTION 9.03. EFFECT ON SENIOR DEBT.
No amendment of, or supplement or waiver to, this Indenture
shall adversely affect the rights of any holder of Senior Debt or Guarantor
Senior Debt under Article Ten or Article Twelve, as the case may be, of this
Indenture, without the consent of such holder.
SECTION 9.04. COMPLIANCE WITH TIA.
From the date on which this Indenture is qualified under the
TIA, every amendment, waiver or supplement of this Indenture, the Securities or
the Guarantees shall comply with the TIA as then in effect.
SECTION 9.05. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by
<PAGE>
-104-
the Holder and every subsequent Holder of a Security or portion of a Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent is not made on any Security. However, any such Holder or
subsequent Holder may revoke the consent as to his Security or portion of his
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then notwithstanding
the last sentence of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to revoke any consent previously given, whether or
not such Persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (1) through (9) of Section 9.02, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Security who has consented
to it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security; PROVIDED that any
such waiver shall not impair or affect the right of any Holder to receive
payment of principal of and interest on a Security, on or after the respective
due dates expressed in such Security, or to bring suit for the enforcement of
any such payment on or after such respective dates without the consent of such
Holder.
SECTION 9.06. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a
Security, the Company may require the Holder of the Security to deliver it to
the Trustee. The Company shall provide the Trustee with an appropriate notation
on the Security about the changed terms and cause the Trustee to return it to
the Holder at the Company's expense. Alternatively, if the Company or the
Trustee so determines, the Company in exchange
<PAGE>
-105-
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
issue a new Security shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.07. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; PROVIDED that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each complying with Sections 13.04 and 13.05 and stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture and constitutes the legal, valid and
binding obligations of the Company enforceable in accordance with its terms.
Such Opinion of Counsel shall be at the expense of the Company.
ARTICLE TEN
SUBORDINATION OF SECURITIES
SECTION 10.01. SECURITIES SUBORDINATED TO SENIOR DEBT.
Anything herein to the contrary notwithstanding, the Company,
for itself and its successors, and each Holder, by his or her acceptance of
Securities, agrees that the payment of all Obligations owing to the Holders in
respect of the Securities is subordinated, to the extent and in the manner
provided in this Article Ten, to the prior payment in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, of all Obligations on Senior Debt (including the
Obligations with respect to the Credit Agreement).
This Article Ten shall constitute a continuing offer to all
Persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt and such
holders are made obligees
<PAGE>
-106-
hereunder and any one or more of them may enforce such provisions.
SECTION 10.02. SUSPENSION OF PAYMENT WHEN SENIOR DEBT IS IN DEFAULT.
(a) Unless Section 10.03 shall be applicable, if any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any principal of, interest
on, unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Senior Debt (a "PAYMENT DEFAULT"), then no
payment or distribution of any kind or character shall be made by or on behalf
of the Company or any other Person on its or their behalf with respect to any
Obligations on the Securities or to acquire any of the Securities for cash or
property or otherwise and until such Payment Default shall have been cured or
waived or shall have ceased to exist or such Senior Debt as to which such
Payment Default relates shall have been paid in full in cash or Cash
Equivalents, after which the Company shall (subject to other provisions of this
Article Ten) resume making any and all required payments in respect of the
Securities, including any missed payments.
(b) Unless Section 10.03 shall be applicable, if any
other event of default (other than a Payment Default) occurs and is continuing
with respect to any Designated Senior Debt (as such event of default is defined
in the instrument creating or evidencing such Designated Senior Debt) permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof (a "NON-PAYMENT DEFAULT") and if the Representative for the
respective issue of Designated Senior Debt gives written notice of the event of
default to the Trustee (a "DEFAULT NOTICE"), then, unless and until all events
of default have been cured or waived or have ceased to exist or the Trustee
receives notice thereof from the Representative for the respective issue of
Designated Senior Debt terminating the Payment Blockage Period, during the 180
days after the delivery of such Default Notice (the "PAYMENT BLOCKAGE PERIOD"),
neither the Company nor any other Person on its behalf shall (x) make any
payment of any kind or character with respect to any Obligations on or with the
respect to the Securities or (y) acquire any of the Securities for cash or
property or otherwise. Notwithstanding anything herein to the contrary, (x) in
no event will a Payment Blockage Period extend beyond 180 days from the
<PAGE>
-107-
date the applicable Default Notice is received by the Trustee and (y) only one
such Payment Blockage Period may be commenced within any 360 consecutive days.
For all purposes of this Section 10.02(b), no event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Debt shall be, or be made, the basis for
the commencement of a second Payment Blockage Period by the Representative of
such Designated Senior Debt whether or not within a period of 360 consecutive
days, unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Payment Blockage Period that, in either case,
would give rise to an event of default pursuant to any provisions under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose). The Company shall promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
(c) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by the foregoing provisions of this Section 10.02, such payment shall
be held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Debt (PRO RATA to such holders on the basis of the respective
amount of Senior Debt held by such holders) or their respective Representatives,
as their respective interests may appear. The Trustee shall be entitled to rely
on information regarding amounts then due and owing on the Senior Debt, if any,
received from the holders of Senior Debt (or their Representatives) or, if such
information is not received from such holders or their Representatives, from the
Company and only amounts included in the information provided to the Trustee
shall be paid to the holders of Senior Debt.
Nothing contained in this Article Ten shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; PROVIDED that all Senior Debt thereafter due or declared to
be due shall first be paid in full in cash or Cash Equivalents before the
Holders are entitled to receive any payment of any
<PAGE>
-108-
kind or character with respect to Obligations on the Securities.
SECTION 10.03. SECURITIES SUBORDINATED TO PRIOR PAYMENT OF
ALL SENIOR DEBT ON DISSOLUTION, LIQUIDATION OR
REORGANIZATION OF COMPANY.
(a) Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly provided
for to the satisfaction of the holders of Senior Debt, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Securities, or for the acquisition of any of the Securities for cash or
property or otherwise. Upon any such dissolution, winding-up, liquidation,
reorganization, receivership or similar proceeding, any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders of the Securities or the Trustee under this
Indenture would be entitled, except for the provisions hereof, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, or by the Holders or
by the Trustee under this Indenture if received by them, directly to the holders
of Senior Debt (PRO RATA to such holders on the basis of the respective amounts
of Senior Debt held by such holders) or their respective Representatives, or to
the trustee or trustees under any indenture pursuant to which any of such Senior
Debt may have been issued, as their respective interests may appear, for
application to the payment of Senior Debt remaining unpaid until all such Senior
Debt has been paid in full in cash or Cash Equivalents after giving effect to
any concurrent payment, distribution or provision therefor to or for the holders
of Senior Debt.
(b) To the extent any payment of Senior Debt (whether by
or on behalf of the Company, as proceeds of security or enforcement of any right
of setoff or otherwise) is declared to be fraudulent or preferential, set aside
or required
<PAGE>
-109-
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
(c) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, shall be received by any Holder when
such payment or distribution is prohibited by this Section 10.03, such payment
or distribution shall be held in trust for the benefit of, and shall be paid
over or delivered to, the holders of Senior Debt (PRO RATA to such holders on
the basis of the respective amount of Senior Debt held by such holders) or their
respective Representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of Senior Debt
remaining unpaid until all such Senior Debt has been paid in full in cash or
Cash Equivalents, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Debt.
(d) The consolidation of the Company with, or the merger
of the Company with or into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of all or
substantially all of its assets, to another corporation upon the terms and
conditions provided in Article Five hereof and as long as permitted under the
terms of the Senior Debt shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, assume the Company's obligations hereunder in accordance with Article
Five hereof.
SECTION 10.04. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article Ten or elsewhere in this
Indenture shall prevent (i) the Company, except under the conditions described
in Sections 10.02 and 10.03, from making payments at any time for the purpose of
making payments of
<PAGE>
-110-
principal of and interest on the Securities, or from depositing with the Trustee
any moneys for such payments, or (ii) in the absence of actual knowledge by the
Trustee that a given payment would be prohibited by Section 10.02 or 10.03, the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of, and interest on, the Securities to the
Holders entitled thereto unless at least two Business Days prior to the date
upon which such payment would otherwise become due and payable a Responsible
Officer shall have actually received the written notice provided for in the
first sentence of Section 10.02(b) or in Section 10.07 (PROVIDED that,
notwithstanding the foregoing, the Holders receiving any payments made in
contravention of Section 10.02 and/or 10.03 (and the respective such payments)
shall otherwise be subject to the provisions of Section 10.02 and Section
10.03). The Company shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of the Company, although
any delay or failure to give any such notice shall have no effect on the
subordination provisions contained herein.
SECTION 10.05. HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR DEBT.
Subject to the payment in full in cash or Cash Equivalents of
all Senior Debt, the Holders of the Securities shall be subrogated to the rights
of the holders of Senior Debt to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Debt until the
Securities shall be paid in full; and, for the purposes of such subrogation, no
such payments or distributions to the holders of the Senior Debt by or on behalf
of the Company, or by or on behalf of the Holders by virtue of this Article Ten,
which otherwise would have been made to the Holders shall, as between the
Company and the Holders, be deemed to be a payment by the Company to or on
account of the Senior Debt, it being understood that the provisions of this
Article Ten are and are intended solely for the purpose of defining the relative
rights of the Holders, on the one hand, and the holders of Senior Debt, on the
other hand.
SECTION 10.06. OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article Ten or elsewhere in this
Indenture or in the Securities is intended to or shall im-
<PAGE>
-111-
pair, as among the Company, its creditors other than the holders of Senior Debt,
and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of and any interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Company other than the holders of the Senior Debt,
nor shall anything herein or therein prevent the Holder of any Security or the
Trustee on its behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
in respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
SECTION 10.07. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Securities pursuant to the provisions of
this Article Ten, although any delay or failure to give any such notice shall
have no effect on the subordination provisions contained herein. Regardless of
anything to the contrary contained in this Article Ten or elsewhere in this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any default or event of default with respect to any Senior Debt or of any other
facts which would prohibit the making of any payment to or by the Trustee unless
and until the Trustee shall have received notice in writing from the Company, or
from a holder of Senior Debt or a Representative therefor, and, prior to the
receipt of any such written notice, the Trustee shall be entitled to assume (in
the absence of actual knowledge to the contrary) that no such facts exist. The
Trustee shall be entitled to rely on the delivery to it of any notice pursuant
to this Section 10.07 to establish that such notice has been given by a holder
of Senior Debt (or a Representative therefor).
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any
<PAGE>
-112-
other facts pertinent to the rights of such Person under this Article Ten, and
if such evidence is not furnished the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.
SECTION 10.08. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company
referred to in this Article Ten, the Trustee, subject to the provisions of
Article Seven hereof, and the Holders of the Securities shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which any insolvency, bankruptcy, receivership, dissolution, winding-up,
liquidation, reorganization or similar case or proceeding is pending, or upon a
certificate of the receiver, trustee in bankruptcy, liquidating trustee,
assignee for the benefit of creditors, agent or other Person making such payment
or distribution, delivered to the Trustee or the Holders of the Securities, for
the purpose of ascertaining the Persons entitled to participate in such payment
or distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Ten.
SECTION 10.09. TRUSTEE'S RELATION TO SENIOR DEBT.
The Trustee and any agent of the Company or the Trustee shall
be entitled to all the rights set forth in this Article Ten with respect to any
Senior Debt which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Debt and nothing in
this Indenture shall deprive the Trustee or any such agent of any of its rights
as such holder.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt.
Whenever a distribution is to be made or a notice given to
holders or owners of Senior Debt, the distribution may
<PAGE>
-113-
be made and the notice may be given to their Representative, if any.
SECTION 10.10. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR DEBT.
No right of any present or future holders of any Senior Debt
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Ten or the
obligations hereunder of the Holders of the Securities to the holders of the
Senior Debt, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Debt, or otherwise amend or supplement in any manner Senior Debt, or any
instrument evidencing the same or any agreement under which Senior Debt is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person
liable in any manner for the payment or collection of Senior Debt; and (iv)
exercise or refrain from exercising any rights against the Company and any other
Person.
SECTION 10.11. SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF SECURITIES.
Each Holder of Securities by its acceptance of them authorizes
and expressly directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate, as between the holders of Senior Debt
and the Holders of Securities, the subordination provided in this Article Ten,
and appoints the Trustee its attorney-in-fact for such purposes, including, in
the event of any dissolution, winding-up, liqui-
<PAGE>
-114-
dation or reorganization of the Company (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and/or assets of the Company, the filing of a claim for the unpaid
balance of its Securities and accrued interest in the form required in those
proceedings.
If the Trustee does not file a proper claim or proof of debt
in the form required in such proceeding prior to 30 days before the expiration
of the time to file such claim or claims, then the holders of the Senior Debt or
their Representative are or is hereby authorized to have the right to file and
are or is hereby authorized to file an appropriate claim for and on behalf of
the Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Debt or their Representative to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee or the holders
of Senior Debt or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 10.12. THIS ARTICLE TEN NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of or
interest on the Securities by reason of any provision of this Article Ten will
not be construed as preventing the occurrence of an Event of Default.
SECTION 10.13. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article Ten will apply to amounts due to the
Trustee pursuant to other sections of this Indenture.
<PAGE>
-115-
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
SECTION 11.01. UNCONDITIONAL GUARANTEE.
Subject to the provisions of this Article Eleven, each of the
Guarantors hereby, jointly and severally, unconditionally and irrevocably
guarantees, on a senior subordinated basis (such guarantees to be referred to
herein as a "GUARANTEE") to each Holder of a Security authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the
Securities or the obligations of the Company or any other Guarantors to the
Holders or the Trustee hereunder or thereunder, that: (a) the principal of,
premium, if any, and interest on the Securities shall be duly and punctually
paid in full when due, whether at maturity, upon redemption at the option of
Holders pursuant to the provisions of the Securities relating thereto, by
acceleration or otherwise, and interest on the overdue principal and (to the
extent permitted by law) interest, if any, on the Securities and all other
obligations of the Company or the Guarantors to the Holders or the Trustee
hereunder or thereunder (including amounts due the Trustee under Section 7.07
hereof) and all other obligations shall be promptly paid in full or performed,
all in accordance with the terms hereof and thereof; and (b) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed,
or failing performance of any other obligation of the Company to the Holders
under this Indenture or under the Securities, for whatever reason, each
Guarantor shall be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture or the Securities
shall constitute an event of default under the Guarantees, and shall entitle the
Holders of Securities to accelerate the obligations of the Guarantors hereunder
in the same manner and to the same extent as the obligations of the Company.
Each of the Guarantors hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity,
<PAGE>
-116-
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, any release of any
other Guarantor, the recovery of any judgment against the Company, any action to
enforce the same, whether or not a Guarantee is affixed to any particular
Security, or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Guarantor. Each of the Guarantors hereby
waives the benefit of diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenants that its Guarantee shall not be discharged
except by complete performance of the obligations contained in the Securities,
this Indenture and the Guarantees. Each Guarantee is a guarantee of payment and
not of collection. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or such Guarantor, any amount paid by the Company or such Guarantor to the
Trustee or such Holder, each Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders of Securities and the
Trustee, on the other hand, (a) subject to this Article Eleven, the maturity of
the obligations guaranteed hereby may be accelerated as provided in Article Six
hereof for the purposes of the Guarantees, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (b) in the event of any acceleration of such obligations
as provided in Article Six hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantors for the
purpose of the Guarantees.
No stockholder, officer, director or employee, past, present
or future, of any Guarantor, as such, shall have any personal liability under
such Guarantor's Guarantee by reason of his, her or its status as such
stockholder, officer, director or employee.
<PAGE>
-117-
SECTION 11.02. LIMITATIONS ON GUARANTEES.
The obligations of each Guarantor under its Guarantee are
limited to the maximum amount which, after giving effect to all other contingent
and fixed liabilities of such Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under this Indenture, will result in
the obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount PRO RATA,
based on the net assets of each Guarantor, determined in accordance with GAAP.
SECTION 11.03. EXECUTION AND DELIVERY OF GUARANTEE.
To further evidence the Guarantees set forth in Section 11.01,
each Guarantor hereby agrees that a notation of its Guarantee, substantially in
the form of EXHIBIT C hereto, shall be endorsed on each Security authenticated
and delivered by the Trustee. The Guarantee of any Guarantor shall be executed
on behalf of such Guarantor by either manual or facsimile signature of one
Officer of such Guarantor who shall have been duly authorized to so execute by
all requisite corporate action. The validity and enforceability of any Guarantee
shall not be affected by the fact that it is not affixed to any particular
Security.
Each of the Guarantors hereby agrees that its Guarantee set
forth in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Security a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this
Indenture or a Guarantee no longer holds that office at the time the Trustee
authenticates the Security on which such Guarantee is endorsed or at any time
thereafter, such Guarantor's Guarantee of such Security shall nevertheless be
valid.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of each Guarantor.
<PAGE>
-118-
SECTION 11.04. RELEASE OF A GUARANTOR.
(a) If no Default or Event of Default exists or would
exist under this Indenture, upon the sale or disposition of all of the Capital
Stock of a Guarantor by the Company, in a transaction or series of related
transactions that either (i) does not constitute an Asset Sale or (ii)
constitutes an Asset Sale the Net Cash Proceeds of which are applied in
accordance with Section 4.16, or upon the consolidation or merger of a Guarantor
with or into any Person in compliance with Article Five (in each case, other
than to the Company or an Affiliate of the Company), or if any Guarantor is
dissolved or liquidated in accordance with this Indenture, such Guarantor's
Guarantee will be automatically discharged and such Guarantor shall be released
from all obligations under this Article Eleven without any further action
required on the part of the Trustee or any Holder. Any Guarantor not so released
or the entity surviving such Guarantor, as applicable, shall remain or be liable
under its Guarantee as provided in this Article Eleven.
(b) The Trustee shall deliver an appropriate instrument
evidencing the release of a Guarantor upon receipt of a written request by the
Company or such Guarantor accompanied by an Officers' Certificate and an Opinion
of Counsel certifying as to the compliance with this Section 11.04; PROVIDED,
HOWEVER, that the legal counsel delivering such Opinion of Counsel may rely as
to matters of fact on one or more Officers' Certificates of the Company.
The Trustee shall execute any documents reasonably requested
by the Company or a Guarantor in order to evidence the release of such Guarantor
from its obligations under its Guarantee endorsed on the Securities and under
this Article Eleven.
Except as set forth in Articles Four and Five and this Section
11.04, nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of a Guarantor with or into the Company or
another Guarantor or shall prevent any sale or conveyance of the property of a
Guarantor as an entirety or substantially as an entirety to the Company or
another Guarantor.
<PAGE>
-119-
SECTION 11.05. WAIVER OF SUBROGATION.
Until this Indenture is discharged and all of the Securities
are discharged and paid in full, each Guarantor hereby irrevocably waives and
agrees not to exercise any claim or other rights which it may now or hereafter
acquire against the Company that arise from the existence, payment, performance
or enforcement of the Company's obligations under the Securities or this
Indenture and such Guarantor's obligations under its Guarantee and this
Indenture, in any such instance, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, and any
right to participate in any claim or remedy of the Holders against the Company,
whether or not such claim, remedy or right arises in equity, or under contract,
statute or common law, including, without limitation, the right to take or
receive from the Company, directly or indirectly, in cash or other property or
by set-off or in any other manner, payment or security on account of such claim
or other rights. If any amount shall be paid to any Guarantor in violation of
the preceding sentence and any amounts owing to the Trustee or the Holders of
Securities under the Securities, this Indenture, or any other document or
instrument delivered under or in connection with such agreements or instruments,
shall not have been paid in full, such amount shall have been deemed to have
been paid to such Guarantor for the benefit of, and held in trust for the
benefit of, the Trustee or the Holders and shall forthwith be paid to the
Trustee for the benefit of itself or such Holders to be credited and applied to
the obligations in favor of the Trustee or the Holders, as the case may be,
whether matured or unmatured, in accordance with the terms of this Indenture.
Each Guarantor acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by this Indenture and that the
waiver set forth in this Section 11.05 is knowingly made in contemplation of
such benefits.
SECTION 11.06. IMMEDIATE PAYMENT.
Each Guarantor agrees to make immediate payment to the
Trustee, on behalf of the Holders or itself, of all Obligations due and owing or
payable to the respective Holders or the Trustee upon receipt of a demand for
payment therefor by the Trustee to such Guarantor in writing.
<PAGE>
-120-
SECTION 11.07. NO SET-OFF.
Each payment to be made by a Guarantor hereunder in respect of
the Obligations shall be payable in the currency or currencies in which such
Obligations are denominated, and shall be made without set-off, counterclaim,
reduction or diminution of any kind or nature.
SECTION 11.08. OBLIGATIONS ABSOLUTE.
The obligations of each Guarantor hereunder are and shall be
absolute and unconditional and any monies or amounts expressed to be owing or
payable by each Guarantor hereunder which may not be recoverable from such
Guarantor on the basis of a Guarantee shall be recoverable from such Guarantor
as a primary obligor and principal debtor in respect thereof.
SECTION 11.09. OBLIGATIONS CONTINUING.
The obligations of each Guarantor hereunder shall be
continuing and shall remain in full force and effect until all the obligations
have been paid and satisfied in full. Each Guarantor agrees with the Trustee
that it will from time to time deliver to the Trustee suitable acknowledgments
of its continued liability hereunder and under any other instrument or
instruments in such form as counsel to the Trustee may advise and as will
prevent any action brought against it in respect of any default hereunder being
barred by any statute of limitations now or hereafter in force and, in the event
of the failure of a Guarantor so to do, it hereby irrevocably appoints the
Trustee the attorney and agent of such Guarantor to make, execute and deliver
such written acknowledgment or acknowledgments or other instruments as may from
time to time become necessary or advisable, in the judgment of the Trustee on
the advice of counsel, to fully maintain and keep in force the liability of such
Guarantor hereunder and under its Guarantee.
SECTION 11.10. OBLIGATIONS NOT REDUCED.
The obligations of each Guarantor hereunder shall not be
satisfied, reduced or discharged solely by the payment of such principal,
premium, if any, interest, fees and other monies or amounts as may at any time
prior to discharge of this Indenture pursuant to Article Eight be or become
owing or payable under or by virtue of or otherwise in connection with the
Securities or this Indenture.
<PAGE>
-121-
SECTION 11.11. OBLIGATIONS REINSTATED.
The obligations of each Guarantor hereunder shall continue to
be effective or shall be reinstated, as the case may be, if at any time any
payment which would otherwise have reduced the obligations of any Guarantor
hereunder (whether such payment shall have been made by or on behalf of the
Company or by or on behalf of a Guarantor) is rescinded or reclaimed from any of
the Holders upon the insolvency, bankruptcy, liquidation or reorganization of
the Company or any Guarantor or otherwise, all as though such payment had not
been made. If demand for, or acceleration of the time for, payment by the
Company is stayed upon the insolvency, bankruptcy, liquidation or reorganization
of the Company, all such Indebtedness otherwise subject to demand for payment or
acceleration shall nonetheless be payable by each Guarantor as provided herein.
SECTION 11.12. OBLIGATIONS NOT AFFECTED.
The obligations of each Guarantor hereunder shall not be
affected, impaired or diminished in any way by any act, omission, matter or
thing whatsoever, occurring before, upon or after any demand for payment
hereunder (and whether or not known or consented to by any Guarantor or any of
the Holders) which, but for this provision, might constitute a whole or partial
defense to a claim against any Guarantor hereunder or might operate to release
or otherwise exonerate any Guarantor from any of its obligations hereunder or
otherwise affect such obligations, whether occasioned by default of any of the
Holders or otherwise, including, without limitation:
(a) any limitation of status or power, disability, incapacity
or other circumstance relating to the Company or any other Person,
including any insolvency, bankruptcy, liquidation, reorganization,
readjustment, composition, dissolution, winding-up or other proceeding
involving or affecting the Company or any other Person;
(b) any irregularity, defect, unenforceability or invalidity
in respect of any indebtedness or other obligation of the Company or
any other Person under this Indenture, the Securities or any other
document or instrument;
(c) any failure of the Company, whether or not without fault
on its part, to perform or comply with any of
<PAGE>
-122-
the provisions of this Indenture or the Securities, or to give notice
thereof to a Guarantor;
(d) the taking or enforcing or exercising or the refusal or
neglect to take or enforce or exercise any right or remedy from or
against the Company or any other Person or their respective assets or
the release or discharge of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(f) any change in the time, manner or place of payment of, or
in any other term of, any of the Securities, or any other amendment,
variation, supplement, replacement or waiver of, or any consent to
departure from, any of the Securities or this Indenture, including,
without limitation, any increase or decrease in the principal amount of
or premium, if any, or interest on any of the Securities;
(g) any change in the ownership, control, name, objects,
businesses, assets, capital structure or constitution of the Company or
a Guarantor;
(h) any merger or amalgamation of the Company or a Guarantor
with any Person or Persons;
(i) the occurrence of any change in the laws, rules,
regulations or ordinances of any jurisdiction by any present or future
action of any governmental authority or court amending, varying,
reducing or otherwise affecting, or purporting to amend, vary, reduce
or otherwise affect, any of the Obligations or the obligations of a
Guarantor under its Guarantee; and
(j) any other circumstance, including release of a Guarantor
pursuant to Section 11.04 (other than by complete, irrevocable payment)
that might otherwise constitute a legal or equitable discharge or
defense of the Company under this Indenture or the Securities or of
another Guarantor in respect of its Guarantee hereunder;
PROVIDED, that the provisions of this Section 11.12 are not intended to affect
in any way any release of a Guarantor in accordance with the provisions of
Section 11.04.
<PAGE>
-123-
SECTION 11.13. WAIVER.
Without in any way limiting the provisions of Section 11.01
hereof, each Guarantor hereby waives notice of acceptance hereof, notice of any
liability of any Guarantor hereunder, notice or proof of reliance by the Holders
upon the obligations of any Guarantor hereunder, and diligence, presentment,
demand for payment on the Company, protest, notice of dishonor or non-payment of
any of the Obligations, or other notice or formalities to the Company or any
Guarantor of any kind whatsoever.
SECTION 11.14. NO OBLIGATION TO TAKE ACTION AGAINST THE COMPANY.
Neither the Trustee nor any other Person shall have any
obligation to enforce or exhaust any rights or remedies or to take any other
steps under any security for the Obligations or against the Company or any other
Person or any property of the Company or any other Person before the Trustee is
entitled to demand payment and performance by any or all Guarantors of their
liabilities and obligations under their Guarantees or under this Indenture.
SECTION 11.15. DEALING WITH THE COMPANY AND OTHERS.
The Holders, without releasing, discharging, limiting or
otherwise affecting in whole or in part the obligations and liabilities of any
Guarantor hereunder and without the consent of or notice to any Guarantor, may
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(b) take or abstain from taking security or collateral from
the Company or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or
without consideration) any and all collateral, mortgages or other
security given by the Company or any third party with respect to the
obligations or matters contemplated by this Indenture or the
Securities;
<PAGE>
-124-
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or
from any security upon such part of the Obligations as the Holders may
see fit or change any such application in whole or in part from time to
time as the Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to
deal with, the Company and all other Persons and any security as the
Holders or the Trustee may see fit.
SECTION 11.16. DEFAULT AND ENFORCEMENT.
If any Guarantor fails to pay in accordance with Section 11.06
hereof, the Trustee may proceed in its name as trustee hereunder in the
enforcement of the Guarantee of any such Guarantor and such Guarantor's
obligations thereunder and hereunder by any remedy provided by law, whether by
legal proceedings or otherwise, and to recover from such Guarantor the
obligations.
SECTION 11.17. AMENDMENT, ETC.
No amendment, modification or waiver of any provision of this
Indenture relating to any Guarantor or consent to any departure by any Guarantor
or any other Person from any such provision will in any event be effective
unless it is signed by such Guarantor and the Trustee.
SECTION 11.18. ACKNOWLEDGMENT.
Each Guarantor hereby acknowledges communication of the terms
of this Indenture and the Securities and consents to and approves of the same.
SECTION 11.19. COSTS AND EXPENSES.
Each Guarantor shall pay on demand by the Trustee any and all
costs, fees and expenses (including, without limitation, legal fees on a
solicitor and client basis) incurred by the Trustee, its agents, advisors and
counsel or any of the Holders in enforcing any of their rights under any
Guarantee.
<PAGE>
-125-
SECTION 11.20. NO MERGER OR WAIVER; CUMULATIVE REMEDIES.
No Guarantee shall operate by way of merger of any of the
obligations of a Guarantor under any other agreement, including, without
limitation, this Indenture. No failure to exercise and no delay in exercising,
on the part of the Trustee or the Holders, any right, remedy, power or privilege
hereunder or under this Indenture or the Securities, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder or under this Indenture or the Securities preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges in the Guarantee and
under this Indenture, the Securities and any other document or instrument
between a Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
SECTION 11.21. SURVIVAL OF OBLIGATIONS.
Without prejudice to the survival of any of the other
obligations of each Guarantor hereunder, the obligations of each Guarantor under
Section 11.01 shall survive the payment in full of the Obligations under the
Securities, but only if and to the extent such payment is avoided, and in such
case shall be enforceable against such Guarantor to the same extent as prior to
any such payment and without regard to and without giving effect to any defense,
right of offset or counterclaim available to or which may be asserted by the
Company or any Guarantor.
SECTION 11.22. GUARANTEE IN ADDITION TO OTHER OBLIGATIONS.
The Obligations of each Guarantor under its Guarantee and this
Indenture are in addition to and not in substitution for any other Obligations
to the Trustee or to any of the Holders in relation to this Indenture or the
Securities and any guarantees or security at any time held by or for the benefit
of any of them.
SECTION 11.23. SEVERABILITY.
Any provision of this Article Eleven which is prohibited or
unenforceable in any jurisdiction shall not invalidate
<PAGE>
-126-
the remaining provisions and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction unless its removal would substantially defeat the basic
intent, spirit and purpose of this Indenture and this Article Eleven.
SECTION 11.24. SUCCESSORS AND ASSIGNS.
Each Guarantee shall be binding upon and inure to the benefit
of each Guarantor and the Trustee and the other Holders and their respective
successors and permitted assigns, except that no Guarantor may assign any of its
obligations hereunder or thereunder.
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. GUARANTEE OBLIGATIONS SUBORDINATED TO GUARANTOR
SENIOR DEBT.
Anything herein to the contrary notwithstanding, each of the
Guarantors, for itself and its successors, and each Holder, by his or her
acceptance of Guarantees, agrees that the payment of all Obligations owing to
the Holders in respect of its Guarantee (collectively, as to any Guarantor, its
"GUARANTEE OBLIGATIONS") is subordinated, to the extent and in the manner
provided in this Article Twelve, to the prior payment in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Guarantor Senior Debt, of all Obligations on Guarantor Senior Debt of
such Guarantor.
This Article Twelve shall constitute a continuing offer to all
Persons who become holders of, or continue to hold, Guarantor Senior Debt, and
such provisions are made for the benefit of the holders of Guarantor Senior Debt
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions.
<PAGE>
-127-
SECTION 12.02. SUSPENSION OF GUARANTEE OBLIGATIONS WHEN GUARANTOR
SENIOR DEBT IS IN DEFAULT.
(a) Unless Section 12.03 shall be applicable, if any
payment default occurs and is continuing with respect to any Guarantor Senior
Debt, then no payment of any kind or character shall be made by or on behalf of
such Guarantor or any other Person on its behalf with respect to any Guarantee
Obligations or to acquire any of the Securities for cash or property or
otherwise and until such payment default shall have been cured or waived or
shall have ceased to exist or such Guarantor Senior Debt shall have been
discharged or paid in full in cash or Cash Equivalents, after which such
Guarantor shall (subject to the other provisions of this Article Twelve) resume
making any and all required payments in respect of its obligations under this
Guarantee, including any missed payments.
(b) At any time while any Payment Blockage Period is in
existence, neither any Guarantor nor any other Person on any Guarantor's behalf
shall (x) make any payment of any kind or character with respect to any
Obligations on its Guarantee or (y) acquire any of the Securities for cash or
otherwise.
(c) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by the foregoing provisions of this Section 12.02, such payment shall
be held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Guarantor Senior Debt (PRO RATA to such holders on the basis of the
respective amount of Guarantor Senior Debt held by such holders) or their
respective Representatives, as their respective interests may appear. The
Trustee shall be entitled to rely on information regarding amounts then due and
owing on the Guarantor Senior Debt, if any, received from the holders of
Guarantor Senior Debt (or their Representatives) or, if such information is not
received from such holders or their Representatives, from a Guarantor and only
amounts included in the information provided to the Trustee shall be paid to the
holders of Guarantor Senior Debt.
<PAGE>
-128-
SECTION 12.03. GUARANTEE OBLIGATIONS SUBORDINATED TO PRIOR PAYMENT
OF ALL GUARANTOR SENIOR DEBT ON DISSOLUTION,
LIQUIDATION OR REORGANIZATION OF SUCH GUARANTOR.
(a) Upon any payment or distribution of assets of any
Guarantor of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of such
Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other
similar proceeding relating to such Guarantor or its property, whether voluntary
or involuntary, all Obligations due or to become due upon all Guarantor Senior
Debt shall first be paid in full in cash or Cash Equivalents, or such payment
duly provided for to the satisfaction of the holders of Guarantor Senior Debt,
before any payment or distribution of any kind or character is made on account
of any Guarantee Obligations or for the acquisition of any of the Securities for
cash or property or otherwise. Upon any such dissolution, winding-up,
liquidation, reorganization, receivership or similar proceeding, any payment or
distribution of assets of such Guarantor of any kind or character, whether in
cash, property or securities, to which the Holders or the Trustee under this
Indenture would be entitled, except for the provisions hereof, shall be paid by
such Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, or by the Holders or
by the Trustee under this Indenture if received by them, directly to the holders
of Guarantor Senior Debt (PRO RATA to such holders on the basis of the
respective amounts of Guarantor Senior Debt held by such holders) or their
respective Representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Guarantor Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of
Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has
been paid in full in cash or Cash Equivalents after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
Guarantor Senior Debt.
(b) To the extent any payment of Guarantor Senior Debt
(whether by or on behalf of a Guarantor, as proceeds of security or enforcement
of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or
<PAGE>
-129-
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Guarantor Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of any Guarantor of any kind or character,
whether in cash, property or securities, shall be received by any Holder when
such payment or distribution is prohibited by this Section 12.03(c), such
payment or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Guarantor Senior Debt (PRO RATA to
such holders on the basis of the respective amount of Guarantor Senior Debt held
by such holders) or their respective Representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Guarantor Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of Guarantor Senior Debt remaining unpaid until all such
Guarantor Senior Debt has been paid in full in cash or Cash Equivalents, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Guarantor Senior Debt.
(d) The consolidation of any Guarantor with, or the
merger of any Guarantor with or into, another corporation or the liquidation or
dissolution of a Guarantor following the conveyance or transfer of all or
substantially all of its assets, to another corporation upon the terms and
conditions provided in Article Five hereof and as long as permitted under the
terms of the Guarantor Senior Debt shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, assumes the Guarantee of such Guarantor hereunder in
accordance with Article Five hereof.
<PAGE>
-130-
SECTION 12.04. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) any Guarantor, except under the conditions described
in Sections 12.02 and 12.03, from making payments at any time for the purpose of
making payments on Guarantee Obligations, or from depositing with the Trustee
any moneys for such payments, or (ii) in the absence of actual knowledge by the
Trustee that a given payment would be prohibited by Section 12.02 or 12.03, the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments on Guarantee Obligations to the Holders entitled thereto
unless at least two Business Days prior to the date upon which such payment
would otherwise become due and payable a Responsible Officer shall have actually
received the written notice provided for in the first sentence of Section
10.02(b) or in Section 12.07 (PROVIDED that, notwithstanding the foregoing, the
Holders receiving any payments made in contravention of Sections 12.02 and/or
12.03 (and the respective such payments) shall otherwise be subject to the
provisions of Section 12.02(a) and Section 12.03). Each Guarantor shall give
prompt written notice to the Trustee of any dissolution, winding-up, liquidation
or reorganization of such Guarantor, although any delay or failure to give any
such notice shall have no effect on the subordination provisions contained
herein.
SECTION 12.05. HOLDERS OF GUARANTEE OBLIGATIONS TO BE SUBROGATED TO
RIGHTS OF HOLDERS OF GUARANTOR SENIOR DEBT.
Subject to the payment in full in cash or Cash Equivalents of
all Guarantor Senior Debt, the Holders of Guarantee Obligations of any Guarantor
shall be subrogated to the rights of the holders of Guarantor Senior Debt of
such Guarantor to receive payments or distributions of cash, property or
securities of such Guarantor applicable to such Guarantor Senior Debt until all
amounts owing on or in respect of the Guarantee Obligations shall be paid in
full; and, for the purposes of such subrogation, no such payments or
distributions to the holders of such Guarantor Senior Debt by or on behalf of
such Guarantor, or by or on behalf of the Holders by virtue of this Article
Twelve, which otherwise would have been made to the Holders shall, as between
such Guarantor and the Holders, be deemed to be a payment by such Guarantor to
or on account of
<PAGE>
-131-
such Guarantor Senior Debt, it being understood that the provisions of this
Article Twelve are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Guarantor
Senior Debt, on the other hand.
SECTION 12.06. OBLIGATIONS OF THE GUARANTORS UNCONDITIONAL.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Guarantees is intended to or shall impair, as among the
Guarantors, their creditors other than the holders of Guarantor Senior Debt, and
the Holders, the obligation of the Guarantors, which is absolute and
unconditional, to pay to the Holders all amounts due and payable under the
Guarantees as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Guarantors other than the holders of the Guarantor
Senior Debt, nor shall anything herein or therein prevent any Holder or the
Trustee on its behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
in respect of cash, property or securities of the Guarantors received upon the
exercise of any such remedy.
SECTION 12.07. NOTICE TO TRUSTEE.
Each Guarantor shall give prompt written notice to the Trustee
of any fact known to such Guarantor which would prohibit the making of any
payment to or by the Trustee in respect of the Guarantees pursuant to the
provisions of this Article Twelve, although any delay or failure to give any
such notice shall have no effect on the subordination provisions contained
herein. Regardless of anything to the contrary contained in this Article Twelve
or elsewhere in this Indenture, the Trustee shall not be charged with knowledge
of the existence of any default or event of default with respect to any
Guarantor Senior Debt or of any other facts which would prohibit the making of
any payment to or by the Trustee unless and until the Trustee shall have
received notice in writing from a Guarantor, or from a holder of Guarantor
Senior Debt or a Representative therefor, and, prior to the receipt of any such
written notice, the Trustee shall be entitled to assume (in the absence of
actual knowledge to the contrary) that no such facts
<PAGE>
-132-
exist. The Trustee shall be entitled to rely on the delivery to it of any notice
pursuant to this Section 12.07 to establish that such notice has been given by a
holder of Guarantor Senior Debt (or a Representative therefor).
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Debt to participate in any payment or distribution pursuant to
this Article Twelve, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amounts of Guarantor Senior
Debt held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Twelve, and if such evidence is not
furnished the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 12.08. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT.
Upon any payment or distribution of assets of a Guarantor
referred to in this Article Twelve, the Trustee, subject to the provisions of
Article Seven hereof, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which any insolvency,
bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization
or similar case or proceeding is pending, or upon a certificate of the trustee
in bankruptcy, liquidating trustee, receiver, assignee for the benefit of
creditors, agent or other Person making such payment or distribution, delivered
to the Trustee or the Holders, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of the
Guarantor Senior Debt and other Indebtedness of such Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Twelve.
SECTION 12.09. TRUSTEE'S RELATION TO GUARANTOR SENIOR DEBT.
The Trustee and any agent of a Guarantor or the Trustee shall
be entitled to all the rights set forth in this Article Twelve with respect to
any Guarantor Senior Debt which may
<PAGE>
-133-
at any time be held by it in its individual or any other capacity to the same
extent as any other holder of Guarantor Senior Debt and nothing in this
Indenture shall deprive the Trustee or any such agent of any of its rights as
such holder.
With respect to the holders of Guarantor Senior Debt, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of Guarantor Senior Debt
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Guarantor Senior Debt.
Whenever a distribution is to be made or a notice given to
holders or owners of Guarantor Senior Debt, the distribution may be made and the
notice may be given to their Representative, if any.
SECTION 12.10. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF THE GUARANTORS OR HOLDERS OF GUARANTOR
SENIOR DEBT.
No right of any present or future holders of any Guarantor
Senior Debt to enforce subordination as provided herein shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of any
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by any Guarantor with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Guarantor Senior Debt may, at any time and from time
to time, without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Twelve or the
obligations hereunder of the Holders of the Securities to the holders of
Guarantor Senior Debt, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Guarantor Senior Debt, or otherwise amend or supplement in any manner
Guarantor Senior Debt, or any instrument evidencing the same or any agreement
under which Guarantor Senior Debt is
<PAGE>
-134-
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Guarantor Senior Debt; (iii) release
any Person liable in any manner for the payment or collection of Guarantor
Senior Debt; and (iv) exercise or refrain from exercising any rights against the
Guarantors and any other Person.
SECTION 12.11. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION
OF GUARANTEE OBLIGATIONS.
Each Holder of Guarantee Obligations by its acceptance of them
authorizes and expressly directs the Trustee on its behalf to take such action
as may be necessary or appropriate to effectuate, as between the holders of
Guarantor Senior Debt and the Holders, the subordination provided in this
Article Twelve, and appoints the Trustee its attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of credits or otherwise) tending towards liquidation of the business
and assets of any Guarantor, the filing of a claim for the unpaid balance under
its Guarantee Obligations and accrued interest in the form required in those
proceedings.
If the Trustee does not file a proper claim or proof of debt
in the form required in such proceeding prior to 30 days before the expiration
of the time to file such claim or claims, then the holders of the Guarantor
Senior Debt or their Representative are or is hereby authorized to have the
right to file and are or is hereby authorized to file an appropriate claim for
and on behalf of the Holders of said Guarantee Obligations. Nothing herein
contained shall be deemed to authorize the Trustee or the holders of Guarantor
Senior Debt or their Representative to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Guarantee Obligations or the rights of
any Holder thereof, or to authorize the Trustee or the holders of Guarantor
Senior Debt or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
<PAGE>
-135-
SECTION 12.12. THIS ARTICLE TWELVE NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of or
interest on the Guarantees by reason of any provision of this Article Twelve
will not be construed as preventing the occurrence of an Event of Default.
SECTION 12.13. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article Twelve will apply to amounts due to
the Trustee pursuant to other sections of this Indenture.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA 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.
SECTION 13.02. NOTICES.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company or a Guarantor:
Avado Brands, Inc.
Hancock at Washington
Madison, GA 30650
Attention: Chief Financial Officer
Telephone: (706) 343-2263
Telecopy: (706) 342-9283
<PAGE>
-136-
with a copy to:
Kilpatrick Stockton LLP
1100 Peachtree Street, Suite 2800
Atlanta, GA 30309
Attention: Larry D. Ledbetter
Telephone: (404) 815-6175
Telecopy: (404) 815-6555
if to the Trustee:
SunTrust Bank, Atlanta
25 Park Place, 24th Floor
Atlanta, GA 30303-2900
Attention: Corporate Trust Division
Telephone: (404) 588-7296
Telecopy: (404) 588-7335
Each of the Company and the Trustee by written notice to each
other such Person may designate additional or different addresses for notices to
such Person. Any notice or communication to the Company and the Trustee, shall
be deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
Any notice or communication mailed to a Securityholder shall
be mailed to him by first class mail or other equivalent means at his address as
it appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail 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 mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
<PAGE>
-137-
SECTION 13.03. COMMUNICATIONS 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,
the Securities or the Guarantees. The Company, the Trustee, the Registrar and
any other Person shall have the protection of TIA ss. 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee at the request of the Trustee:
(1) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed or effected by the
Company, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, any and all such conditions precedent have been complied
with.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.08, shall include:
(1) a statement that the Person 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 Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to
<PAGE>
-138-
whether or not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with;
PROVIDED, HOWEVER, that with respect to matters of fact an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials.
SECTION 13.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee, Paying Agent or Registrar may make reasonable
rules for its functions.
SECTION 13.07. LEGAL HOLIDAYS.
If a payment date is not a Business Day, payment may be made
on the next succeeding day that is a Business Day.
SECTION 13.08. GOVERNING LAW.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Indenture, the Securities or
the Guarantees.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of any of the Company or any of its Subsidiaries. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of
the Company or any Subsidiary, as such, shall have any liability for any
obligations of the Company under the Securities, this Indenture or the
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or
<PAGE>
-139-
their creation. Each Securityholder by accepting a Security waives and releases
all such liability. Such waiver and release are part of the consideration for
the issuance of the Securities.
SECTION 13.11. SUCCESSORS.
All agreements of the Company and the Guarantors in this
Indenture, the Securities and the Guarantees shall bind their respective
successors. All agreements of the Trustee in this Indenture shall bind its
successor.
SECTION 13.12. DUPLICATE ORIGINALS.
All parties may sign any number of copies of this Indenture.
Each signed copy or counterpart shall be an original, but all of them together
shall represent the same agreement.
SECTION 13.13. SEVERABILITY.
In case any one or more of the provisions in this Indenture,
in the Securities or in the Guarantees shall be held invalid, illegal or
unenforceable, in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions shall not in any way be affected or impaired thereby, it being
intended that all of the provisions hereof shall be enforceable to the full
extent permitted by law.
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the date first written above.
ISSUER
AVADO BRANDS, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
<PAGE>
S-2
GUARANTORS
DON PABLO'S HOLDING CORP.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
DON PABLO'S OPERATING CORP.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
DON PABLO'S LIMITED, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo, President
DON PABLO'S OF TEXAS, LP
By: Don Pablo's Operating Corp.,
general partner
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
CANYON CAFE OPERATING CORP.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
<PAGE>
S-3
CANYON CAFE TX GENERAL, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
CANYON CAFE LIMITED, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo, President
CANYON CAFE OF TEXAS, LP
By: Canyon Cafe TX General,
Inc., general partner
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
AVADO VENTURES, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo, President
AVADO PROPERTIES, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo, President
MCCORMICK & SCHMICK
HOLDING CORP.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
<PAGE>
S-4
Senior Vice President
MCCORMICK & SCHMICK
OPERATING CORP.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK TX
GENERAL, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK LIMITED, INC.
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK OF TEXAS, LP
By: McCormick & Schmick TX
General, Inc., general partner
By: /s/ Louis J. Profumo
------------------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK'S
SCP VIII, INC.
By: /s/ Jerry R. Kelso
------------------------------
Jerry R. Kelso,
Vice President of Finance
<PAGE>
S-5
MCCORMICK & SCHMICK'S
RMP III, INC.
By: /s/ Jerry R. Kelso
------------------------------
Jerry R. Kelso,
Vice President of Finance
HOPS GRILL & BAR, INC.
By: /s/ Terence M. Terenzi
------------------------------
Terence M. Terenzi,
Vice President-Finance
CYPRESS COAST CONSTRUCTION
CORPORATION
By: /s/ Terence M. Terenzi
------------------------------
Terence M. Terenzi,
Vice President-Finance
HOPS MARKETING, INC.
By: /s/ Terence M. Terenzi
------------------------------
Terence M. Terenzi,
Vice President-Finance
HOPS OF SOUTHWEST FLORIDA, INC.
By: /s/ Terence M. Terenzi
------------------------------
Terence M. Terenzi,
Vice President-Finance
<PAGE>
S-6
HOPS OF SOUTHWEST FLORIDA, LTD.
By: Hops of Southwest Florida,
Inc., general partner
By: /s/ Terence M. Terenzi
------------------------------
Terence M. Terenzi,
Vice President-Finance
HOPS OF BRADENTON, LTD.
By: Hops of Southwest Florida,
Inc., general partner
By: /s/ Terence M. Terenzi
------------------------------
Terence M. Terenzi,
Vice President-Finance
<PAGE>
S-7
SUNTRUST BANK, ATLANTA,
as Trustee
By: /s/ Kristine Prall
------------------------------
Name: Kristine Prall
Title: Trust Officer
By: /s/ Philip D. DeMovey
------------------------------
Name: Philip D. DeMovey
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF NOTE]
[FACE OF SECURITY]
AVADO BRANDS, INC.
11 3/4% Senior Subordinated Note
due June 15, 2009
CUSIP No.
No. $
AVADO BRANDS, INC., a Georgia corporation (the "Company",
which term includes any successor corporation), for value received promises
to pay to CEDE & CO. or registered assigns, the principal sum of $
Dollars, on June 15, 2009.
Interest Payment Dates: June 15 and December 15, commencing
December 15, 1999.
Record Dates: June 1 and December 1.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated: June 22, 1999
AVADO BRANDS, INC.
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
<PAGE>
-2-
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 11 3/4% Senior Subordinated Notes due 2009
described in the within-mentioned Indenture.
SUNTRUST BANK, ATLANTA,
as Trustee
By:
------------------------
Authorized Signatory
Dated: June 22, 1999
<PAGE>
-3-
[REVERSE OF SECURITY]
AVADO BRANDS, INC.
11 3/4% Senior Subordinated Note
due June 15, 2009
1. INTEREST.
AVADO BRANDS, INC., a Georgia corporation (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 semi-annually on June 15
and December 15 of each year (the "Interest Payment Date"), commencing December
15, 1999. Interest on this Security will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from and
including June 22, 1999. Interest on this Security will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time
to time on demand at the rate borne by this Security plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Securities are canceled on registration of transfer or registration
of exchange (including pursuant to an Exchange Offer (as defined in the
Indenture)) after such Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall 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 ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of federal funds, or
interest by check payable in such U.S. Legal Tender. The Company may deliver any
such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
<PAGE>
-4-
3. PAYING AGENT AND REGISTRAR.
Initially, SunTrust Bank, Atlanta (the "Trustee") will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar or
co-Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as
of June 22, 1999 (the "Indenture"), among the Company, the Guarantors named
therein and the Trustee. This Security is one of a duly authorized issue of
Securities of the Company designated as its 11 3/4% Senior Subordinated Notes
due 2009 (the "Securities"). Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"),
as in effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount to $100,000,000.
5. SUBORDINATION.
The Securities are subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full in cash or Cash Equivalents of all Senior Debt of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound
by such provisions and authorizes and expressly directs the Trustee, on his
behalf, to take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purposes.
<PAGE>
-5-
6. OPTIONAL REDEMPTION.
The Company may redeem the Securities, in whole at any time or
in part from time to time, on and after June 15, 2004, upon not less than 30 nor
more than 60 days notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on June 15 of the years set forth below, plus, in each case,
accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE
---- ----------
2004............................................ 105.875%
2005............................................ 103.917%
2006............................................ 101.959%
2007 and thereafter............................. 100.000%
7. OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS.
At any time, or from time to time, on or prior to June 15,
2002, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 35% in aggregate principal amount of the
Securities issued under the Indenture at a redemption price equal to 111.75% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the date of redemption; PROVIDED, HOWEVER, that after any such redemption the
aggregate principal amount of the Securities outstanding must equal at least 65%
of the aggregate amount of the Securities issued under the Indenture. In order
to effect the foregoing redemption with the net cash proceeds of any Public
Equity Offering, the Company shall make such redemption not more than 90 days
after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering"
means an underwritten public offering of Capital Stock of the Company (other
than Redeemable Stock) pursuant to a registration statement filed with the
Commission in accordance with the Securities Act.
8. NOTICE OF REDEMPTION.
Notice of redemption shall 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
<PAGE>
-6-
such Holder's registered address. Securities in denominations of $1,000 may be
redeemed only in whole. The Trustee may select for redemption portions (equal to
$1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption, subject to the provisions of the Indenture.
9. CHANGE OF CONTROL OFFER.
Upon the occurrence of a Change of Control, the Company will
be required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
10. LIMITATION ON ASSET SALES.
The Company is, subject to certain conditions, obligated to
make an offer to purchase Securities at 100% of their principal amount, plus
accrued and unpaid interest, if any, thereon to the date of repurchase with
certain net cash proceeds of certain sales or other dispositions of assets in
accordance with the Indenture.
11. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement, the Company
will be obligated to consummate an exchange offer pursuant to which the Holder
of this Security shall have the right to exchange this Security for the
Company's 11 3/4% Senior Subordinated Notes due 2009, which shall have been
registered under the Securities Act, in like principal amount and having terms
identical in all material respects to the Securities. The Holders of the
Securities shall be entitled to receive certain additional interest payments in
the event such exchange offer is not consummated and upon certain other
conditions, all
<PAGE>
-7-
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
12. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
13. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
14. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at its request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
15. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
16. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture, the Securities
and the Guarantees may be amended or supplemented with the written consent of
the Holders of at least a majority in aggregate principal amount of the
Securities then outstanding,
<PAGE>
-8-
and any existing Default or Event of Default or compliance with any provision
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Securities then outstanding. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guarantees to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities or comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.
17. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
of the Company to the Company, to consolidate, merge or sell all or
substantially all of its assets or to engage in transactions with affiliates.
The limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
18. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantees unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
<PAGE>
-9-
19. TRUSTEE DEALINGS WITH COMPANY.
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 the Company, its Subsidiaries or their respective Affiliates as if it
were not the Trustee.
20. NO RECOURSE AGAINST OTHERS.
No stockholder, director, officer or employee, as such, of the
Company shall have any liability for any obligation 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. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
21. AUTHENTICATION.
This Security shall not be valid until the Trustee or
authenticating agent manually signs the certificate of authentication on this
Security.
22. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
23. GOVERNING LAW.
This Security shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
24. 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
<PAGE>
-10-
as a convenience to the Holders of the Securities. No representation is made as
to the accuracy of such numbers as printed on the Securities and reliance may be
placed only on the other identification numbers printed hereon.
25. INDENTURE.
Each Holder, by accepting a Security, agrees to be bound by
all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
The Company will furnish to any Holder of a Security upon
written request and without charge a copy of the Indenture. Requests may be made
to: Avado Brands, Inc., Hancock at Washington, Madison, GA 30650, Attn: Chief
Financial Officer.
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or
transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint agent to
---------------------------------------
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: Signed:
----------------- -------------------------
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee:
----------------------------------
Participant in a recognized
Signature Guarantee Medallion
Program (or other signature
guarantor program reasonably
acceptable to the Trustee)
In connection with any transfer of this Security occurring
prior to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), covering resales of this
Security (which effectiveness shall not have been suspended or terminated at the
date of the transfer) and (ii) June 22, 2001, the undersigned confirms that it
has not utilized any general solicitation or general advertising in connection
with the transfer and that this Security is being transferred:
<PAGE>
-2-
[CHECK ONE]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) __ to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act)
that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form
of which letter can be obtained from the Trustee); or
(4) __ outside the United States to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) __ pursuant to the exemption from registration provided by
Rule 144 under the Securities Act; or
(6) __ pursuant to an effective registration statement under the
Securities Act; or
(7) __ pursuant to another available exemption from the
registration requirements of the Securities Act;
and unless the box below is checked, the undersigned confirms that such Security
is not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act (an "Affiliate"):
/_/ The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to
register any of the Securities evidenced by this certificate in the name of any
person other than the registered Holder thereof; PROVIDED that if box (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Securities, in its sole discretion, such
legal opinions, certifications (including an investment letter in the case of
box (3) or (4)) and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
ex-
<PAGE>
-3-
emption from, or in a transaction not subject to, the registration requirements
of the Securities Act.
<PAGE>
-4-
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
been satisfied.
Dated: Signed:
------------------ ------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
-----------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
------------------ --------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.15 or Section 4.16 of the
Indenture, state the amount: $
-----------
Dated: Signed:
----------------- -----------------------------------------
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee:
------------------------------------
Participant in a recognized
Signature Guarantee Medallion
Program (or other signature
guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT B
[FORM OF EXCHANGE NOTE]
[FACE OF SECURITY]
AVADO BRANDS, INC.
11 3/4% Senior Subordinated Note
due June 15, 2009
CUSIP No.
No. $
AVADO BRANDS, INC., a Georgia corporation (the "Company",
which term includes any successor corporation), for value received promises
to pay to or registered assigns, the principal sum of $ Dollars, on
June 15, 2009.
Interest Payment Dates: June 15 and December 15, commencing
December 15, 1999.
Record Dates: June 1 and December 1.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated: June 22, 1999
AVADO BRANDS, INC.
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
<PAGE>
-2-
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 11 3/4% Senior Subordinated Notes due 2009
described in the within-mentioned Indenture.
SUNTRUST BANK, ATLANTA,
as Trustee
By:
---------------------
Authorized Signatory
Dated: June 22, 1999
<PAGE>
-3-
[REVERSE OF SECURITY]
AVADO BRANDS, INC.
11 3/4% Senior Subordinated Note
due June 15, 2009
1. INTEREST.
AVADO BRANDS, INC., a Georgia corporation (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 semi-annually on June 15
and December 15 of each year (the "Interest Payment Date"), commencing December
15, 1999. Interest on this Security will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from and
including June 22, 1999. Interest on this Security will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time
to time on demand at the rate borne by this Security plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Securities are canceled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall 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 ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of federal funds, or
interest by check payable in such U.S. Legal Tender. The Company may deliver any
such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
<PAGE>
-4-
3. PAYING AGENT AND REGISTRAR.
Initially, SunTrust Bank, Atlanta (the "Trustee") will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar or
co-Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as
of June 22, 1999 (the "Indenture"), among the Company, the Guarantors named
therein and the Trustee. This Security is one of a duly authorized issue of
Exchange Notes of the Company designated as its 11 3/4% Senior Subordinated
Notes due 2009 (the "Securities"). Capitalized terms herein are used as defined
in the Indenture unless otherwise defined herein. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb)
(the "TIA"), as in effect on the date of the Indenture until such time as the
Indenture is qualified under the TIA, and thereafter as in effect on the date on
which the Indenture is qualified under the TIA. Notwithstanding anything to the
contrary herein, the Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and the TIA for a statement of them.
The Securities are general unsecured obligations of the Company limited in
aggregate principal amount to $100,000,000.
5. SUBORDINATION.
The Securities are subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full in cash or Cash Equivalents of all Senior Debt of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound
by such provisions and authorizes and expressly directs the Trustee, on his
behalf, to take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purposes.
<PAGE>
-5-
6. OPTIONAL REDEMPTION.
The Company may redeem the Securities, in whole at any time or
in part from time to time, on and after June 15, 2004, upon not less than 30 nor
more than 60 days notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on June 15 of the years set forth below, plus, in each case,
accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE
---- ----------
2004............................................ 105.875%
2005............................................ 103.917%
2006............................................ 101.959%
2007 and thereafter............................. 100.000%
7. OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS.
At any time, or from time to time, on or prior to June 15,
2002, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 35% in aggregate principal amount of the
Securities issued under the Indenture at a redemption price equal to 111.75% of
the principal amount thereof plus accrued and unpaid interest thereon, if any,
to the date of REDEMPTION; provided, HOWEVER, that after any such redemption the
aggregate principal amount of the Securities outstanding must equal at least 65%
of the aggregate amount of the Securities issued under the Indenture. In order
to effect the foregoing redemption with the net cash proceeds of any Public
Equity Offering, the Company shall make such redemption not more than 90 days
after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering"
means an underwritten public offering of Capital Stock of the Company (other
than Redeemable Stock) pursuant to a registration statement filed with the
Commission in accordance with the Securities Act.
8. NOTICE OF REDEMPTION.
Notice of redemption shall 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
<PAGE>
-6-
such Holder's registered address. Securities in denominations of $1,000 may be
redeemed only in whole. The Trustee may select for redemption portions (equal to
$1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption, subject to the provisions of the Indenture.
9. CHANGE OF CONTROL OFFER.
Upon the occurrence of a Change of Control, the Company will
be required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
10. LIMITATION ON ASSET SALES.
The Company is, subject to certain conditions, obligated to
make an offer to purchase Securities at 100% of their principal amount, plus
accrued and unpaid interest, if any, thereon to the date of repurchase with
certain net cash proceeds of certain sales or other dispositions of assets in
accordance with the Indenture.
11. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
<PAGE>
-7-
12. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
13. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at its request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
14. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
15. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture, the Securities
and the Guarantees may be amended or supplemented with the written consent of
the Holders of at least a majority in aggregate principal amount of the
Securities then outstanding, and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the Holders of a
majority in aggregate principal amount of the Securities then outstanding.
Without notice to or consent of any Holder, the parties thereto may amend or
supplement the Indenture, the Securities and the Guarantees to, among other
things, cure any ambiguity, defect or inconsistency, provide for uncertificated
Securities in addition to or in place of certificated Securities or comply with
any requirements of the Commission in connection with the qualification of the
Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.
16. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted
<PAGE>
-8-
Subsidiaries of the Company to the Company, to consolidate, merge or sell all
or substantially all of its assets or to engage in transactions with
affiliates. The limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the
Trustee on compliance with such limitations.
17. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantees unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
18. TRUSTEE DEALINGS WITH COMPANY.
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 the Company, its Subsidiaries or their respective Affiliates as if it
were not the Trustee.
19. NO RECOURSE AGAINST OTHERS.
No stockholder, director, officer or employee, as such, of the
Company shall have any liability for any obligation 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. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
<PAGE>
-9-
20. AUTHENTICATION.
This Security shall not be valid until the Trustee or
authenticating agent manually signs the certificate of authentication on this
Security.
21. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. GOVERNING LAW.
This Security shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
23. 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 as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
24. INDENTURE.
Each Holder, by accepting a Security, agrees to be bound by
all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
The Company will furnish to any Holder of a Security upon
written request and without charge a copy of the Indenture. Requests may be made
to: Avado Brands, Inc., Hancock at Washington, Madison, GA 30650, Attn: Chief
Financial Officer.
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type name, address and zip code of assignee or
transferee)
- ---------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint agent to
---------------------------------------
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: Signed:
----------------- --------------------------
(Sign exactly as name
appears on the other side
of this Security)
Signature Guarantee:
---------------------------------------
Participant in a recognized
Signature Guarantee Medallion
Program (or other signature
guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.15 or Section 4.16 of the
Indenture, state the amount: $
-----------
Dated: Signed:
----------------- --------------------------
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee:
------------------------------------
Participant in a recognized
Signature Guarantee Medallion
Program (or other signature
guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT C
GUARANTEE
For value received, each of the undersigned hereby
unconditionally guarantees, as principal obligor and not only as a surety, to
the Holder of this Security the cash payments in United States dollars of
principal of, premium, if any, and interest on this Security in the amounts and
at the times when due and interest on the overdue principal, premium, if any,
and interest, if any, of this Security, if lawful, and the payment or
performance of all other obligations of the Company under the Indenture (as
defined below) or the Securities, to the Holder of this Security and the
Trustee, all in accordance with and subject to the terms and limitations of this
Security, Article Eleven of the Indenture and this Guarantee. This Guarantee
will become effective in accordance with Article Eleven of the Indenture and its
terms shall be evidenced therein. The validity and enforceability of any
Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Indenture dated as of June 22, 1999, among
Avado Brands, Inc., a Georgia corporation, as issuer (the "Company"), the
Guarantors named therein and SunTrust Bank, Atlanta, as trustee (the "Trustee"),
as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of
Securities and to the Trustee pursuant to this Guarantee and the Indenture are
expressly set forth in Article Eleven of the Indenture and reference is hereby
made to the Indenture for the precise terms of the Guarantee and all of the
other provisions of the Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW. The undersigned Guarantor hereby agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
<PAGE>
-2-
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to
be duly executed.
GUARANTORS
DON PABLO'S HOLDING CORP.
By:
-----------------------
Louis J. Profumo,
Senior Vice President
DON PABLO'S OPERATING CORP.
By:
-----------------------
Louis J. Profumo,
Senior Vice President
DON PABLO'S LIMITED, INC.
By:
-----------------------
Louis J. Profumo, President
DON PABLO'S OF TEXAS, LP
By: Don Pablo's Operating Corp.,
general partner
By:
-----------------------
Louis J. Profumo,
Senior Vice President
CANYON CAFE OPERATING CORP.
By:
-----------------------
Louis J. Profumo,
Senior Vice President
<PAGE>
-3-
CANYON CAFE TX GENERAL, INC.
By:
-----------------------
Louis J. Profumo,
Senior Vice President
CANYON CAFE LIMITED, INC.
By:
-----------------------
Louis J. Profumo, President
CANYON CAFE OF TEXAS, LP
By: Canyon Cafe TX General,
Inc., general partner
By:
-----------------------
Louis J. Profumo,
Senior Vice President
AVADO VENTURES, INC.
By:
-----------------------
Louis J. Profumo, President
AVADO PROPERTIES, INC.
By:
-----------------------
Louis J. Profumo, President
MCCORMICK & SCHMICK
HOLDING CORP.
By:
-----------------------
Louis J. Profumo,
<PAGE>
-4-
Senior Vice President
MCCORMICK & SCHMICK
OPERATING CORP.
By:
-----------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK TX
GENERAL, INC.
By:
-----------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK LIMITED, INC.
By:
-----------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK OF TEXAS, LP
By: McCormick & Schmick TX
General, Inc., general partner
By:
-----------------------
Louis J. Profumo,
Senior Vice President
MCCORMICK & SCHMICK'S
SCP VIII, INC.
By:
-----------------------
<PAGE>
-5-
Jerry R. Kelso,
Vice President of Finance
MCCORMICK & SCHMICK'S
RMP III, INC.
By:
-----------------------
Jerry R. Kelso,
Vice President of Finance
HOPS GRILL & BAR, INC.
By:
-----------------------
Terence M. Terenzi,
Vice President-Finance
CYPRESS COAST CONSTRUCTION
CORPORATION
By:
-----------------------
Terence M. Terenzi,
Vice President-Finance
HOPS MARKETING, INC.
By:
-----------------------
Terence M. Terenzi,
Vice President-Finance
<PAGE>
-6-
HOPS OF SOUTHWEST FLORIDA, LTD.
By: Hops of Southwest Florida,
Inc., general partner
By:
-----------------------
Terence M. Terenzi,
Vice President-Finance
HOPS OF BRADENTON, LTD.
By: Hops of Southwest Florida,
Inc., general partner
By:
-----------------------
Terence M. Terenzi,
Vice President-Finance
<PAGE>
EXHIBIT D
Form of Certificate To Be
Delivered in Connection with
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
[Date]
Attention:
Re: Avado Brands, Inc.
11 3/4% Senior Subordinated Notes due 2009
(the "Securities")
-------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of the Securities of
Avado Brands, Inc. (the "Company"), we confirm that:
1. We have received a copy of the Offering Memorandum
(the "Offering Memorandum"), dated June 16, 1999 relating to the Securities and
such other information as we deem necessary in order to make our investment
decision. We acknowledge that we have read and agreed to the matters stated in
the section entitled "Notices to Investors" of the Offering Memorandum,
including the restrictions on duplication and circulation of the Offering
Memorandum.
2. We understand that any subsequent transfer of the
Securities is subject to certain restrictions and conditions set forth in the
Indenture relating to the Securities (as described in the Offering Memorandum)
and the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Securities except in compliance with, such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").
<PAGE>
-2-
3. We understand that the offer and sale of the
Securities have not been registered under the Securities Act, and that the
Securities may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell or otherwise transfer
any Securities prior to the date which is two years after the original issuance
of the Securities, we will do so only (i) to the Company or any of its
subsidiaries, (ii) inside the United States in accordance with Rule 144A under
the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act), (iii) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as
defined in the Indenture relating to the Securities), a signed letter containing
certain representations and agreements relating to the restrictions on transfer
of the Securities, (iv) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (v) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(vi) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing any of the Securities
from us a notice advising such purchaser that resales of the Securities are
restricted as stated herein.
4. We are not acquiring the Securities for or on behalf
of, and will not transfer the Securities to, any pension or welfare plan (as
defined in Section 3 of the Employee Retirement Income Security Act of 1974),
except as permitted in the section entitled "Notices to Investors" of the
Offering Memorandum.
5. We understand that, on any proposed resale of any
Securities, we will be required to furnish to the Trustee and the Company such
certification, legal opinions and other information as the Trustee and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Securities purchased
by us will bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experi-
<PAGE>
-3-
ence in financial and business matters as to be capable of evaluating the merits
and risks of our investment in the Securities, and we and any accounts for which
we are acting are each able to bear the economic risk of our or their
investment, as the case may be.
7. We are acquiring the Securities purchased by us for
our account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
Form of Certificate To Be Delivered
in Connection with Transfers
PURSUANT TO REGULATION S
[Date]
Attention:
Re: Avado Brands, Inc. (the "Company")
11 3/4% Senior Subordinated Notes due 2009
(the "Securities")
-----------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person
in the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
<PAGE>
-2-
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------
Authorized Signature
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of June 22, 1999
by and among
Avado Brands, Inc.,
the Guarantors Named Herein
and
BancBoston Robertson Stephens Inc.
J.P. Morgan Securities Inc.
Wachovia Securities, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of June 22, 1999 by and among Avado Brands, Inc., a Georgia
corporation (the "COMPANY"), each of the guarantors listed on the signature
pages hereto (the "GUARANTORS"), and BancBoston Robertson Stephens Inc., J.P.
Morgan Securities Inc. and Wachovia Securities, Inc. (the "INITIAL PURCHASERS"),
who have agreed to purchase the Company's 11 3/4% Senior Subordinated Notes due
2009 (the "NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
June 22, 1999 (the "PURCHASE Agreement"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial
Purchasers to purchase the Notes, the Company and the Guarantors have agreed
to provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the obligations of the
Initial Purchasers set forth in Section 8 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
ADDITIONAL INTEREST: As defined in Section 5.
ADVICE: As defined in Section 6.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
CLOSING DATE: The date of this Agreement.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement as continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (c) the delivery by the Company to
the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Exchange Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
DAMAGES PAYMENT DATE: With respect to the Notes, each Interest Payment
Date.
EFFECTIVENESS TARGET DATE: As defined in Section 5.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE NOTES: The Company's 11 3/4% Senior Subordinated Notes due
2009 to be issued pursuant to the Indenture in the Exchange Offer in exchange
for Notes.
<PAGE>
EXCHANGE OFFER: The registration by the Company under the Act of the
Notes pursuant to the Exchange Offer Registration Statement pursuant to which
the Company offers the Holders of all outstanding Transfer Restricted Securities
the opportunity to exchange all such outstanding Transfer Restricted Securities
held by such Holders for Exchange Notes in an aggregate principal amount equal
to the aggregate principal amount of the Transfer Restricted Securities tendered
in such exchange offer by such Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Notes to (a) certain other "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and (b) non-U.S. persons
outside the United States in reliance upon Regulation S under the Act.
HOLDERS: As defined in Section 2(b) hereof.
INDENTURE: The Indenture, dated as of June 22, 1999, among the Company,
the Guarantors and SunTrust Bank, Atlanta, a Georgia banking corporation, as
trustee (the "TRUSTEE"), pursuant to which the Notes are to be issued, as such
Indenture is amended or supplemented from time to time in accordance with the
terms thereof.
INTEREST PAYMENT DATE: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
PERSON: An individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
RECORD HOLDER: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes as listed on the books of the
Trustee as of the close of business on the record date with respect to the
Interest Payment Date corresponding to such Damages Payment Date.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
RULE 144: Rule 144 promulgated under the Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the Commission providing for offers and sales of
securities made in compliance therewith resulting in offers and sales
2
<PAGE>
by subsequent holders that are not affiliates of the issuer of such securities
being free of the registration and prospectus delivery requirements of the Act.
RULE 144A: Rule 144A promulgated under the Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the Commission.
SHELF FILING DEADLINE: As defined in Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939, as amended (15 U.S.C. Section
77aaa-77bbbb), as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been effectively registered under the Act and disposed of in accordance with
a Shelf Registration Statement or (c) the date on which such Note is first
eligible to be distributed to the public pursuant to Rule 144 under the Act or
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein).
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) TRANSFER RESTRICTED SECURITIES. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) HOLDERS OF TRANSFER RESTRICTED SECURITIES. A Person is deemed to be
a holder of Transfer Restricted Securities (each, a "HOLDER") whenever such
Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable
law or Commission policy (after the procedures set forth in Section 6(a) below
have been complied with), the Company and the Guarantors shall (i) cause to be
filed with the Commission on or prior to 60 days after the Closing Date, the
Exchange Offer Registration Statement, (ii) use their best efforts to cause such
Exchange Offer Registration Statement to become effective on or prior to 150
days after the Closing Date, (iii) in connection with the foregoing, file (A)
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings in connection with the registration and qualification of
the Exchange Notes to be made under the Blue Sky laws of such jurisdictions as
are necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consum-
3
<PAGE>
mate the Exchange Offer. The Exchange Offer shall be on the appropriate form
permitting registration of the Exchange Notes to be offered in exchange for the
Transfer Restricted Securities and to permit resales of Notes held by
Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; PROVIDED, HOWEVER, that in no
event shall such period be less than 20 business days. The Company shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on or prior to 30 business days after the
Exchange Offer Registration Statement has become effective.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Notes that are Transfer Restricted
Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company) may exchange such
Notes pursuant to the Exchange Offer; HOWEVER, such Broker-Dealer may be deemed
to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with any
resales of the Exchange Notes received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other information with respect to such resales by Broker-Dealers that the
Commission may require in order to permit such resales pursuant thereto, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Notes held by any such Broker-Dealer except to the extent required
by the Commission as a result of a change in policy after the date of this
Agreement.
The Company and the Guarantors shall use their best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented and
amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that it conforms with the requirements
of this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of one year from the
date on which the Exchange Offer Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
one-year period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Company and the Guarantors are not
required to file an Exchange Offer Registration Statement or not permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with) or (ii) if any Holder of Transfer Restricted
Securities notifies the Company on or prior to the 20th business day following
the Consummation of the Exchange Offer (A) that such Holder is prohibited by
applicable law or Commission policy from par-
4
<PAGE>
ticipating in the Exchange Offer, or (B) that such Holder may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, or (C) that such Holder is a Broker-Dealer and holds Notes acquired
directly from the Company or one of its affiliates, then the Company and the
Guarantors shall:
(x) Use their best efforts to file a shelf registration
statement with the Commission pursuant to Rule 415 under the Act, which
may be an amendment to the Exchange Offer Registration Statement (in
any event, the "SHELF REGISTRATION STATEMENT") on or prior to the
earliest to occur of (1) the 60th day after the date on which the
Company and the Guarantors determine that they are not required to file
the Exchange Offer Registration Statement or (2) the 60th day after the
date on which the Company receives notice from a Holder of Transfer
Restricted Securities as contemplated by clause (ii) above (such
earliest date being the "SHELF FILING DEADLINE"), which Shelf
Registration Statement shall provide for resales of all Transfer
Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof; and
(y) Cause such Shelf Registration Statement to be declared
effective by the Commission on or prior to the 150th day after the
Shelf Filing Deadline.
The Company and the Guarantors shall use their best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that it conforms with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, until the earlier to occur of (i) the date all of the Transfer Restricted
Securities registered under such Shelf Registration Statement have been sold or
(ii) the second anniversary following the Closing Date.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Additional Interest pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder of Notes as to which any Shelf Registration
Statement is being effected, by its participation in the Shelf Registration
Statement, shall be deemed to agree to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. ADDITIONAL INTEREST
If (a) any of the Registration Statements required by this Agreement is
not filed with the Commission on or prior to the date specified for such filing
in this Agreement, (b) any of such Registration Statements has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "EFFECTIVENESS TARGET DATE"), (c) the
Exchange Offer
5
<PAGE>
has not been Consummated within 30 business days after the Effectiveness Target
Date with respect to the Exchange Offer Registration Statement or (d) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself immediately declared effective (each such event referred to in clauses
(a) through (d), a "REGISTRATION DEFAULT"), as the sole remedy for such
Registration Defaults, the Company and the Guarantors hereby jointly and
severally agree to pay Additional Interest ("ADDITIONAL INTEREST") to each
Holder of Transfer Restricted Securities affected thereby with respect to the
first 90-day period immediately following the occurrence of the first
Registration Default, in an amount equal to $0.05 per week per $1,000 principal
amount of Transfer Restricted Securities held by such Holder for each week or
portion thereof that the Registration Default continues. The amount of the
Additional Interest shall increase by an additional $0.05 per week per $1,000
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults affecting such Holder
have been cured, up to a maximum amount of Additional Interest of $0.50 per week
per $1,000 principal amount of Transfer Restricted Securities for each week or
portion thereof that the Registration Default continues. All accrued Additional
Interest shall be paid by the Company on each Damages Payment Date to Record
Holders by wire transfer of immediately available funds or by federal funds
check and to Holders of Certificated Notes (as defined in the Indenture) by wire
transfers to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified on each Damages
Payment Date, as provided in the Indenture. Following the cure of all
Registration Defaults relating to any particular Transfer Restricted Securities,
the accrual of Additional Interest with respect to such Transfer Restricted
Securities will cease.
All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel for the Company
there is a question as to whether the Exchange Offer is permitted by
applicable law, the Company and the Guarantors hereby agree to seek a
no-action letter or other favorable decision from the Commission
allowing the Company and the Guarantors to Consummate an Exchange Offer
for such Exchange Notes. Each of the Company and the Guarantors hereby
agrees to pursue the issuance of such a decision to the Commission
staff level but shall not be required to take commercially unreasonable
action to effect a change of Commission policy. Each of the Company and
the Guarantors hereby agrees, however, to (A) participate in telephonic
conferences with the Commission, (B) deliver to the Commission staff an
analysis prepared by counsel for the Company setting forth the legal
bases, if any, upon which such counsel has concluded that
6
<PAGE>
such an Exchange Offer should be permitted and (C) diligently pursue a
resolution (which need not be favorable) by the Commission staff of
such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the
Company (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an affiliate of the Company or any Guarantor,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes to be issued in the Exchange Offer
and (C) it is acquiring the Exchange Notes in its ordinary course of
business. In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Company's preparations for
the Exchange Offer. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to
participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on
the date of this Agreement rely on the position of the Commission
enunciated in MORGAN STANLEY AND CO., INC. (available June 5, 1991) and
EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated
July 2, 1993, and similar no-action letters (including any no-action
letter obtained pursuant to clause (i) above), and (2) must comply with
the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a
secondary resale transaction should be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K if the resales are of Exchange Notes obtained by such Holder in
exchange for Notes acquired by such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC.
(available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above and (B) including a
representation that neither the Company nor any of the Guarantors has
entered into any arrangement or understanding with any Person to
distribute the Exchange Notes to be received in the Exchange Offer and
that, to the best of the Company's and the Guarantors' information and
belief, each Holder participating in the Exchange Offer is acquiring
the Exchange Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes received in the Exchange Offer.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof.
7
<PAGE>
(c) GENERAL PROVISIONS. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers), the Company and the Guarantors shall:
(i) use their best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Act or any regulation thereunder,
financial statements of the Guarantors) for the period specified in
Section 3 or 4 hereof, as applicable; upon the occurrence of any event
that would cause any such Registration Statement or the Prospectus
contained therein (A) to contain a material misstatement or omission or
(B) not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company
shall file promptly an appropriate amendment to such Registration
Statement, in the case of clause (A), correcting any such misstatement
or omission, and, in the case of either clause (A) or (B), use their
best efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as applicable, or
such shorter period as will terminate when all Transfer Restricted
Securities covered by such Registration Statement have been sold; cause
the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with the applicable provisions of
Rules 424 and 430A under the Act in a timely manner; and comply with
the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
(in the case of a Shelf Registration Statement) promptly and, if
requested by such Persons, to confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. If at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration
Statement,
8
<PAGE>
or any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company and the Guarantors shall use
their reasonable best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of
any Shelf Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders and underwriter(s),
if any, for a period of at least three business days, and the Company
will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which a selling Holder of Transfer Restricted Securities covered by
such Registration Statement or the underwriter(s), if any, shall
reasonably object within three business days after the receipt thereof.
An objection from a selling Holder or underwriter, if any, shall be
deemed to be reasonable if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission or fails to comply with
the applicable requirements of the Act;
(v) prior to the filing of any document that is to be
incorporated by reference into a Shelf Registration Statement or
Prospectus, promptly provide copies of such document to the selling
Holders and to the underwriter(s), if any, make the Company's
representatives available (and representatives of the Guarantors) for
discussion of such document and other customary due diligence matters,
and include such information in such document prior to the filing
thereof as such selling Holders or underwriter(s), if any, reasonably
may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant
retained by such selling Holders or any of the underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and the Guarantors and cause the Company's
and the Guarantors' officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with such Registration Statement
subsequent to the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the
underwriter(s), if any, promptly include in any Registration Statement
or Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders and underwriter(s),
if any, may reasonably request to have included therein, including,
without limitation, information relating to the "Plan of Distribution"
of the Transfer Restricted Securities, information with respect to the
principal amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other
terms of the offering of the Transfer Restricted Securities to be sold
in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
9
<PAGE>
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate
principal amount of Notes covered thereby or the underwriter(s), if
any;
(ix) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the Shelf
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
and the Guarantors hereby consent to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each
of the underwriter(s), if any, in connection with the offering and the
sale of the Transfer Restricted Securities covered by the Prospectus or
any amendment or supplement thereto;
(xi) enter into such agreements (including an underwriting
agreement on customary terms), and make such representations and
warranties, and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer
Restricted Securities pursuant to any Shelf Registration Statement
contemplated by this Agreement, all to such extent as may be reasonably
requested by the Initial Purchasers or by any Holder of Transfer
Restricted Securities or underwriter in connection with any sale or
resale pursuant to any Shelf Registration Statement contemplated by
this Agreement; and whether or not an underwriting agreement is entered
into and whether or not the registration is an Underwritten
Registration, in connection with any Shelf Registration Statement, the
Company and the Guarantors shall:
(A) furnish to each selling Holder and each
underwriter, if any, in such substance and scope as they may
request and as are customarily made by issuers to underwriters
in primary underwritten offerings, upon the date of the
effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of
effectiveness of the Shelf Registration Statement,
signed by (x) the President or any Vice President and
(y) a principal financial or accounting officer of
each of the Company and the Guarantors, confirming,
as of the date thereof, the matters set forth in
paragraphs (a), (b), (c) and (d) of Section 8 of the
Purchase Agreement and such other matters as such
parties may reasonably request;
(2) an opinion, dated the date of
effectiveness of the Shelf Registration Statement, of
counsel for the Company and the Guarantors, covering
the matters set forth in the opinion rendered
pursuant to paragraph (f) of Section 8 of the
Purchase Agreement, as applicable, and such other
matters as such parties may reasonably request, and
in any event including a statement to the effect that
such counsel has participated in conferences with
officers and other representatives of the Company and
the Guarantors, representatives of the independent
public accountants for the Company and the
Guarantors,
10
<PAGE>
representatives of the Initial Purchasers and counsel
for the Initial Purchasers in connection with the
preparation of such Shelf Registration Statement and
the related Prospectus and have considered the
matters required to be stated therein and the
statements contained therein, although such counsel
has not independently verified the accuracy,
completeness or fairness of such statements; and that
such counsel advises that, on the basis of the
foregoing (relying as to materiality to the extent
such counsel deems appropriate upon facts provided to
such counsel by officers and other representatives of
the Company and the Guarantors and without
independent verification of such facts), no facts
came to such counsel's attention that caused such
counsel to believe that the applicable Shelf
Registration Statement, at the time such Shelf
Registration Statement or any post-effective
amendment thereto became effective, contained an
untrue statement of a material fact or omitted to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Shelf Registration Statement as of its date,
contained an untrue statement of a material fact or
omitted to state a material fact necessary in order
to make the statements therein, in light of the
circumstances under which they were made, not
misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes
no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and
other financial data included in any Shelf
Registration Statement contemplated by this Agreement
or the related Prospectus; and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Shelf Registration
Statement from the Company's independent accountants,
in the customary form and covering matters of the
type customarily covered in comfort letters by
underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 8(g) of
the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, the indemnification
provisions and procedures of Section 8 hereof with respect to
all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this
clause (xi), if any.
If at any time the representations and warranties of the
Company and the Guarantors contemplated in clause (A)(1) above cease to
be true and correct, the Company or the Guarantors shall so advise the
underwriter(s), if any, and each selling Holder promptly and, if
requested by such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with
11
<PAGE>
the registration and qualification of the Transfer Restricted
Securities under the securities or Blue Sky laws of such jurisdictions
as the selling Holders or underwriter(s) may request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the Shelf Registration Statement; PROVIDED, HOWEVER, that neither the
Company nor any of the Guarantors shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in
suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is
not now so subject;
(xiii) shall issue, upon the request of any Holder of Notes
covered by the Shelf Registration Statement, Exchange Notes, having an
aggregate principal amount equal to the aggregate principal amount of
Notes surrendered to the Company by such Holder in exchange therefor or
being sold by such Holder; such Exchange Notes to be registered in the
name of such Holder or in the name of the purchaser(s) of such Notes,
as the case may be; in return, the Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xiv) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if any,
may request at least two business days prior to any sale of Transfer
Restricted Securities made by such underwriter(s);
(xv) use their reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
or the underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xii) above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D)
of this Section 6 shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration
Statement and provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depositary Trust Company;
(xviii) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD, and use its reasonable best efforts
to cause such Registration Statement to become effective and approved
by such governmental agencies or authorities as may
12
<PAGE>
be necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities;
(xix) otherwise use their best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) for the twelve-month period (A) commencing
at the end of any fiscal quarter in which Transfer Restricted
Securities are sold to underwriters in a firm or best efforts
Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration
Statement;
(xx) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate
with the Trustee and the Holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use their best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner; and
(xxi) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on
which similar securities issued by the Company are then listed if
requested by the Holders of a majority in aggregate principal amount of
Notes or the managing underwriter(s), if any.
Each Holder shall be deemed to agree by acquisition of a Transfer
Restricted Security that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 6(c)(iii)(D) hereof, such
Holder will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof, or until it is advised in writing (the "ADVICE") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such notice. In
the event the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or
shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or the Guarantors'
performance of or compliance with this Agreement will be borne by the Company
and the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing
13
<PAGE>
fees and expenses (including filings made by any Initial Purchasers or Holder
with the NASD (and, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that may be required by the rules and
regulations of the NASD)); (ii) all fees and expenses of compliance with federal
securities and state Blue Sky or securities laws; (iii) all expenses of printing
(including printing certificates for the Exchange Notes to be issued in the
Exchange Offer and printing of Prospectuses), messenger and delivery services
and telephone; (iv) all fees and disbursements of counsel for the Company, the
Guarantors and, subject to Section 7(b) below, the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance); PROVIDED, HOWEVER, the foregoing shall exclude
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of the Notes by a Holder.
The Company and the Guarantors will, in any event, bear their internal
expenses (including, without limitation, all salaries and expenses of their
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company.
(b) In connection with any Shelf Registration Statement required by
this Agreement, the Company and the Guarantors will reimburse the Initial
Purchasers and the Holders of Transfer Restricted Securities being registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be Cahill Gordon & Reindel
or such other counsel as may be chosen by the Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities for whose benefit such
Shelf Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless (i) each Holder, (ii) each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and (iii) the respective officers, directors, partners,
employees, representatives and agents of each Holder or any controlling person
to the fullest extent lawful, from and against any and all losses, liabilities,
claims, damages and expenses whatsoever (including but not limited to reasonable
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any investigation or litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or Prospectus, or in
any supplement thereto or amendment thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with information relating to any Holder furnished to the Company in writing by
or on behalf of such Holder expressly for use therein. This indemnity agreement
will be in addition to any liability which the
14
<PAGE>
Company and the Guarantors may otherwise have, including under this Agreement.
The indemnification contained in this paragraph (a) with respect to any
Registration Statement or Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) shall not inure to
the benefit of any Holder (or to the benefit of any person controlling such
Holder) on account of any such loss, liability, claim, damage or expense (i)
arising from the sale of the Notes by such Holder to any person if a copy of the
Registration Statement shall not have been delivered or sent to such person, at
or prior to the written confirmation of such sale, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact
contained in the Registration Statement or Prospectus was corrected in the
Registration Statement or Prospectus (as amended or supplemented); PROVIDED that
the Company has delivered the Registration Statement or Prospectus (as amended
or supplemented) to the Holders in requisite quantity on a timely basis to
permit such delivery or sending or (ii) resulting from the use by such Holder of
any Registration Statement or Prospectus, or any amendment or supplement
thereto, when, under Section 6 hereof such Holder was not permitted to do so;
PROVIDED that the exceptions in clauses (i) and (ii) shall not affect the
indemnity with respect to any other Holder not otherwise subject to such
exceptions.
(b) Each Holder, by its participation in the Exchange Offer or Shelf
Registration Statement, shall be deemed to acknowledge and agree, severally and
not jointly, to indemnify and hold harmless (i) the Company and the Guarantors,
(ii) each person, if any, who controls the Company and the Guarantors within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and (iii)
the respective officers, directors, partners, employees, representatives and
agents of each of them, or any controlling person, against any losses,
liabilities, claims, damages and expenses whatsoever (including but not limited
to reasonable attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any investigation or litigation,
commenced or threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with information relating to any Holder
furnished to the Company in writing by or on behalf of such Holder expressly for
use therein; PROVIDED, HOWEVER, that in no case shall any Holder be liable or
responsible for any amount in excess of the dollar amount of the proceeds
received by such Holder upon the sale of the Notes giving rise to such
indemnification obligation. This indemnity will be in addition to any liability
which any Holder may otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 8 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may
otherwise have). In case any such action is brought against any indemnified
15
<PAGE>
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action, (ii) the indemnifying parties shall not have employed counsel to take
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded, based upon the advice of counsel, that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses of counsel shall be borne by the indemnifying
parties; PROVIDED, HOWEVER, that the indemnifying party under subsection (a) or
(b) above shall only be liable for the legal expenses of one counsel (in
addition to any local counsel) for all indemnified parties in each jurisdiction
in which any claim or action is brought. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written consent;
PROVIDED, HOWEVER, that such consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which the
indemnification provided for in this Section 8 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified hereunder,
the Company and the Guarantors, on the one hand, and each Holder (who shall be
deemed to agree to these terms by its participation in the Exchange Offer or the
Shelf Registration Statement), on the other hand, shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company and the Guarantors, any contribution received by the
Company and the Guarantors from persons, other than the Holders, who may also be
liable for contribution, including persons who control the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act) to which the Company, the Guarantors and such Holder may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Guarantors, on one hand, and such Holder, on the
other hand, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in this Section 8, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Guarantors, on the one hand, and such
Holder, on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Guarantors, on one hand, and each Holder, on the other hand,
shall be deemed to be in the same proportion as (i) the total proceeds from the
offering of the Notes (net of discounts but before deducting expenses) received
by the Company and the Guarantors and (ii) the total proceeds received by such
Holder upon the sale of the Notes giving rise to such indemnification
obligation. The relative fault of the Company and the Guarantors, on the one
hand, and of each Holder, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates
16
<PAGE>
to information supplied by the Company, the Guarantors or such Holder and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Guarantors
agree and the Holders shall be deemed to agree by their participation in the
Exchange Offer or the Shelf Registration Statement that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by PRO
RATA allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8(d), (i) in no case shall any Holder be required to
contribute any amount in excess of the dollar amount by which the proceeds
received by such Holder upon the sale of the Notes exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8(d),
(A) each person, if any, who controls any Holder within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and (B) the respective
officers, directors, partners, employees, representatives and agents of each
Holder or any controlling person shall have the same rights to contribution as
such Holder, and each person, if any, who controls the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as the Company and the
Guarantors, subject in each case to clauses (i) and (ii) of this Section 8(d).
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 8(d), notify such party or parties from whom contribution may
be sought, but the failure to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 8(d) or otherwise. No party shall be liable
for contribution with respect to any action or claim settled without its prior
written consent; PROVIDED, HOWEVER, that such written consent was not
unreasonably withheld.
SECTION 9. RULE 144A
The Company and the Guarantors hereby agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding, to make available
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
17
<PAGE>
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by a Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; PROVIDED, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) REMEDIES. The Company and the Guarantors agree that monetary
damages (including Additional Interest) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company and the Guarantors will
not, on or after the date of this Agreement, enter into any agreement with
respect to their respective securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. As of the date hereof, there is no agreement in effect
wherein the Company or any of the Guarantors has granted registration rights
with respect to its securities to any Person that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any agreement in effect on the date hereof.
(c) ADJUSTMENTS AFFECTING THE NOTES. Neither the Company nor any
Guarantor will take any action, or permit any change to occur, with respect to
the terms of the Notes that would materially and adversely affect the ability of
the Holders to Consummate any Exchange Offer.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
(ii) if to the Company or any of the Guarantors:
18
<PAGE>
Avado Brands, Inc.
Hancock at Washington
Madison, GA 30650
Telecopy No.: (706) 342-9283
Attention: Chief Financial Officer
With copies to:
Kilpatrick Stockton LLP
1100 Peachtree Street
Suite 2800
Atlanta, GA 30309
Telecopy No.: (404) 815-6555
Attention: Larry D. Ledbetter
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; PROVIDED, HOWEVER, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement, together with the other Operative
Documents (as defined in the Purchase Agreement), is intended by the parties as
a final expression of their agreement
19
<PAGE>
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein with respect to the registration
rights granted by the Company with respect to the Transfer Restricted
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
[signature page follows]
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AVADO BRANDS, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
DON PABLO'S HOLDING CORP.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
DON PABLO'S OPERATING CORP.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
DON PABLO'S LIMITED, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, President
DON PABLO'S OF TEXAS, LP
By: Don Pablo's Operating Corp., general partner
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
CANYON CAFE OPERATING CORP.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
CANYON CAFE TX GENERAL, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
<PAGE>
CANYON CAFE LIMITED, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, President
CANYON CAFE OF TEXAS, LP
By: Canyon Cafe TX General, Inc., general
partner
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
AVADO VENTURES, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, President
AVADO PROPERTIES, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, President
MCCORMICK & SCHMICK HOLDING CORP.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
MCCORMICK & SCHMICK OPERATING CORP.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
MCCORMICK & SCHMICK TX GENERAL, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
MCCORMICK & SCHMICK LIMITED, INC.
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
<PAGE>
MCCORMICK & SCHMICK OF TEXAS, LP
By: McCormick & Schmick TX General, Inc.,
general partner
By: /s/ Louis J. Profumo
----------------------------------------------
Louis J. Profumo, Senior Vice President
MCCORMICK & SCHMICK'S SCP VIII, INC.
By: /s/ Jerry R. Kelso
----------------------------------------------
Jerry R. Kelso, Vice President of Finance
MCCORMICK & SCHMICK'S RMP III, INC.
By: /s/ Jerry R. Kelso
----------------------------------------------
Jerry R. Kelso, Vice President of Finance
HOPS GRILL & BAR, INC.
By: /s/ Terence M. Terenzi
----------------------------------------------
Terence M. Terenzi, Vice President-Finance
CYPRESS COAST CONSTRUCTION CORPORATION
By: /s/ Terence M. Terenzi
----------------------------------------------
Terence M. Terenzi, Vice President-Finance
HOPS MARKETING, INC.
By: /s/ Terence M. Terenzi
----------------------------------------------
Terence M. Terenzi, Vice President-Finance
HOPS OF SOUTHWEST FLORIDA, INC.
By: /s/ Terence M. Terenzi
----------------------------------------------
Terence M. Terenzi, Vice President-Finance
<PAGE>
HOPS OF SOUTHWEST FLORIDA, LTD.
By: Hops of Southwest Florida, Inc.,
general partner
By: /s/ Terence M. Terenzi
----------------------------------------------
Terence M. Terenzi, Vice President-Finance
HOPS OF BRADENTON, LTD.
By: Hops of Southwest Florida, Inc.,
general partner
By: /s/ Terence M. Terenzi
----------------------------------------------
Terence M. Terenzi, Vice President-Finance
<PAGE>
BANCBOSTON ROBERTSON STEPHENS INC.
By: /s/ John Bowman
-------------------------------
Name: John Bowman
Title: Managing Director
J.P. MORGAN SECURITIES INC.
By: /s/ Steve Tulip
-------------------------------
Name: Steve Tulip
Title: Vice President
WACHOVIA SECURITIES, INC.
By: /s/ Kevin Rytes
-------------------------------
Name: Kevin Rytes
Title: Vice President
<PAGE>
ATTORNEYS AT LAW
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Telephone: 404.815.6500
Facsimile: 404.815.6555
Web site: www.kilstock.com
July 2, 1999 E-MAIL: [email protected]
DIRECT DIAL: 404.815.6175
Avado Brands, Inc.
Hancock at Washington
Madison, GA 30650-1304
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel for Avado Brands, Inc., a Georgia corporation
(the "Company"), in connection with the preparation and filing of a registration
statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to the exchange of up to an aggregate principal
amount of $100,000,000 of the Company's 11 3/4% Senior Subordinated Notes Due
2009 (the "Exchange Notes") for up to an aggregate principal amount of
$100,000,000 of its outstanding 11 3/4% Senior Subordinated Notes Due 2009 (the
"Outstanding Notes"). Capitalized terms used but not defined herein shall have
the meanings as set forth in the Registration Statement.
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the American Bar Association
Section of Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this letter
should be read in conjunction with the Accord. Notwithstanding anything in the
Accord to the contrary, the Accord shall not be deemed to limit or otherwise
qualify any of the express qualifications, exceptions and limitations that are
set forth herein, each of which shall be cumulative of the Accord.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Registration
Statement, (b) the Articles of Incorporation of the Company, (c) the By-laws of
the Company, (d) resolutions of the Board of Directors of the Company, (e) the
Indenture for the
<PAGE>
Avado Brands, Inc.
July 1, 1999
Page 2
Notes, (f) the Form of Exchange Note, and (g) the Statement on
Form T-1 under the Trust Indenture Act of 1939, as amended, relating to the
Indenture.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the due authority of the parties signing such documents, the
authenticity of the documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or reproduced copies. We have further assumed that:
(i) All natural persons involved in the transactions
contemplated by the Registration Statement (the "Offering") and the
Indenture have sufficient legal capacity to enter into and perform
their respective obligations under the Indenture and to carry out their
roles in the Offering.
(ii) Each party involved in the Offering other than the
Company (collectively the "Other Parties") has satisfied all legal
requirements that are applicable to it to the extent necessary to make
the Indenture enforceable against it.
(iii) Each of the Other Parties has complied with all legal
requirements pertaining to its status as such related to its rights to
enforce the Indenture against the Company.
The opinions set forth below are limited to the laws of the
State of Georgia and the federal laws of the United States of America.
We are not members of the state bare of New York, and we are not
experts on the laws of such state.
Further, we note that the Exchange Notes provide that they are
to be governed by the laws of the State of New York. For purposes of
this letter, we have assumed with your consent that, notwithstanding
their express terms, the Exchange Notes will be governed by the laws of
the State of Georgia (without giving effect to its conflicts of laws
principles). We express no opinion on what laws will actually govern
the Exchange Notes.
Based upon and subject to the foregoing, it is our opinion
that:
(1) The Company is a corporation duly incorporated and existing under
the laws of the State of Georgia.
(2) The Exchange Notes covered by the Registration Statement, when
executed in the manner set forth in the Indenture and issued and delivered in
the manner set forth in the
<PAGE>
Avado Brands, Inc.
July 1, 1999
Page 3
Registration Statement, will be legally issued, will be binding obligations of,
and will be enforceable against the Company.
The General Qualifications apply to the opinions set forth above.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
KILPATRICK STOCKTON LLP
By : /s/ Larry Ledbetter
------------------------------
Larry D. Ledbetter, a Partner
<PAGE>
ATTORNEYS AT LAW
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Telephone: 404.815.6500
Facsimile: 404.815.6555
Web site: www.kilstock.com
July 2, 1999 E-MAIL: [email protected]
DIRECT DIAL: 404.815.6653
Avado Brands, Inc.
Hancock at Washington
Madison, GA 30650-1304
Gentlemen:
We have acted as counsel to Avado Brands, Inc., a Georgia corporation
(the "Company"), in connection with the offer by the Company to exchange (the
"Exchange Offer") its 11 3/4% Senior Subordinated Notes due 2009 (the "Exchange
Notes"), for all outstanding 11 3/4% Senior Subordinated Notes due 2009 (the
"Outstanding Notes"). This letter will confirm that we have advised the Company
with respect to certain United States federal income tax consequences of the
Exchange Offer, as described in the discussion set forth under the caption
"Certain United States Federal Income Tax Considerations" in the Prospectus
included in the Registration Statement on Form S-4 (the "Registration
Statement"), filed on this date with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Act"). Unless
otherwise defined, capitalized terms used herein shall have the respective
meanings ascribed to them in the Registration Statement.
We have based our opinions set forth in this letter on the provisions
of the Internal Revenue Code of 1986, as presently amended (the "Code"),
existing Treasury regulations thereunder (the "Regulations"), published rulings
and practices of the Internal Revenue Service (the "Service") and court
decisions. It should be noted that the federal income tax consequences discussed
in this letter might be modified by legislative, judicial or administrative
action at any time, and such action might be applied retroactively or otherwise
in a manner that might alter such tax consequences.
Based on the assumptions and subject to the qualifications and
limitations set forth therein, (i) we adopt the discussion set forth under the
caption "Certain United States Federal Income Tax Considerations" in the
Registration Statement as our opinion with respect to the material United States
federal income tax consequences of the Exchange Offer, and (ii) in our opinion
such discussion accurately describes the material United States federal income
tax
<PAGE>
Avado Brands, Inc.
July 2, 1999
Page 2
consequences of the acquisition, ownership and disposition of the Exchange
Notes. Such discussion is limited to the material United States federal income
tax consequences, and it does not purport to discuss all possible federal income
tax consequences or any state, local or foreign tax consequences, of the
acquisition, ownership and disposition of the Exchange Notes.
Except as stated above, we express no opinion with respect to any other
matter. We are furnishing this opinion to you solely in connection with the
Exchange Offer, and this opinion is not to be relied upon, circulated, quoted,
or otherwise referred to for any other purpose.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement, to the use of our name in the Registration Statement
and to the reference to us and this opinion letter in the Registration
Statement. By giving such consent, we do not thereby admit that we are "experts"
with respect to this letter, as that term is used in the Act, or the rules and
regulations of the SEC thereunder.
KILPATRICK STOCKTON LLP
By: /s/ Lynn Fowler
--------------------------
Lynn E. Fowler, A Partner
LEF/pbo
<PAGE>
$125,000,000
CREDIT AGREEMENT
DATED AS OF
JUNE 22, 1999
AMONG
AVADO BRANDS, INC.,
AS BORROWER,
WACHOVIA BANK, NATIONAL ASSOCIATION,
BANKBOSTON, N.A.
AND
ANY OTHER FINANCIAL INSTITUTION(S) LISTED ON THE
SIGNATURE PAGE(S) HEREOF,
AS BANKS,
WACHOVIA BANK, NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT,
BANK BOSTON, N.A.,
AS SYNDICATION AGENT,
WACHOVIA SECURITIES, INC.,
AS ARRANGER,
AND
BANCBOSTON ROBERTSON
STEPHENS, INC.,
AS CO-ARRANGER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1. DEFINITIONS...........................................................................................1
SECTION 1.1. DEFINITIONS................................................................................1
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS.......................................................17
SECTION 1.3. REFERENCES................................................................................17
SECTION 1.4. USE OF DEFINED TERMS......................................................................17
SECTION 1.5. TERMINOLOGY...............................................................................17
ARTICLE 2. THE CREDIT...........................................................................................18
SECTION 2.1. COMMITMENTS TO LEND.......................................................................18
SECTION 2.2. METHOD OF BORROWING.......................................................................19
SECTION 2.3. NOTES.....................................................................................22
SECTION 2.4. MATURITY OF REVOLVING LOANS AND SWING LOANS...............................................22
SECTION 2.5. INTEREST RATES............................................................................23
SECTION 2.6. FEES......................................................................................24
SECTION 2.7. TERMINATION OR REDUCTION OF COMMITMENTS...................................................25
SECTION 2.8. OPTIONAL PREPAYMENTS......................................................................26
SECTION 2.9. MANDATORY PREPAYMENTS.....................................................................26
SECTION 2.10. GENERAL PROVISIONS AS TO PAYMENTS........................................................27
SECTION 2.11. COMPUTATION OF INTEREST AND FEES. .......................................................27
ARTICLE 3. CONDITIONS TO BORROWINGS.............................................................................27
SECTION 3.1. CONDITIONS TO FIRST BORROWING.............................................................27
SECTION 3.2. CONDITIONS TO ALL BORROWINGS..............................................................29
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.......................................................................29
SECTION 4.1. CORPORATE EXISTENCE AND POWER.............................................................29
SECTION 4.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION................................30
SECTION 4.3. BINDING EFFECT............................................................................30
SECTION 4.4. FINANCIAL INFORMATION; NO MATERIAL ADVERSE EFFECT.........................................30
SECTION 4.5. NO LITIGATION.............................................................................31
SECTION 4.6. COMPLIANCE WITH LAWS GENERALLY; COMPLIANCE WITH ERISA.....................................31
SECTION 4.7. TAXES.....................................................................................31
SECTION 4.8. SUBSIDIARIES..............................................................................31
SECTION 4.9. NOT A PUBLIC UTILITY, HOLDING COMPANY, INVESTMENT COMPANY OR
INVESTMENT ADVISER....................................................................32
SECTION 4.10. OWNERSHIP OF PROPERTY; LIENS.............................................................32
SECTION 4.11. NO DEFAULT...............................................................................32
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 4.12. FULL DISCLOSURE..........................................................................32
SECTION 4.13. ENVIRONMENTAL MATTERS....................................................................32
SECTION 4.14. CAPITAL STOCK............................................................................33
SECTION 4.15. MARGIN STOCK.............................................................................33
SECTION 4.16. SOLVENCY.................................................................................33
SECTION 4.17. POSSESSION OF FRANCHISES, LICENSES, ETC..................................................33
SECTION 4.18. INSURANCE................................................................................34
SECTION 4.19. Y2K PLAN. ..............................................................................34
ARTICLE 5. COVENANTS............................................................................................34
SECTION 5.1. INFORMATION...............................................................................34
SECTION 5.2. INSPECTION OF PROPERTY, BOOKS AND RECORDS.................................................36
SECTION 5.3. Y2K.......................................................................................36
SECTION 5.4. ADJUSTED TOTAL DEBT/ADJUSTED TOTAL CAPITAL RATIO..........................................36
SECTION 5.5. FIXED CHARGE COVERAGE RATIO...............................................................36
SECTION 5.6. TOTAL DEBT/EBITDA RATIO...................................................................37
SECTION 5.7. TOTAL SENIOR DEBT/EBITDA RATIO............................................................37
SECTION 5.8. NEGATIVE PLEDGE...........................................................................37
SECTION 5.9. MAINTENANCE OF EXISTENCE..................................................................38
SECTION 5.10. DISSOLUTION..............................................................................38
SECTION 5.11. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS..............................................39
SECTION 5.12. USE OF PROCEEDS..........................................................................39
SECTION 5.13. COMPLIANCE WITH LAWS; PAYMENT OF TAXES...................................................40
SECTION 5.14. INSURANCE................................................................................40
SECTION 5.15. CHANGE IN FISCAL YEAR....................................................................40
SECTION 5.16. MAINTENANCE OF PROPERTY..................................................................40
SECTION 5.17. ENVIRONMENTAL NOTICES....................................................................40
SECTION 5.18. ENVIRONMENTAL MATTERS....................................................................40
SECTION 5.19. ENVIRONMENTAL RELEASES...................................................................41
SECTION 5.20. INVESTMENTS..............................................................................41
SECTION 5.21. DEBT.....................................................................................44
SECTION 5.22. DIVIDENDS AND DISTRIBUTIONS...............................................................44
SECTION 5.23. TRANSACTIONS WITH AFFILIATES..............................................................44
SECTION 5.24. SUBSIDIARY GUARANTIES.....................................................................45
SECTION 5.25. STOCK PURCHASES, ETC. ...................................................................45
SECTION 5.26. NO PREPAYMENT OF SENIOR NOTES. ..........................................................46
SECTION 5.27. SUBORDINATED DEBT.........................................................................46
ARTICLE 6. DEFAULTS.............................................................................................46
SECTION 6.1. EVENTS OF DEFAULT. .......................................................................46
SECTION 6.2. NOTICE OF DEFAULT.........................................................................49
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 7. THE ADMINISTRATIVE AGENT.............................................................................49
SECTION 7.1. APPOINTMENT; POWERS AND IMMUNITIES........................................................49
SECTION 7.2. RELIANCE BY ADMINISTRATIVE AGENT..........................................................50
SECTION 7.3. DEFAULTS..................................................................................50
SECTION 7.4. RIGHTS OF ADMINISTRATIVE AGENT AS A BANK..................................................50
SECTION 7.5. INDEMNIFICATION...........................................................................51
SECTION 7.6. PAYEE OF NOTE TREATED AS OWNER............................................................51
SECTION 7.7. NONRELIANCE ON ADMINISTRATIVE AGENT AND OTHER BANKS.......................................51
SECTION 7.8. FAILURE TO ACT............................................................................52
SECTION 7.9. RESIGNATION OF ADMINISTRATIVE AGENT.......................................................52
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION................................................................53
SECTION 8.1. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR..................................53
SECTION 8.2. ILLEGALITY................................................................................53
SECTION 8.3. INCREASED COST AND REDUCED RETURN.........................................................53
SECTION 8.4. BASE RATE LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR RATE LOANS...........................55
SECTION 8.5. REPLACEMENT OF A LENDER...................................................................55
SECTION 8.6. COMPENSATION. ............................................................................55
ARTICLE 9. MISCELLANEOUS........................................................................................56
SECTION 9.1. NOTICES...................................................................................56
SECTION 9.2. NO WAIVERS................................................................................56
SECTION 9.3. EXPENSES; DOCUMENTARY TAXES...............................................................57
SECTION 9.4. INDEMNIFICATION...........................................................................57
SECTION 9.5. SHARING OF SETOFFS........................................................................57
SECTION 9.6. AMENDMENTS AND WAIVERS....................................................................58
SECTION 9.7. NO MARGIN STOCK COLLATERAL................................................................59
SECTION 9.8. SUCCESSORS AND ASSIGNS....................................................................59
SECTION 9.9. CONFIDENTIALITY...........................................................................61
SECTION 9.10. REPRESENTATION BY BANKS..................................................................61
SECTION 9.11. OBLIGATIONS SEVERAL......................................................................61
SECTION 9.12. GEORGIA LAW..............................................................................62
SECTION 9.13. INTERPRETATION...........................................................................62
SECTION 9.14. CONSENT TO JURISDICTION..................................................................62
SECTION 9.15. COUNTERPARTS.............................................................................62
SECTION 9.16. SURVIVAL.................................................................................63
SECTION 9.17. ENTIRE AGREEMENT; AMENDMENT; SEVERABILITY................................................63
SECTION 9.18. TIME OF THE ESSENCE......................................................................63
SECTION 9.19. NO JOINT VENTURE ........................................................................63
SECTION 9.20. CERTAIN DESIGNATIONS.....................................................................63
</TABLE>
iii
<PAGE>
iv
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
EXHIBIT A Form of Assignment and Acceptance
EXHIBIT B Form of Revolving Loan Note
EXHIBIT C Form of Notice of Borrowing
EXHIBIT D Form of Opinion of Counsel for Borrower
EXHIBIT E Form of Closing Certificate
EXHIBIT F Form of Secretary's Certificate
EXHIBIT G Form of Compliance Certificate
EXHIBIT H Form of Subsidiary Guaranty
SCHEDULES
- ---------
SCHEDULE 1.1 Non-Core Assets
SCHEDULE 1.2 Hops Subsidiaries
SCHEDULE 4.5 Existing Litigation
SCHEDULE 4.8 Existing Subsidiaries
SCHEDULE 5.8 Existing Permitted Liens
SCHEDULE 5.20 Existing and Committed Investments in Hops Subsidiaries
</TABLE>
v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 22, 1999, is made
among AVADO BRANDS, INC., as Borrower; WACHOVIA BANK, NATIONAL ASSOCIATION,
BANKBOSTON, N.A., and any other party or parties listed as a "Bank" or the
"Banks" on the signature page(s) hereof, as Banks; WACHOVIA BANK, NATIONAL
ASSOCIATION, as Administrative Agent for the Banks, the Syndication Agent,
the Arranger, the Co-Arranger and itself; BANKBOSTON, N.A., as Syndication
Agent for the Banks; WACHOVIA SECURITIES, INC., as Arranger; and BANCBOSTON
ROBERTSON STEPHENS, INC., as Co-Arranger.
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1. DEFINITIONS.
The terms as defined in this Section 1.1 shall for all
purposes of this Agreement and any amendment hereto (except as herein
otherwise expressly provided or unless the context otherwise requires), have
the meanings set forth herein:
"Adjusted Total Debt" shall mean and include the sum (without
duplication) of the following, at any Fiscal Quarter end, for the Borrower and
its Consolidated Subsidiaries, on a consolidated basis: (i) Total Debt; PLUS
(ii) an amount equal to seven (7) times the amount of the operating lease
payments which were owed by the Borrower and such Subsidiaries during the period
of four (4) Fiscal Quarters ending on such date.
"Adjusted Total Debt/Adjusted Total Capital Ratio" shall
mean the ratio which (i) the Adjusted Total Debt of the Borrower and its
Consolidated Subsidiaries at any date bears to (ii) the Adjusted Total
Capital of the Borrower and its Consolidated Subsidiaries at such date.
"Adjusted LIBOR Rate," applicable to any Interest Period,
means that interest rate per annum determined by the Administrative Agent to
be equal to the quotient obtained (rounded upwards, if necessary, to the next
higher 1/100th of 1%) by dividing (i) the applicable LIBOR Rate for such
Interest Period by (ii) 1.00 MINUS the then applicable Euro-Dollar Reserve
Percentage (if any).
"Adjusted Total Capital" shall be equal to the sum at any
date of: (i) Adjusted Total Debt; PLUS (ii) Stockholders' Equity PLUS (iii)
the TECONS.
"Administrative Agent" means Wachovia Bank, National
Association, a national banking association organized under the laws of the
United States of America, in its capacity as administrative agent
<PAGE>
for the Banks, the Syndication Agent, the Arranger, the Co-Arranger and
itself, and its successors and permitted assigns in such capacity.
"Administrative Agent's Address" means the address of
Administrative Agent referred to or specified in Section 9.1.
"Affiliate" means, as to any Person (i) any other Person
that directly, or indirectly through one or more intermediaries, controls
such Person (a "Controlling Person"), (ii) any other Person which is
controlled by or is under common control with such Person or a Controlling
Person, or (iii) any other Person of which such Person owns, directly or
indirectly, twenty percent (20%) or more of the common stock or equivalent
equity interests. As used herein, the term "CONTROL" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit Agreement, together with all
amendments and modifications hereto.
"Applicable Margin" means: (i) initially, for any Base Rate
Loan, one and one-fourth of one percent (1 1/4%) per annum and for any
Euro-Dollar Rate Loan, three percent (3%) per annum, and (ii) from and after
the first Pricing Determination Date occurring subsequent to the Fiscal
Quarter of Borrower ending on June 30, 1999, for any Base Rate Loan or
Euro-Dollar Rate Loan, the percentage determined on each Pricing
Determination Date by reference to the table set forth below as to each such
type of Loan and the Total Debt/EBITDA Ratio, as determined as of the end of
the Fiscal Quarter ending immediately prior to such Pricing Determination
Date; PROVIDED, HOWEVER, that, notwithstanding the foregoing, no decrease in
interest rate below those in effect on the Closing Date shall be instituted
until the first Pricing Determination Date occurring subsequent to the Fiscal
Quarter of Borrower ending on September 30, 1999:
<TABLE>
<CAPTION>
Applicable Margin for Applicable Margin
Total Debt/EBITDA Euro-Dollar Rate for Base Rate
RATIO LOANS LOANS
----------------- --------------------- -------------------
<S> <C> <C>
LEVEL I
If the Total Debt/EBITDA
Ratio is equal to or less than
2.00:1.00 1.750% 0%
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
LEVEL II
If the Total Debt/EBITDA
Ratio is greater than
2.00:1.00 but less than or
equal to 2.50:1.00 2.125% .375%
LEVEL III
If the Total Debt/EBITDA
Ratio is greater than
2.50:1.00, but less than or
equal to 3.00:1.00 2.500% .750%
LEVEL IV
If the Total Debt/EBITDA
Ratio is greater than
3.00:1.00 but less than or
equal to 3.50:1.00 2.750% 1.000%
LEVEL V
If the Total Debt/EBITDA
Ratio is greater than
3.50:1.00 but less than or
equal to 3.75:1.00 3.000% 1.250%
LEVEL VI 3.250% 1.500%
If the Total Funded
Debt/EBITDA Ratio is
greater than 3.75:1.00
</TABLE>
The Applicable Margin shall be subject to reduction or increase, as
applicable, as set forth in the table above, on a quarterly basis according
to the performance of the Borrower and its Consolidated Subsidiaries as
measured by the Total Debt/EBITDA Ratio, beginning with the Fiscal Quarter
ending on June 30, 1999, subject to the proviso contained at the end of the
preceding paragraph. Except as set forth in the last sentence hereof, any
such increase or reduction in the Applicable Margin provided for herein shall
be effective on the Pricing Determination Date with respect to the applicable
Fiscal Quarter. If the financial statements and the Compliance Certificate of
the Borrower and its Consolidated Subsidiaries setting forth
-3-
<PAGE>
the Total Debt/EBITDA Ratio are not received by the Administrative Agent and
the Banks by the dates required pursuant to Sections 5.1.2 and 5.1.3 of this
Agreement, the Applicable Margin shall be determined as if the Total
Debt/EBITDA Ratio exceeds the ratio set forth as Level VI in the foregoing
table until such time as such financial statements and Compliance Certificate
are received and any Event of Default resulting from a failure to timely
deliver such financial statements or Compliance Certificate is waived in
writing by the Administrative Agent and the Required Banks. For the final
Fiscal Quarter of any Fiscal Year, the Borrower shall provide the unaudited
financial statements of the Borrower and its Consolidated Subsidiaries,
subject only to year-end audit adjustments, for the purpose of determining
the Applicable Margin; PROVIDED, HOWEVER, if, upon delivery of the annual
audited financial statements required to be submitted by the Borrower to the
Administrative Agent and the Banks pursuant to Section 5.1.1 of this
Agreement, the Applicable Margin, as determined therefrom, is different from
the Applicable Margin so determined from such quarterly financial statements,
then (a) the then existing Applicable Margin shall be terminated and,
effective on the first day of the month following receipt by the
Administrative Agent and the Banks of such audited financial statements, the
Applicable Margin shall be the Applicable Margin based upon the audited
financial statements of the Borrower for the Fiscal Year then ended, and (b)
on the first day of the first calendar month following receipt by the
Administrative Agent of such audited financial statements, an amount equal to
the difference between the amount of interest that would have been paid on
the principal amount of the Obligations using the Applicable Margin
determined based upon such audited financial statements and the amount of
interest actually paid during the period in which the reduction or increase,
as applicable, of the Applicable Margin was in effect based upon the
unaudited financial statements of such final Fiscal Quarter of the Fiscal
Year then ended shall be paid (i) if the amount of interest that should have
been paid is greater than the amount of interest actually paid, by the
Borrower to the Administrative Agent, for the benefit of the Banks or (ii) if
the amount of interest that should have been paid is less than the amount of
interest actually paid, to the Borrower by the Administrative Agent, from
funds received from the Banks.
"Arranger" means Wachovia Securities, Inc., a North
Carolina corporation, in its capacity as arranger hereunder, and its
successors and permitted assigns in such capacity.
"Asset Sale" shall mean the sale by the Borrower or any of
its Subsidiaries of any of their Properties, EXCLUDING inventory sold in the
ordinary course of business.
"Assignee" has the meaning set forth in Section 9.8.3.
"Assignment and Acceptance" means an Assignment and
Acceptance executed in accordance with Section 9.8.3 in the form attached
hereto as EXHIBIT A.
"Authority" has the meaning set forth in Section 8.2.
"Bank" means each bank or other financial institution
listed on the signature pages hereof and identified therein as a "Bank."
-4-
<PAGE>
"Base Rate" means for any Base Rate Loan for any day, the
rate per annum equal to the HIGHER as of such day of (i) the Prime Rate, and
(ii) one-half of one percent (1/2%) per annum above the Federal Funds Rate.
For purposes of determining the Base Rate for any day, changes in the Prime
Rate or the Federal Funds Rate, as the case may be, shall be effective on the
date of each such change.
"Base Rate Loan" means either (i) a Revolving Loan made at
the Base Rate pursuant to Section 2.1 or (ii) a Swing Loan made at the Base
Rate pursuant to Section 2.1 (unless another rate is mutually agreed between
the Swing Bank and the Borrower from time to time).
"Borrower" means Avado Brands, Inc., a Georgia corporation,
and its successors and permitted assigns.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans made to the Borrower at the same time by the Banks pursuant
to Article II or a Swing Loan made to the Borrower by the Swing Bank pursuant
to Article II. A Borrowing is a "Base Rate Borrowing" if such Revolving Loans
are Base Rate Loans or a "Euro-Dollar Rate Borrowing" if such Revolving Loans
are Euro-Dollar Rate Loans. All Borrowings consisting of Swing Loans are
"Base Rate Borrowings" (unless otherwise mutually agreed between the Swing
Bank and the Borrower from time to time).
"Capital Stock" means any nonredeemable capital stock of
the Borrower or any Consolidated Subsidiary (to the extent issued to a Person
other than the Borrower), whether common or preferred.
"Capitalized Lease Obligations" shall mean those
liabilities of the Borrower and its Consolidated Subsidiaries under any
leases that are required to be capitalized for financial reporting purposes
in accordance with GAAP, and the amount of such liabilities shall be the
capitalized amount of such liabilities as determined in accordance with GAAP.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. ss. 9601 ET SEQ. and its
implementing regulations and amendments.
"CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to CERCLA.
"Change of Law" shall have the meaning set forth in Section
8.2.
"Closing Certificate" has the meaning set forth in Section
3.1.3.
"Closing Date" means the date of this Agreement, as first
inscribed hereinabove.
-5-
<PAGE>
"Co-Arranger" means BancBoston Robertson Stephens Inc.,
acting in its capacity as co-arranger hereunder, and its successors and
permitted assigns in such capacity.
"Code" means the Internal Revenue Code of 1986, as amended,
or any successor Federal tax code.
"Commitment" means (i) the amount indicated beneath each
Bank's signature hereinbelow as its "Commitment Amount," as to each Bank, and
(ii) One Hundred Twenty-Five Million Dollars ($125,000,000), in the
aggregate, as to all Banks; as each such amount may be reduced from time to
time pursuant to Section 2.7 or Section 8.5.
"Compliance Certificate" has the meaning set forth in
Section 5.1.3.
"Consolidated Net Income," for any period, means the net
income of the Borrower and its Consolidated Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, EXCLUDING,
HOWEVER (without duplication), (i) any extraordinary items and (ii) any
equity interest of the Borrower or any Consolidated Subsidiary in the
unremitted earnings of any Person which is not a Subsidiary; in each case as
likewise determined on a consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary
or other entity the accounts of which, in accordance with GAAP, would be
consolidated with those of the Borrower in its consolidated financial
statements as of such date.
"Controlled Group" means all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower, are treated as a
single employer under Section 414 of the Code.
"Debt" of any Person means at any date, without
duplication, all items which in accordance with GAAP would be included in
determining total liabilities of such Person as shown on the liability side
of a balance sheet of such Person as of the date on which such determination
is to be made.
"Debt for Borrowed Money" shall mean Debt of any Person for
money borrowed from any Person, including, without limitation, Debt
represented by notes payable or bonds, Debt under any Guarantee and Debt in
respect of any letter of credit; but, EXCLUDING, HOWEVER, the TECONS.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured and waived, become an Event of Default.
"Default Rate" means, with respect to any Revolving Loan or
Swing Loan, on any day, the sum of two percent (2%) per annum in excess of
the interest rate otherwise then or thereafter payable on
-6-
<PAGE>
such Revolving Loan or Swing Loan, but, in any event, not less than two
percent (2%) per annum in excess of the Base Rate.
"Dollars" or "$" means dollars in lawful currency of the
United States of America.
"Domestic Business Day" means any day EXCEPT a Saturday,
Sunday or other day on which commercial banks are not required to be open for
business in the State of Georgia.
"EBITDA" shall mean, for any fiscal period of the Borrower
and its Consolidated Subsidiaries, that amount equal to the sum, determined
in accordance with GAAP, of the Consolidated Net Income of the Borrower and
its Consolidated Subsidiaries for such period (considered without regard to
(i) any extraordinary gains or losses, (ii) any gains or losses arising from
the sale of assets, and (iii) any gains or losses arising from any activities
outside the normal course of Borrower's business operations as conducted on
the Closing Date); PLUS, without duplication, and to the extent deducted from
revenue in determining Consolidated Net Income, depreciation and amortization
expense and any other non-cash charges for such period, interest expense for
such period, and taxes for such period; PROVIDED, HOWEVER, that in computing
EBITDA for the four (4) Fiscal Quarters of Borrower ending closest to June
30, 1999, September 30, 1999, December 31, 1999 and March 31, 2000, there
shall be added the following sums, respectively, $6,140,000, $2,883,000,
$621,000 and $117,000, respecting certain agreed upon adjustments reflecting
improvements in Borrower's general and administrative expenses.
"EBITDAR" shall mean, for any fiscal period of the Borrower
and its Consolidated Subsidiaries, that amount equal to the sum of EBITDA for
such period PLUS operating lease expense of Borrower and its Consolidated
Subsidiaries for such period.
"Environmental Authorizations" means all licenses, permits,
orders, approvals, notices, registrations or other legal prerequisites for
conducting the business of the Borrower or any Subsidiary required by any
Environmental Requirement.
"Environmental Authority" means any foreign, federal,
state, local or regional government that exercises any form of jurisdiction
or authority under any Environmental Requirement.
"Environmental Judgments and Orders" means all judgments,
decrees or orders arising from or in any way associated with any
Environmental Requirements, whether or not entered upon consent or pursuant
to written agreements with an Environmental Authority or any other entity,
arising from or in any way associated with any Environmental Requirement,
whether or not incorporated in a judgment, decree or order.
"Environmental Liabilities" means any liabilities whether
accrued, contingent or otherwise, arising from and in any way associated with
any Environmental Requirements.
-7-
<PAGE>
"Environmental Notices" means notice from any Environmental
Authority or by any other Person, of possible or alleged noncompliance with
or liability under any Environmental Requirement, including, without
limitation, any complaints, citations, demands or requests from any
Environmental Authority or from any other Person for correction of any
violation of any Environmental Requirement or any investigations concerning
any violation of any Environmental Requirement.
"Environmental Proceedings" means any judicial or
administrative proceedings arising from or in any way associated with any
Environmental Requirement.
"Environmental Releases" means "releases" as defined in
CERCLA or under any applicable state or local environmental law or regulation.
"Environmental Requirements" means any legal requirement
relating to health, safety or the environment and applicable to the Borrower,
any Subsidiary or any Property, including, but not limited to, any such
requirement under CERCLA or similar state legislation and all federal, state
and local laws, ordinances, regulations, orders, writs, decrees and common
law.
"Equity Forward Contract" shall mean any contract, whether
now or hereafter existing, whereby the Borrower or any of its Consolidated
Subsidiaries agrees, directly or indirectly, to purchase Capital Stock of the
Borrower on any future date at a fixed price (including any contract,
howsoever denominated, having substantially the same or similar effect or
result).
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, or any successor law. Any reference to
any provision of ERISA shall also be deemed to be a reference to any
successor provision or provisions thereof.
"Euro-Dollar Business Day" means any Domestic Business Day
in which dealings in Dollar deposits are carried out in the London interbank
Euro-Dollar market.
"Euro-Dollar Rate," applicable to any Interest Period,
means that interest rate per annum equal to the sum of (i) the Adjusted LIBOR
Rate for such Interest Period, PLUS (ii) the Applicable Margin.
"Euro-Dollar Rate Loan" means a Revolving Loan made at the
Euro-Dollar Rate pursuant to Section 2.1.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank
of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Rate Loans is determined
or any category of extensions of credit or other assets which includes loans
by a non-United
-8-
<PAGE>
States office of any Bank to United States residents). The Adjusted LIBOR
Rate shall be adjusted automatically on and as of the effective date of any
change in the Euro-Dollar Reserve Percentage.
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on
such day, as published by the Federal Reserve Bank of New York on the
Domestic Business Day next succeeding such day, provided that (i) if the day
for which such rate is to be determined is not a Domestic Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (ii) if such rate is not so published
for any day, the Federal Funds Rate for such day shall be the average rate
charged to the Administrative Agent on such day on such transactions, as
determined by the Administrative Agent.
"Fee Letter" means the letter agreement, dated May 21,
1999, among the Borrower, the Arranger, the Co-Arranger, the Administrative
Agent and the Syndication Agent, as it may be amended or modified from time
to time.
"Fiscal Quarter" means any fiscal quarter of the Borrower.
"Fiscal Year" means any fiscal year of the Borrower.
"Fixed Charge Coverage Ratio" shall mean, for any fiscal
period, the ratio which (A) the sum of (i) EBITDAR for such period; PLUS (ii)
the sum (without duplication) of (a) any dividends paid in respect of
Redeemable Preferred Stock during such period, PLUS (b) any payments made
(howsoever denominated or construed) in respect of any TECONS in such period,
regardless of maturity or the timing of any redemption or repurchase rights
granted in regard thereto (the sum of (a) and (b) above being called,
collectively, "Investment Costs" herein); bears to (B) the sum (without
duplication) of: (i) all Investment Costs; PLUS (ii) operating lease expense;
PLUS (iii) interest expense; in each case, for the Borrower and its
Consolidated Subsidiaries for the same such period; all as determined under
GAAP.
"GAAP" means generally accepted accounting principles
applied on a basis consistent with those which, in accordance with Section
1.2, are to be used in making the calculations for purposes of determining
compliance with the terms of this Agreement.
"Guarantee" or "Guaranty" by any Person means any
obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing any debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to secure, purchase or pay (or
advance or supply funds for the purchase or payment of)
-9-
<PAGE>
such debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to provide collateral security to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such debt or
other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part), PROVIDED that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The terms "Guarantee" or "Guaranty" used as a
verb has a corresponding meaning.
"Hazardous Materials" includes, without limitation, (a)
solid or hazardous waste, as defined in the Resource Conservation and
Recovery Act of 1980, 42 U.S.C. ss. 6901 et seq. and its implementing
regulations and amendments, or in any applicable state or local law or
regulation, (b) "hazardous substance," "pollutant," or "contaminant" as
defined in CERCLA, or in applicable state or local law or regulation, (c)
gasoline, or any other petroleum product or by-product, including, crude oil
or any fraction thereof, (d) "toxic substances", as defined in the Toxic
Substances Control Act of 1976, or in any applicable state or local law or
regulation, and (e) insecticides, fungicides, or rodenticides, as defined in
the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any
applicable state or local law or regulation, as each such Act, statute or
regulation may be amended from time to time.
"Hops Subsidiaries" means those Subsidiaries listed on
SCHEDULE 1.2 attached hereto plus any Subsidiaries (other than any which are
Subsidiary Guarantors) hereafter created or acquired for the purpose of
owning or operating any "Hops" restaurant or related business.
"Interest Period" means:
(1) with respect to each Euro-Dollar Rate Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding date in the first, second, third or sixth calendar month
thereafter, as the Borrower may elect in the applicable Notice of Borrowing;
PROVIDED that:
(a) any Interest Period (other than an Interest Period
determined pursuant to paragraph (c) below) which would otherwise
end on a day which is not a Euro-Dollar Business Day shall be
extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall, subject to paragraph (c) below, end on the last
Euro-Dollar Business Day of the appropriate subsequent calendar
month; and
(c) any Interest Period which begins before the Termination
Date and would otherwise end after the Termination Date shall end on
the Termination Date.
-10-
<PAGE>
(2) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending on the date on which such
Base Rate Borrowing is fully paid or converted to a Euro-Dollar Rate
Borrowing; PROVIDED that:
(a) any Interest Period (other than an Interest Period
determined pursuant to paragraph (b) below) which would otherwise
end on a day which is not a Domestic Business Day shall be extended
to the next succeeding Domestic Business Day;
(b) any Interest Period which begins before the Termination
Date and would otherwise end after the Termination Date shall end on
the Termination Date.
"Lending Office" means, as to each Bank, its office located
at its address set forth on the signature pages hereof (or identified on the
signature pages hereof as its Lending Office) or such other office in the
United States as such Bank may hereafter designate as its Lending Office by
notice to the Borrower and the Administrative Agent.
"LIBOR Rate" means, for any Euro-Dollar Rate Loan for the
Interest Period of such Euro-Dollar Rate Loan, the rate per annum determined
by the Administrative Agent on the basis of the offered rate for deposits in
Dollars of amounts equal or comparable to the principal amount of such
Euro-Dollar Rate Loan offered for a term comparable to such Interest Period,
which rate appears on the display designated as page "3750" of the Dow Jones
Market Service (or such other page as may replace page 3750 of that service
or such other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered rates for
U.S. dollar deposits), determined as of 11:00 A.M., London time, two (2)
Euro-Dollar Business Days prior to the first day of such Interest Period,
PROVIDED that (i) if more than one such offered rate appears on such page,
the "LIBOR Rate" will be the arithmetic average (rounded upward, if
necessary, to the next higher 1/100th of 1%) of such offered rates; (ii) if
no such offered rates appear on such page, the "LIBOR Rate" for such Interest
Period will be the arithmetic average (rounded upward, if necessary, to the
next higher 1/100th of 1%) of rates quoted by not less than two (2) major
banks in New York City, selected by the Administrative Agent, at
approximately 10:00 A.M., New York City time, two (2) Euro-Dollar Business
Days prior to the first day of such Interest Period, for deposits in Dollars
offered to leading European banks for a period comparable to such Interest
Period in an amount comparable to the principal amount of such Euro-Dollar
Rate Loan.
"Lien" means, with respect to any asset, any mortgage, deed
to secure debt, deed of trust, lien, pledge, charge, security interest,
security title or other, preferential arrangement, which has the practical
effect of constituting a security interest or encumbrance, or encumbrance or
servitude of any kind in respect of such asset to secure or assure payment of
a debt or a Guarantee, whether by consensual agreement or by operation of
statute or other law. For purposes of this Agreement, the Borrower or any
Subsidiary shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a
-11-
<PAGE>
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Loan Documents" means this Agreement, the Notes, each
Subsidiary Guaranty, any other document evidencing or relating to the
Revolving Loans or the Swing Loans, and any other document, instrument,
certificate or agreement delivered in connection with this Agreement, the
Notes, the Revolving Loans or the Swing Loans, as such documents,
instruments, certificates and agreements may be amended or modified from time
to time.
"Margin Stock" means "margin stock" as defined in
Regulations G, T, U or X.
"Material Adverse Effect" means, with respect to any event,
act, condition or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation
or proceeding), whether singly or in conjunction with any other event or
events, act or acts, condition or conditions, occurrence or occurrences,
whether or not related, that such event or events, act or acts, condition or
conditions, and/or occurrence or occurrences results in a material adverse
change in, or has a material adverse effect upon, any of (a) the financial
condition, operations, business, or properties of Borrower and its
Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of
the Administrative Agent, the Syndication Agent, the Arranger, the
Co-Arranger or the Banks under the Loan Documents, or the ability of the
Borrower to perform its obligations under the Loan Documents to which it is a
party, as applicable, or (c) the legality, validity or enforceability of this
Agreement, any Note or any Loan Document.
"Multiemployer Plan" shall have the meaning set forth in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" shall mean, the total cash proceeds
received by the Borrower or any Subsidiary from any Asset Sale, LESS (i)
provisions for all taxes actually paid or payable as a result thereof, (ii)
any direct costs incurred by Borrower or any Subsidiary associated therewith,
and (iii) any payments made to repay any indebtedness or other obligation
outstanding at the time of an Asset Sale that is secured by a Purchase Money
Lien on the property or assets sold.
"Non-Core Assets" means those assets so identified on
SCHEDULE 1.1.
"Notes" means, collectively, the promissory notes of the
Borrower evidencing the Revolving Loans (and, in the case of the Swing Bank,
the Swing Loans), each to be substantially in the form of EXHIBIT B, together
with all amendments, consolidations, modifications, renewals, and supplements
thereto.
"Notice of Borrowing" has the meaning set forth in Section
2.2.1.
"Participant" has the meaning set forth in Section 9.8.2.
-12-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership,
an unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by a
member of the Controlled Group for employees of any member of the Controlled
Group or (ii) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and
to which a member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
"Pricing Determination Date" shall mean, as to any Fiscal
Quarter, the first day of the first calendar month after receipt by the
Administrative Agent and the Banks of Borrower's and its Consolidated
Subsidiaries' financial statements for such Fiscal Quarter pursuant to
Section 5.1.2 and a Compliance Certificate for such Fiscal Quarter pursuant
to Section 5.1.3.
"Prime Rate" refers to that interest rate so denominated
and set by Wachovia from time to time as an interest rate basis for
borrowings. The Prime Rate is but one of several interest rate bases used by
Wachovia. Wachovia lends at interest rates at, above and below the Prime Rate.
"Properties" means all property owned, leased or otherwise
used, operated or occupied by the Borrower or any Subsidiary, wherever
located, and whether real property or personal property.
"Purchase Money Liens" means Liens securing the repayment
of any Debt permitted pursuant to Section 5.21 incurred to finance the
purchase of any Property hereafter acquired by the Borrower or any
Consolidated Subsidiary, so long as such Liens are limited solely to the
Property so acquired, secure only the purchase money debt so incurred and are
terminated upon payment in full of such purchase money debt.
"Redeemable Preferred Stock" of any Person means any
preferred stock issued by such Person which is at any time prior to the
Termination Date EITHER (i) mandatorily redeemable (by sinking fund or
similar payments or otherwise) or (ii) redeemable at the option of the holder
thereof; but excluding the TECONS.
"Regulation D" means Regulation D of the Board of Governors
of the Federal Reserve System, as in effect from time to time, together with
all official rulings and interpretations issued thereunder.
-13-
<PAGE>
"Regulation T" means Regulation T of the Board of Governors
of the Federal Reserve System, as in effect from time to time, together with
all official rulings and interpretations issued thereunder.
"Regulation U" means Regulation U of the Board of Governors
of the Federal Reserve System, as in effect from time to time, together with
all official rulings and interpretations issued thereunder.
"Regulation X" means Regulation X of the Board of Governors
of the Federal Reserve System, as in effect from time to time, together with
all official rulings and interpretations issued thereunder.
"Required Banks" means any Bank or Banks having (i) more
than fifty percent (50%) of the aggregate amount of the Commitments or (ii),
if the Commitments are no longer in effect, more than fifty percent (50%) of
the aggregate outstanding principal amount of the Notes.
"Revolving Loan" means, as to any Bank, a Base Rate Loan or
a Euro-Dollar Rate Loan made by such Bank pursuant to Section 2.1.1.
"Solvent" means as to any Person, that such Person (i) owns
Property whose fair saleable value is greater than the amount required to pay
all of such Person's total debts, direct or indirect, contingent or
otherwise, (ii) is able to pay all of such debts as and when such debts
mature and (iii) has capital sufficient to carry on the business and
transactions in which it is engaged and all business and transactions in
which it is about to engage.
"Stockholders' Equity" means, at any time, the
stockholders' equity of the Borrower and its Consolidated Subsidiaries, as
set forth or reflected on the most recent consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries prepared in accordance with GAAP,
but EXCLUDING (i) any Redeemable Preferred Stock of the Borrower or any of
its Consolidated Subsidiaries and (ii) the TECONS; and, pending settlement,
any Debts, liabilities or obligations under any Equity Forward Contracts.
Shareholders' Equity generally would include, but not be limited to (i) the
par or stated value of all outstanding Capital Stock, (ii) capital surplus
and (iii) retained earnings, and would reflect various deductions such as (A)
purchases of treasury stock, (B) valuation allowances, (C) receivables due
from an employee stock ownership plan, and (D) employee stock ownership plan
debt Guarantees.
"Subordinated Debt" shall mean Debt of Borrower incurred on
or prior to the Closing Date pursuant to an indenture and other documents
satisfactory in all respects to the Banks, including, without limitation,
with respect to the subordination provisions thereof, the covenants included
therein, the repayment terms thereof and the interest rate payable thereon.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by the Borrower.
-14-
<PAGE>
"Subsidiary Guarantor" shall mean any Subsidiary of
Borrower which has executed a Subsidiary Guaranty pursuant to Section 3.1.3
or Section 5.24.
"Subsidiary Guaranty" shall mean a guaranty, in
substantially the form of EXHIBIT H attached hereto, pursuant to which a
Subsidiary of Borrower shall guarantee all debts, liabilities and obligations
of the Borrower hereunder, all in accordance with Section 3.1.3 or Section
5.24.
"Swing Bank" means Wachovia and any other Bank which,
hereafter, at the request or with the consent of Wachovia, shall agree to act
as "Swing Bank" for purposes hereof.
"Swing Loan" mean any Base Rate Loan made to the Borrower
by the Swing Bank from time to time pursuant to Section 2.1.2.
"Syndication Agent" means BankBoston, N.A., a national
banking association, in its capacity as syndication agent for the Banks
hereunder, and its successors and permitted assigns in such capacity.
"Synthetic Lease" shall mean any agreement, or series of
related agreements, between the Borrower and one or more other parties which
are intended to be treated, for accounting purposes, as an operating lease
with the Borrower as lessee and, for tax purposes, as a financing arrangement
with the Borrower as debtor.
"Tangible Net Worth" shall mean the difference at any time
between (i) the sum of (A) Stockholders' Equity of the Borrower and its
Consolidated Subsidiaries at such time PLUS (B) the TECONS and (ii) the sum
of all those assets of the Borrower and its Consolidated Subsidiaries at such
time constituting (A) goodwill, patents, copyrights, trademarks, trade names
and other intangible assets, as determined under GAAP, PLUS (B) write-ups of
any assets occurring subsequent to December 31, 1998, PLUS (C) unamortized
debt discount and expense, as determined under GAAP, PLUS (D) deferred
charges, as determined under GAAP, PLUS (E) any indebtedness owing to such
Person by any Affiliate of such Person.
"TECONS" means the Borrower-obligated mandatorily
redeemable preferred securities of Avado Financing I, as in existence on the
Closing Date.
"Termination Date" has the meaning set forth in SECTION
2.7.1.
"Third Parties" means all lessees, sublessees, licensees
and other users of the Properties, excluding those users of the Properties in
the ordinary course of the Borrower's business and on a temporary basis.
-15-
<PAGE>
"Total Debt" shall mean that portion of the Debt of the
Borrower and its Consolidated Subsidiaries at any date equal to the sum
(without duplication) of: (i) all Debt for Borrowed Money at such date
(including, for this purpose, Debt in respect of any outstanding bankers'
acceptances); PLUS (ii) all Capitalized Lease Obligations outstanding at such
date; PLUS (iii) all Debts, liabilities and obligations which are Guaranteed
by the Borrower or any Consolidated Subsidiary as of such date; PLUS (iv) all
Debts, liabilities or obligations at such date to any seller incurred to pay
the deferred price of property or services having a deferred purchase price
of One Million Dollars ($1,000,000) or more, excepting, in any event, trade
accounts payable arising in the ordinary course of business and purchase
options prior to their exercise; PLUS (v) all Debts, liabilities and
obligations outstanding at such date in respect of any Synthetic Leases; PLUS
(vi) all Debts, liabilities and obligations under any Equity Forward
Contracts, pending settlement.
"Total Debt/EBITDA Ratio" shall have the meaning given to
such term in Section 5.6.
"Total Senior Debt" shall mean, at any date, Total Debt of
Borrower and its Consolidated Subsidiaries MINUS the then outstanding
principal balance of the Subordinated Debt.
"Transferee" has the meaning set forth in Section 9.8.4.
"Unfunded Vested Liabilities" means, with respect to any
Plan at any time, the amount (if any) by which (i) the present value of all
vested nonforfeitable benefits under such Plan exceeds (ii) the fair market
value of all Plan assets allocable to such benefits, all determined as of the
then most recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the Controlled
Group to the PBGC or the Plan under Title IV of ERISA.
"Unused Commitment" means at any date, with respect to any
Bank, an amount equal to its Commitment less the aggregate outstanding
principal amount of its Revolving Loans and, in the case of the Swing Bank,
Swing Loans.
"Wachovia" means Wachovia Bank, National Association, a
national banking association, and its successors.
"Y2K Plan" has the meaning set forth in Section 4.19.
"Y2K Plan Milestones" has the meaning set forth in Section
4.19.
"Year 2000 Compliant and Ready" means that (a) the
Borrower's and its operating divisions' and Subsidiaries' computer hardware
or software in question will: (i) handle date information involving any and
all dates before, during and/or after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or in part;
(ii) operate, accurately without interruption on and in respect of any and
all dates before, during and/or after January 1, 2000 and without any change
in
-16-
<PAGE>
performance; and (iii) store and provide date input information without
creating any ambiguity as to the century; provided all other information
technology properly exchanges date data information with it; and (b) the
Borrower has developed alternative plans to ensure business continuity in the
event of the failure of any or all of items (i) through (iii) above.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS.
Unless otherwise specified herein, all terms of an
accounting character used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared in accordance with GAAP, applied
on a basis consistent (except for changes concurred with by the Borrower's
independent public accountants or otherwise required by a change in GAAP)
with the then most recent audited consolidated financial statements of the
Borrower and its Consolidated Subsidiaries delivered to the Banks; PROVIDED,
HOWEVER, that upon any change in GAAP material to Borrower occurring
hereafter, the Banks shall have the right to require either that conforming
adjustments be made to any financial covenants hereafter set forth, or the
components thereof, affected by such change or that the Borrower report its
financial condition based on GAAP as in effect immediately prior to such
change occurring. In determining compliance of the Borrower with the
financial covenants set forth in Sections 5.4 through 5.7 hereof, and, in
making such calculations for any other purposes hereunder, including, without
limitation, the determination of the Applicable Margin pursuant to the
definition thereof and the determination of the unused commitment fee
pursuant to Section 2.6.2, (i) there shall be excluded from the calculations
of Consolidated Net Income, depreciation and amortization expense and
operating lease and rent expense any amounts attributable to Applebee's
Neighborhood Grill & Bar restaurants which were sold prior to the Closing
Date, and for the Fiscal Quarters of Borrower ending closest to June 30,
1999, September 30, 1999, December 31, 1999 and March 31, 2000, interest
expense shall be "annualized," rather than presented historically; E.G., for
the four (4) Fiscal Quarters ending closest to each such date, interest
expense shall be computed by multiplying interest expense for the Fiscal
Quarter ending closest to such date, and multiplying by four (4).
SECTION 1.3. REFERENCES.
Unless otherwise indicated, references in this Agreement to
"Articles," "Exhibits," "Schedules," "Sections" and other Subdivisions are
references to articles, exhibits, schedules, sections and other subdivisions
hereof.
SECTION 1.4. USE OF DEFINED TERMS.
All terms defined in this Agreement shall have the same
defined meanings when used in any of the other Loan Documents, unless
otherwise defined therein or unless the context shall require otherwise.
SECTION 1.5. TERMINOLOGY.
-17-
<PAGE>
All personal pronouns used in this Agreement, whether used
in the masculine, feminine or neuter gender, shall include all other genders;
the singular shall include the plural, and the plural shall include the
singular. Titles of Articles and Sections in this Agreement are for
convenience only, and neither limit nor amplify the provisions of this
Agreement.
ARTICLE 2. THE CREDIT
SECTION 2.1. COMMITMENTS TO LEND.
2.1.1 REVOLVING LOANS. Each Bank
severally agrees, on the terms and conditions set forth herein, to make
Revolving Loans to the Borrower from time to time before the Termination
Date; PROVIDED that, immediately after each such Revolving Loan is made, (i)
the aggregate principal amount of Revolving Loans and, in the case of the
Swing Bank, Swing Loans, by such Bank shall not exceed the amount of its
Commitment, and (ii) the aggregate principal amount of Revolving Loans and
Swing Loans by all Banks shall not exceed One Hundred Twenty Five Million
Dollars ($125,000,000). Each Borrowing under this Section shall be in an
aggregate principal amount of One Million Dollars ($1,000,000) or any larger
multiple of Five Hundred Thousand Dollars ($500,000), in the case of Base
Rate Loans, and in an aggregate principal amount of Five Million Dollars
($5,000,000) or any larger multiple of One Million Dollars ($1,000,000), in
the case of Euro-Dollar Rate Loans (except that any such Borrowing may be in
the aggregate amount of the Unused Commitments), and shall be made from the
several Banks ratably in proportion to their respective Commitments. Within
the foregoing limits, the Borrower may borrow under this Section, repay or,
to the extent permitted by Section 2.8, prepay Revolving Loans and reborrow
under this Section at any time or from time to time before the Termination
Date.
2.1.2 SWING LOANS. The Swing Bank
severally agrees, on the terms and conditions set forth herein, to make Swing
Loans to the Borrower, in the Swing Bank's sole discretion, at any time and
from time to time before the Termination Date; PROVIDED, HOWEVER, that,
(i) immediately after such Swing Loan is made, (A) the sum of
(1) all Swing Loans then outstanding, PLUS (2) the Revolving Loans
outstanding of the Swing Bank, will not exceed the Swing Bank's
Commitment, and (B) the total amount of all Swing Loans and
Revolving Loans then outstanding will not exceed the aggregate
Commitments of all Banks; and
(ii) total Swing Loans then outstanding will not exceed, in
any event, Ten Million Dollars ($10,000,000).
Each Swing Loan shall be a Base Rate Loan, and shall be in a principal amount
of Two Hundred Fifty Thousand Dollars ($250,000) or any larger multiple of
Fifty Thousand Dollars ($50,000) (except that any Swing Loan may be in the
amount of the Unused Commitments) and shall be made in accordance with
Section 2.2.5. Within the foregoing limits, the Borrower may borrow under
this Section, repay or, to the
-18-
<PAGE>
extent permitted in Section 2.2.5, prepay Swing Loans and borrow under this
Section at any time before the Termination Date. The proceeds of each Swing
Loan shall be used by the Borrower for the purposes permitted in Section 5.12.
SECTION 2.2. METHOD OF BORROWING.
2.2.1. NOTICE TO ADMINISTRATIVE AGENT. The
Borrower shall give the Administrative Agent notice (a "Notice of
Borrowing"), which shall be substantially in the form of EXHIBIT C, not later
than 11:00 a.m. (Atlanta, Georgia time) on the Domestic Business Day of each
Base Rate Borrowing and not later than 11:00 a.m. (Atlanta, Georgia time) at
least three (3) Euro- Dollar Business Days before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Revolving Loans comprising such Borrowing are
to be Base Rate Loans or Euro-Dollar Rate Loans, and
(d) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period.
2.2.2 NOTICE TO BANKS. Upon receipt of a Notice
of Borrowing, the Administrative Agent shall promptly notify each Bank of the
contents thereof and of such Bank's ratable share of such Borrowing and such
Notice of Borrowing shall not thereafter be revocable by the Borrower.
2.2.3 WHEN REVOLVING LOANS MADE. Not later than
1:00 P.M. (Atlanta, Georgia time) on the date of each Base Rate Borrowing and
not later than 11:00 A.M. (Atlanta, Georgia time) on the date of each
Euro-Dollar Borrowing, each Bank shall (except as provided in Section 2.2.4)
make available its ratable share of such Borrowing, in federal or other funds
immediately available in Atlanta, Georgia, to the Administrative Agent at the
Administrative Agent's address. Unless the Administrative Agent determines
that any applicable condition specified in Article 3 has not been satisfied,
the Administrative Agent will make the funds so received from the Banks
available to the Borrower at the Administrative Agent's Address. Unless the
Administrative Agent receives notice from a Bank, at the Administrative
Agent's Address, no later than 12:00 noon (Atlanta, Georgia time) on the date
of a Base Rate Borrowing and no later than 4:00 P.M. (Atlanta, Georgia time)
on the Domestic Business Day before the date of a Euro-Dollar Rate Borrowing
stating that such Bank will not make a Revolving Loan in connection with such
Borrowing, the Administrative Agent shall be entitled to assume that such
Bank will make a Revolving Loan in connection with such Borrowing and, in
reliance on such assumption, the
-19-
<PAGE>
Administrative Agent may (but shall not be obligated to) make available such
Bank's ratable share of such Borrowing to the Borrower for the account of
such Bank on the date of such Borrowing. If the Administrative Agent makes
such Bank's ratable share available to the Borrower and such Bank does not in
fact make its ratable share of such Borrowing available on such date, the
Administrative Agent shall be entitled to recover such Bank's ratable share
from such Bank or the Borrower (and for such purpose shall be entitled to
charge such amount to any account of the Borrower maintained with the
Administrative Agent), together with interest thereon for each day during the
period from the date of such Borrowing until such sum shall be paid in full
at a rate per annum equal to the rate at which the Administrative Agent
determines that it obtained (or could have obtained) overnight Federal funds
to cover such amount for each such day during such period, PROVIDED that any
such payment by the Borrower of such Bank's ratable share and interest
thereon shall be without prejudice to any rights that the Borrower may have
against such Bank. If the Administrative Agent does not exercise its option
to advance funds for the account of such Bank, it shall forthwith notify the
Borrower of such decision.
2.2.4 APPLICATION OF CERTAIN PROCEEDS. If any
Bank makes a Revolving Loan hereunder on a day on which the Borrower is to
repay all or any part of an outstanding Revolving Loan from such Bank, such
Bank shall apply the proceeds of its new Revolving Loan to make such
repayment and only an amount equal to the difference (if any) between the
amount being borrowed and the amount being repaid shall be made available by
such Bank to the Administrative Agent as provided in Section 2.2.3, or
remitted by the Borrower to the Administrative Agent, as the case may be.
2.2.5 BORROWING OF SWING LOANS.
(a) The Borrower shall give the Administrative Agent written
notice in the form of a Notice of Borrowing (or notice by telephone
or telecopy followed immediately by a Notice of Borrowing; PROVIDED,
HOWEVER, that the failure by the Borrower to confirm any notice by
telephone or telecopy with a Notice of Borrowing shall not
invalidate any notice so given) no later than 11:00 a.m. (Atlanta,
Georgia time) on the Domestic Business Day on which the Borrower
wishes to receive any Swing Loan. If the Swing Bank, in its sole
discretion, elects to make the requested Swing Loan, the Swing Loan
shall be made on the Domestic Business Day specified in the Notice
of Borrowing and such Notice of Borrowing shall specify the amount
of the requested Swing Loan. Each Swing Loan shall be made as a Base
Rate Loan (unless otherwise mutually agreed between the Swing Bank
and the Borrower from time to time) and interest thereon shall be
payable in accordance with Section 2.5.1 hereof. The Swing Bank
shall have no duty or obligation to make any Swing Loans hereunder
and the Swing Bank shall not make any Swing Loans unless, on the
date of the requested advance thereof, the Borrower satisfies each
of the conditions precedent to a Revolving Loan set forth in Article
3 hereof. In the event the Swing Bank, in its sole and absolute
discretion, elects to make any requested Swing Loan, the Swing Bank
shall make the proceeds of such Swing Loan available to the Borrower
by deposit of U.S. dollars in same day funds by wire transfer in
accordance with the applicable Notice of Borrowing.
-20-
<PAGE>
(b) The Borrower shall have the right and from time to time to
prepay any Swing Loan, in whole or in part, upon giving written or
telecopy notice (or telephone notice promptly confirmed by written
or telecopy notice) to the Swing Bank and to the Administrative
Agent before 12:00 (noon), Atlanta time, on the date of prepayment.
Swing Loans not prepaid in full as provided herein shall be payable
as provided in Section 2.4. All prepayments and payments of Swing
Loans shall be made to the Administrative Agent for the account of
the Swing Bank.
(c) The Swing Bank may, by written notice given to the
Administrative Agent not later than 10:00 a.m., Atlanta, Georgia
time, on any Business Day, require the Banks to acquire
participations on such Business Day in all or a portion of the Swing
Loans outstanding. Such notice shall specify the aggregate amount of
Swing Loans in which the Banks will participate. The Administrative
Agent will, promptly upon receipt of such notice, give notice to
each Bank, specifying in such notice such Bank's pro rata share of
such Swing Loan or Loans, based on its pro rata share of the
Commitments. In furtherance of the foregoing, each Bank hereby
irrevocably, absolutely and unconditionally agrees, upon receipt of
notice as provided above, to pay the Administrative Agent, for the
account of the Swing Bank, such Bank's pro rata share of such Swing
Loan or Loans. Each Bank acknowledges and agrees that its obligation
to acquire participations in Swing Loans pursuant to this paragraph
is irrevocable, absolute and unconditional and shall not be affected
by any circumstance whatsoever, including the occurrence and
continuance of a Default or an Event of Default or the termination
of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever. Each
Bank shall comply with its obligation under this paragraph by wire
transfer of immediately available funds, in the same manner as
provided in Section 2.2.3 with respect to Revolving Loans made by
such Bank (and Section 2.2.3 shall apply, MUTATIS MUTANDIS, to the
payment obligations of the Banks) and the Administrative Agent shall
promptly pay to the Swing Bank the amounts so received by it from
the Banks. The Administrative Agent shall notify the Borrower of any
participations in any Swing Loan acquired pursuant to this paragraph
and thereafter payments in respect of such Swing Loan shall be made
to the Administrative Agent, for the account of the Banks, rather
than for the account of the Swing Bank. Any amount received by the
Swing Bank from the Borrower in respect of a Swing Loan after
receipt by the Swing Bank of the proceeds of a sale of
participations therein shall be promptly remitted to the
Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the
Administrative Agent to the Banks that shall have made their
payments pursuant to this paragraph and to the Swing Bank, as their
interests may appear. The purchase of participations in a Swing Loan
pursuant to this paragraph shall not relieve the Borrower of any
default in the payment thereof.
2.2.6 NO BORROWING UPON DEFAULT. Notwithstanding
anything to the contrary contained in this Agreement, no Borrowing may be
made if there shall have occurred a Default, which Default shall not have
been cured or waived.
-21-
<PAGE>
2.2.7 CERTAIN PAYMENTS DEEMED MADE. If the
Borrower is otherwise entitled under this Agreement to repay any Revolving
Loans maturing at the end of an Interest Period applicable thereto with the
proceeds of a new Borrowing, and the Borrower fails to repay such Revolving
Loans using its own moneys and fails to give a Notice of Borrowing in
connection with such new Borrowing, the Banks, at their election (and without
obligation) may deem that a new Base Rate Borrowing shall have been made on
the date such Revolving Loans mature in an amount equal to the principal
amount of the Revolving Loans so maturing, with an Interest Period of not
greater than one (1) month.
2.2.8 LIMITATION ON BORROWINGS. Notwithstanding
anything to the contrary contained herein, there shall not be more than eight
(8) Euro-Dollar Rate Borrowings outstanding at any given time.
SECTION 2.3. NOTES.
2.3.1 SINGLE NOTES. The Revolving Loans of each
Bank (and, in the case of the Swing Bank, the Swing Loans) shall be evidenced
by a single Revolving Loan Note payable to the order of such Bank for the
account of its Lending Office in an amount equal to the original principal
amount of such Bank's Commitment.
2.3.2 ENDORSEMENTS TO NOTES. Upon receipt of
each Bank's Note pursuant to Section 3.1.3, the Administrative Agent shall
deliver such Note to such Bank. Each Bank may record and, prior to any
transfer of its Note shall, endorse on the schedule forming a part thereof
appropriate notations to evidence the date, amount and maturity of each
Revolving Loan and, in the case of the Swing Bank, each Swing Loan, made by
it, the date and amount of each payment of principal made by the Borrower
with respect thereto and whether such Revolving Loan is a Base Rate Loan or
Euro-Dollar Rate Loan, and such schedule shall constitute rebuttable
presumptive evidence of the principal amount owing and unpaid on such Bank's
Note; PROVIDED that the failure of any Bank to make any such recordation or
endorsement shall not affect the obligation of the Borrower hereunder or
under the Notes. Each Bank is hereby irrevocably authorized by the Borrower
so to endorse its Notes and to attach to and make a part of any Note a
continuation of any such schedule as and when required.
SECTION 2.4. MATURITY OF REVOLVING LOANS AND SWING LOANS.
Each Revolving Loan and Swing Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
In any event, all Revolving Loans and Swing Loans shall be due and payable in
full on the Termination Date, if not sooner due and payable pursuant to any
other provision of this Agreement.
-22-
<PAGE>
SECTION 2.5. INTEREST RATES.
Subject to the terms of Section 8.1:
2.5.1 BASE RATE LOANS. Each Base Rate Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the Base Rate, as it
may change from time to time during such Interest Period, plus the Applicable
Margin. Such interest on all Base Rate Loans other than Swing Loans shall be
payable monthly, in arrears, on the last day of each calendar month, in
respect of interest accrued in such month (or portion thereof), commencing on
June 30, 1999 (with the first payment date to cover the period from the
Closing Date until June 30, 1999), until maturity and thereafter on demand.
Such interest on all Swing Loans shall be payable as provided in Section
2.2.5(b) and otherwise monthly, in arrears, on the last day of each calendar
month, in respect of interest accrued in such month (or portion thereof),
commencing on June 30, 1999 (with the first payment date to cover the period
from the Closing Date until June 30, 1999), until maturity and thereafter on
demand. Any overdue principal of and, to the extent permitted by applicable
law, overdue interest on any Base Rate Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the Default Rate.
2.5.2 EURO-DOLLAR RATE LOANS. Each Euro-Dollar
Rate Loan shall bear interest on the outstanding principal amount thereof,
for the Interest Period applicable thereto, at the Euro-Dollar Rate for such
Interest Period. Such interest shall be payable for each Interest Period on
the last day thereof; PROVIDED, HOWEVER, if any Interest Period is for a
period of more than three (3) months, accrued interest shall also be due and
payable at the end of each consecutive three (3) month period within such
Interest Period, commencing with the first day thereof, as well as on the
last day thereof. Any overdue principal of and, to the extent permitted by
law, overdue interest on any Euro- Dollar Rate Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
Default Rate; PROVIDED that the mere application of the Default Rate to these
Revolving Loans shall not give rise to the breakage of an Interest Period,
but only an increased margin applicable to these Revolving Loans.
2.5.3 ADMINISTRATIVE AGENT TO DETERMINE. The
Administrative Agent shall determine each interest rate applicable to the
Revolving Loans and Swing Loans hereunder. The Administrative Agent shall
give prompt notice to the Borrower and the Banks by telecopier of each rate
of interest so determined, and its determination thereof shall be conclusive
in the absence of manifest error.
2.5.4 SAVINGS CLAUSE. In no contingency or event
whatsoever, whether by reason of advancement of the proceeds hereof or
otherwise, shall the amount paid or agreed to be paid to the Banks for the
use, forbearance or detention of money advanced hereunder exceed the highest
lawful rate permissible under any law which a court of competent jurisdiction
may deem applicable hereto. In the event that such a court determines that
any Bank has charged or received interest hereunder in excess of the highest
applicable rate, such rate shall automatically be reduced to the maximum rate
permitted by applicable law and such Bank shall promptly refund to the
Borrower any interest received by such Bank
-23-
<PAGE>
in excess of the maximum lawful rate or, if so requested by the Borrower,
shall apply such excess to the principal balance of that Bank's Note. It is
the intent hereof that the Borrower not pay or contract to pay, and that the
Banks not receive or contract to receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be paid by the
Borrower under applicable law.
SECTION 2.6. FEES.
2.6.1 UNUSED COMMITMENT FEES. The Borrower shall
pay to the Administrative Agent for the account of each Bank an unused
commitment fee calculated at the per annum rate described below on the
average daily amount of such Bank's Unused Commitment. Such unused commitment
fees shall accrue from and including the Closing Date and be due and payable
quarterly in arrears, commencing on June 30, 1999, and continuing on each
succeeding September 30, December 31, March 31 and June 30 thereafter. The
per annum rate applicable to the payment of the foregoing unused commitment
fees shall be one-half of one percent (.500%) per annum initially. From and
after the first Pricing Determination Date occurring subsequent to the Fiscal
Quarter of Borrower ending on September 30, 1999, the unused commitment fee
shall be subject to reduction or increase, as applicable and as set forth in
the table below (with references to Levels I through VI below corresponding
to the same Levels I through VI set forth in the definition of "Applicable
Margin" contained in Section 1.1):
Level I .300%
Level II .400%
Level III .500%
Level IV .500%
Level V .500%
Level VI .500%
The unused commitment fee shall be subject to reduction or increase, as
applicable, as set forth in the table above, on a quarterly basis according
to the performance of the Borrower as measured by the Total Debt/EBITDA
Ratio, beginning with the Fiscal Quarter ending on September 30, 1999. Except
as set forth in the last sentence hereof, any such increase or reduction in
the unused commitment fee provided for herein shall be effective on the
Pricing Determination Date for the applicable Fiscal Quarter. If the
financial statements and the Compliance Certificate of the Borrower setting
forth the Total Funded Debt/EBITDA Ratio for the applicable Fiscal Quarter
are not received by the Administrative Agent and the Banks by the date
required pursuant to Sections 5.1.2 and 5.1.3 of this Agreement, the unused
commitment fee shall be determined as if the Total Funded Debt/EBITDA Ratio
exceeds the ratio set forth as Level VI in the foregoing table until such
time as such financial statements and Compliance Certificate are received and
any Event of Default resulting from a failure to timely deliver such
financial statements or Compliance Certificate is waived in writing by the
Administrative Agent and the Required Banks. For the final Fiscal Quarter of
any Fiscal Year, the Borrower may provide the unaudited financial statements
of Borrower and its Consolidated Subsidiaries, subject only to year-end
adjustments, for the purpose of determining the unused commitment fee;
PROVIDED, HOWEVER, if, upon delivery of the annual audited financial
statements required
-24-
<PAGE>
to be submitted by the Borrower to the Administrative Agent and the Banks
pursuant to Section 5.1.1 of this Agreement, the unused commitment fee, as
determined therefrom, is different from the unused commitment fee determined
from such quarterly financial statements, then (a) the then existing unused
commitment fee shall be terminated and, effective on the first day of the
month following receipt by the Administrative Agent and the Banks of such
audited financial statements, the unused commitment fee shall be the unused
commitment fee based upon the audited financial statements of the Borrower
and its Consolidated Subsidiaries for the Fiscal Year then ended, and (b) on
the first day of the first calendar month following receipt by the
Administrative Agent and the Banks of such audited financial statements, an
amount equal to the difference between the amount of the unused commitment
fee that would have been paid using the unused commitment fee determined
based upon such audited financial statements and the amount of unused
commitment fee actually paid during the period in which the reduction or
increase, as applicable, of the unused commitment fee was in effect based
upon the unaudited financial statements for such final Fiscal Quarter of the
Fiscal Year then ended shall be paid (i) if the amount of the unused
commitment fee that should have been paid is greater than the amount of the
unused commitment fee actually paid, by the Borrower to the Administrative
Agent, for the benefit of the Banks or (ii) if the amount of the unused
commitment fee that should have been paid is less than the amount of the
unused commitment fee actually paid to the Borrower, by the Administrative
Agent, from funds received from the Banks.
2.6.2 UPFRONT FEES. The Borrower shall pay to
the Administrative Agent for distribution to the Banks their respective
upfront fees, as previously arranged between the Borrower and each Bank.
2.6.3 OTHER FEES. The Borrower shall pay to the
Administrative Agent such fees and other amounts at such times as set forth
in the Fee Letter, to be shared, as appropriate, among the Administrative
Agent, the Syndication Agent, the Arranger and the Co-Arranger in the manner
and to the extent specified therein.
SECTION 2.7. TERMINATION OR REDUCTION OF COMMITMENTS.
2.7.1 TERMINATION OF COMMITMENTS. The
Commitments shall terminate the third (3rd) anniversary of the Closing Date
(the "TERMINATION DATE").
2.7.2 VOLUNTARY RATABLE REDUCTIONS OF
COMMITMENTS. The Borrower shall have the further right to reduce ratably the
Commitments of the Banks at any time or from time to time, in the minimum
amount of Ten Million Dollars ($10,000,000) per reduction and integral
multiples of Five Million Dollars ($5,000,000) beyond such minimum amount,
PROVIDED that (i) the Borrower shall have given the Administrative Agent at
least three (3) Domestic Business Days' advance written notice of such
election, (ii) as necessary, the Borrower shall have reduced, by repayment or
prepayment in accordance with the terms of Section 2.9.1, as the case may be,
its Borrowings by that amount necessary to cause total Borrowings then
outstanding not to exceed the aggregate amount of the reduced Commitments and
(iii) any Commitments once so reduced shall not be reinstated by the Banks.
-25-
<PAGE>
2.7.3 MANDATORY RATABLE REDUCTIONS IN COMMITMENTS.
The Commitments of the Banks shall reduce ratably in the amount of any
mandatory prepayment of Borrowings pursuant to Section 2.9.2. Any Commitments
once so reduced shall not be reinstated by the Banks.
SECTION 2.8. OPTIONAL PREPAYMENTS.
In addition to the Borrower's right to prepay Swing Loans
as set forth in Section 2.2.5, the Borrower may, on any Business Day, upon
giving notice to the Administrative Agent by not later than 11:00 A.M.
(Atlanta, Georgia time) on such Business Day, and making payment to the
Administrative Agent, for the ratable benefit of the Banks, on such Business
Day of any compensation required by Section 8.6, prepay any Base Rate
Borrowing in whole at any time, or from time to time in part in amounts
aggregating at least One Million Dollars ($1,000,000) and integral multiples
of Five Hundred Thousand Dollars ($500,000), by paying the principal amount
to be prepaid together with accrued interest thereon to the date of
prepayment. Each such optional prepayment shall be applied to prepay ratably
the Revolving Loans of the several Banks included in such Borrowing. Upon
receipt of a notice of prepayment pursuant to this Section 2.8, the
Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.9. MANDATORY PREPAYMENTS.
2.9.1 REDUCTIONS IN COMMITMENTS. On each date, if
any, on which the Commitments are terminated or reduced pursuant to Section
2.7, the Borrower shall repay or prepay such principal amount of the
outstanding Revolving Loans and Swing Loans, if any, as may be necessary so
that after such payment the aggregate unpaid principal amount of the
Revolving Loans and Swing Loans is reduced to zero, in the case of any
termination, or does not exceed the aggregate amount of the Commitments as
then reduced, in the case of any reduction, plus, in each case, accrued
interest thereon to the date of prepayment and any compensation required by
Section 8.6.
2.9.2 ASSET SALES. To the extent that, in
accordance with the provisions of Section 5.11, the Borrower or any of its
Subsidiaries consummates an Asset Sale (except of Non- Core Assets) and (i)
after giving effect to such Asset Sale, the Net Cash Proceeds from all Asset
Sales (except of Non-Core Assets) consummated to date during the then current
Fiscal Year exceed Ten Million Dollars ($10,000,000) and (ii) as of the
Borrower's most recently ended Fiscal Quarter, the Borrower's and its
Consolidated Subsidiaries' Total Debt/EBITDA was greater than or equal to
2.0:1.0, the Borrower shall apply an amount equal to seventy five percent
(75%) of the Net Cash Proceeds from such Asset Sale (other than any thereof
which, together with Net Sale Proceeds from Asset Sales (except of Non-Core
Assets) previously consummated in such Fiscal Year, do not exceed Ten Million
Dollars ($10,000,000)), to repay or prepay outstanding Revolving Loans and,
if Revolving Loans are reduced to zero, Swing Loans, plus, in each case,
accrued interest thereon to the date of prepayment and any compensation
required by
-26-
<PAGE>
Section 8.6. In each such case, the Commitments of the Banks shall also be
simultaneously reduced as provided in Section 2.7.3.
SECTION 2.10. GENERAL PROVISIONS AS TO PAYMENTS.
2.10.1 TIMING. The Borrower shall make each
payment of principal of, and interest on, the Revolving Loans and the Swing
Loans and of unused commitment and other fees hereunder, not later than 11:00
A.M. (Atlanta, Georgia time) on the date when due, in federal or other funds
immediately available in Atlanta, Georgia, to the Administrative Agent's
Address. The Administrative Agent will promptly distribute to each Bank its
ratable share of each such payment received by the Administrative Agent for
the account of the Banks.
2.10.2 NEXT BANKING DAY. Whenever any payment of
principal of, or interest on, any Base Rate Loans or of unused commitment or
other fees shall be due on a day which is not a Domestic Business Day, the
date for payment thereof shall be extended to the next succeeding Domestic
Business Day. Whenever any payment of principal of or interest on, the
Euro-Dollar Rate Loans shall be due on a day which is not a Euro-Dollar
Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day.
SECTION 2.11. COMPUTATION OF INTEREST AND FEES.
Interest on the Revolving Loans and Swing Loans shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed, calculated as to each Interest Period from and including the
first day thereof to but excluding the last day thereof. Unused commitment
fees and any other fees payable hereunder on a per annum basis shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
ARTICLE 3. CONDITIONS TO BORROWINGS
SECTION 3.1. CONDITIONS TO FIRST BORROWING.
The obligation of each Bank to make a Revolving Loan on the
occasion of the first Borrowing is subject to the satisfaction of the conditions
set forth in Section 3.2 and each of the following conditions precedent:
3.1.1 SUBORDINATED DEBT. The Borrower shall have
obtained cash proceeds in the amount of at least Ninety-Five Million Dollars
($95,000,000), from the issuance of Subordinated Debt, on terms acceptable to
the Banks.
-27-
<PAGE>
3.1.2 FIRST UNION LINE OF CREDIT. Borrower shall
have terminated its line of credit with First Union National Bank and shall
have paid in full its obligations thereunder.
3.1.3 DOCUMENTS. The Administrative Agent shall
have received each of the following in a sufficient number of counterparts
(except as to the Notes) for delivery of a counterpart to each Bank and
retention of one counterpart by the Administrative Agent:
(A) THIS AGREEMENT. From each of the parties
hereto of either (i) a duly executed counterpart of this Agreement signed by
such party or (ii) a facsimile transmission stating that such party has duly
executed a counterpart of this Agreement and sent such counterpart to the
Administrative Agent;
(B) NOTES. A duly executed Note for the account of
each Bank complying with the provisions of Section 2.3;
(C) SUBSIDIARY GUARANTY. A Subsidiary Guaranty,
duly executed by each Consolidated Subsidiary of the Borrower which is a
wholly-owned Subsidiary of the Borrower (excepting therefrom any having total
assets of less than Ten Thousand Dollars ($10,000) on the Closing Date and
any which, as a result of planned transfers of Capital Stock to store
managers, will be wholly-owned Subsidiaries of the Borrower for a period of
less than ninety (90) days after the Closing Date).
(D) OPINION. An opinion (together with any
opinions of local counsel relied on therein) of legal counsel for the
Borrower and the Subsidiary Guarantors, dated as of the Closing Date,
substantially in the form of EXHIBIT D and covering such additional matters
relating to the transactions contemplated hereby as the Administrative Agent
or any Bank may reasonably request;
(E) CLOSING CERTIFICATE. A certificate ("Closing
Certificate"), dated as of the Closing Date, substantially in the form of
EXHIBIT E, signed by the chief financial officer of the Borrower, to the
effect that (i) no Default has occurred and is continuing on the date of the
first Borrowing and (ii) the representations and warranties of the Borrower
contained in Article 4 are true on and as of the Closing Date;
(F) OTHER DOCUMENTS. All documents which the
Administrative Agent or any Bank may reasonably request relating to the
existence of the Borrower and each Subsidiary Guaranty, the corporate
authority for and the validity of this Agreement, the Notes, the Subsidiary
Guaranty executed on the Closing Date and the other Loan Documents, and any
other matters relevant hereto, all in form and substance satisfactory to the
Administrative Agent, including, without limitation, certificates of
incumbency of the Borrower and each Subsidiary Guarantor, signed by the
Secretary or an Assistant Secretary of the Borrower and each Subsidiary
Guarantor, in substantially the form of EXHIBIT F, certifying as to the
names, true signatures and incumbency of the officer or officers of the
Borrower and each Subsidiary Guarantor authorized to execute and deliver the
Loan Documents and the action taken by the Board of Directors of the Borrower
and each Subsidiary Guarantor authorizing the Borrower's execution, delivery
and
-28-
<PAGE>
performance of this Agreement and the other Loan Documents to which it is
party and each Subsidiary Guarantor's execution, delivery and performance of
the Subsidiary Guaranty to be executed and delivered on the Closing Date and
the other Loan Documents to which it is party.
(G) BORROWING NOTICE. A Notice of Borrowing.
SECTION 3.2. CONDITIONS TO ALL BORROWINGS.
The obligation of each Bank to make a Revolving Loan on the
occasion of each Borrowing is subject to the satisfaction of the following
conditions:
3.2.1 NOTICE. Receipt by the Administrative
Agent of a Notice of Borrowing;
3.2.2 NO DEFAULT. The fact that, immediately
before and after such Borrowing, no Default shall have occurred and be
continuing;
3.2.3 TRUTH OF REPRESENTATIONS. The fact that
the representations and warranties of the Borrower contained in Article 4 of
this Agreement shall be true on and as of the date of such Borrowing; and
3.2.4 NO OVERADVANCE. The fact that, immediately
after such Borrowing, the aggregate outstanding principal amount of the
Revolving Loans of each Bank (and, in the case of the Swing Bank, the Swing
Loans) will not exceed the amount of its Commitment.
Each Borrowing hereunder shall be deemed to be a representation and warranty
by the Borrower on the date of such Borrowing as to the facts specified in
Sections 3.2.2, 3.2.3 and 3.2.4.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. CORPORATE EXISTENCE AND POWER.
Each of the Borrower and each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified to transact business in
every jurisdiction where, by the nature of its business, such qualification
is necessary, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted, except where the failure to so qualify, or obtain such
licenses, authorizations, consents or approvals could not be reasonably
expected to have or cause a Material Adverse Effect.
-29-
<PAGE>
SECTION 4.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION.
The execution, delivery and performance by the Borrower of
this Agreement, the Notes and the other Loan Documents to which it is party
and by each Subsidiary Guarantor of the Subsidiary Guaranty and the other
Loan Documents to which it is party (i) are within the Borrower's and such
Subsidiary Guarantor's corporate powers, (ii) have been duly authorized by
all necessary corporate action, (iii) require no action by or in respect of
or filing with, any governmental body, agency or official, (iv) do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the articles of incorporation or by-laws of the Borrower or
any Subsidiary Guarantor or, to the best of the Borrower's knowledge, of any
material agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or any of its Subsidiaries, and (v) do not result
in the creation or imposition of any Lien on any asset of the Borrower or any
of its Subsidiaries.
SECTION 4.3. BINDING EFFECT.
This Agreement constitutes a valid and binding agreement of
the Borrower enforceable in accordance with its terms, and the Notes, the
Subsidiary Guaranty and the other Loan Documents, when executed and delivered
in accordance with this Agreement, will constitute valid and binding
obligations of the Borrower, to the extent that it is party thereto, and each
Subsidiary Guarantor, to the extent that it is party thereto, enforceable in
accordance with their respective terms, PROVIDED that the enforceability
hereof and thereof is subject in each case to general principles of equity
and to bankruptcy, insolvency and similar laws affecting the enforcement of
creditors' rights generally.
SECTION 4.4. FINANCIAL INFORMATION; NO MATERIAL ADVERSE
EFFECT.
The audited balance sheet of the Borrower and its
Consolidated Subsidiaries as of the Fiscal Year ended closest to December 31,
1998, and the related consolidated audited statements of income,
shareholders' equity and cash flows of the Borrower and its Consolidated
Subsidiaries for the Fiscal Year then ended, and the unaudited balance sheet
of the Borrower and its Consolidated Subsidiaries as of the Fiscal Quarter
ended closest to March 31, 1999, and the related consolidated unaudited
statements of income, shareholders' equity and cash flows of the Borrower and
its Consolidated Subsidiaries for the Fiscal Quarter then ended, copies of
which have been delivered to each of the Banks, fairly present, in conformity
with GAAP, the financial position of the Borrower and its Consolidated
Subsidiaries as of such dates and the results of its operations and cash flow
for such periods stated; PROVIDED, that during the term of this Agreement
after the Closing Date, future representations as to the matters set forth in
this sentence shall be deemed to refer to the most recent financial
statements delivered pursuant to Sections 5.1.1 and 5.1.2. Since December 31,
1998, there has been no event, act, condition or occurrence having or which
could be expected to have a Material Adverse Effect; PROVIDED that during the
term of this Agreement following the Closing Date, future representations as
to matters set forth in this sentence shall be deemed to refer to the last
day of the most recent audited financial statements delivered by the Borrower
pursuant to Section 5.1.1.
-30-
<PAGE>
SECTION 4.5. NO LITIGATION.
There is no action, suit or proceeding pending, or to the
knowledge of the Borrower threatened, against or affecting the Borrower or
any of its Subsidiaries before any court or arbitrator or any governmental
body, agency or official which could have a Material Adverse Effect except as
described on SCHEDULE 4.5, or which in any manner draws into question the
validity of, or could impair the ability of the Borrower or any Subsidiary
Guarantor to perform its obligations under, this Agreement, the Notes, the
Subsidiary Guaranty or any of the other Loan Documents.
SECTION 4.6. COMPLIANCE WITH LAWS GENERALLY; COMPLIANCE
WITH ERISA.
The Borrower and each Subsidiary are in compliance in all
material respects with applicable laws (including, but not limited to,
ERISA), regulations and similar requirements of governmental authorities
(including, but not limited to, PBGC), noncompliance with which could have or
cause a Material Adverse Effect, except where the necessity of such
compliance is being contested in good faith through appropriate proceedings.
To the best of the Borrower's knowledge, (i) the Borrower and each member of
the Controlled Group have fulfilled their respective obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and
are in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and have not incurred any liability to the
PBGC or a Plan under Title IV of ERISA; and (ii) neither the Borrower nor any
member of the Controlled Group is or ever has been obligated to contribute to
any Multiemployer Plan.
SECTION 4.7. TAXES.
There have been filed on behalf of the Borrower and its
Subsidiaries all federal, state and local income, excise, property and other
tax returns which are required to be filed by them and all taxes due pursuant
to such returns or pursuant to any assessment received by or on behalf of the
Borrower or any Subsidiary have been paid, except for amounts that either are
immaterial or are being disputed in good faith and by appropriate
proceedings. The charges, accruals and reserves on the books of the Borrower
and its Subsidiaries in respect of taxes or other governmental charges are,
in the opinion of the Borrower, adequate.
SECTION 4.8. SUBSIDIARIES.
As of the Closing Date, the Borrower has no Subsidiaries,
except for the Subsidiaries set forth on SCHEDULE 4.8, all of which are
Consolidated Subsidiaries.
-31-
<PAGE>
SECTION 4.9. NOT A PUBLIC UTILITY, HOLDING COMPANY,
INVESTMENT COMPANY OR INVESTMENT ADVISER.
Neither the Borrower nor any Subsidiary is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company,"
or a "public utility," within the meaning of the Public Utility Holding
Company Act of 1935, as amended; or a "public utility" within the meaning of
the Federal Power Act, as amended; or an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended; or an "investment adviser" within the
meaning of the Investment Advisers Act of 1940, as amended.
SECTION 4.10. OWNERSHIP OF PROPERTY; LIENS.
The Borrower and each of its Subsidiaries owns Properties,
or interests in Properties, sufficient for the conduct of its business; and
none of such Properties is subject to any Lien except as permitted in Section
5.8.
SECTION 4.11. NO DEFAULT.
Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any agreement, instrument or undertaking to
which it is a party or by which it or any of its property is bound which
could have or cause a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 4.12. FULL DISCLOSURE.
All written information and, to the best of the Borrower's
knowledge, all other information, heretofore furnished by the Borrower to the
Administrative Agent, the Syndication Agent, the Arranger, the Co-Arranger or
any Bank for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all such information hereafter
furnished by the Borrower to the Administrative Agent, the Syndication Agent,
the Arranger, the Co-Arranger or any Bank will be, true, accurate and
complete in every material respect or based on reasonable estimates on the
date as of which such information is stated or certified. The Borrower has
disclosed in its offering circular dated June 2, 1999, a copy of which has
been delivered to each of the Banks, or otherwise in a writing delivered to
the Banks, any and all facts which could reasonably be expected to have or
cause a Material Adverse Effect.
SECTION 4.13. ENVIRONMENTAL MATTERS.
To the best of the Borrower's knowledge, (i) neither the
Borrower nor any Subsidiary is subject to any Environmental Liability which
could have or cause a Material Adverse Effect and neither the Borrower nor
any Subsidiary has been designated as a potentially responsible party under
CERCLA or under any state statute similar to CERCLA. None of the Properties
located in the United States, owned
-32-
<PAGE>
by either the Borrower or a Subsidiary, has been identified on any current or
proposed (A) National Priorities List under 40 C.F.R. ss. 300, (B) CERCLIS
list or (C) any list arising from a state statute similar to CERCLA; (ii) to
the best of the Borrower's knowledge, no Hazardous Materials have been or are
being used, produced, manufactured, processed, treated, recycled, generated,
stored, disposed of, managed or otherwise handled at, or shipped or
transported to or from the Properties or are otherwise present at, in or
under the Properties, owned or operated by either the Borrower or a
Subsidiary, or, to the best of the knowledge of the Borrower, at or from any
adjacent site or facility, EXCEPT for Hazardous Materials, such as cleaning
solvents, pesticides and other materials used, produced, manufactured,
processed, treated, recycled, generated, stored, disposed of, managed, or
otherwise handled in the ordinary course of business in compliance with all
applicable Environmental Requirements; and (iii) to the best of the
Borrower's knowledge, the Borrower and its Subsidiaries are in compliance
with all Environmental Requirements in connection with the ownership, use and
operation of the Properties and the Borrower's and such Subsidiary's
respective businesses.
SECTION 4.14. CAPITAL STOCK.
All Capital Stock, debentures, bonds, notes and all other
securities of the Borrower and its Subsidiaries presently issued and
outstanding are validly and properly issued in accordance with all applicable
laws, including but not limited to, the "Blue Sky" laws of all applicable
states and the federal securities laws.
SECTION 4.15. MARGIN STOCK.
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of
purchasing or carrying any Margin Stock, and no part of the proceeds of any
Revolving Loan or Swing Loan will be used to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock, or be used for any purpose which violates, or which is
inconsistent with the provisions of, Regulations T, U or X.
SECTION 4.16. SOLVENCY.
After giving effect to the execution and delivery of the
Loan Documents, the making of the Revolving Loans and Swing Loans under this
Agreement and the incurrence of the Subordinated Debt described in Section
3.1.1, the Borrower will be Solvent.
SECTION 4.17. POSSESSION OF FRANCHISES, LICENSES, ETC.
The Borrower and its Subsidiaries possess to the extent
material all franchises, certificates, licenses, permits and other
authorizations from governmental and political subdivisions or regulatory
authorities, and all patents, trademarks, service marks, trade names,
copyrights, franchises, licenses and other rights that are necessary for
ownership, maintenance and operation of any of their respective material
-33-
<PAGE>
Properties and assets, and neither the Borrower nor any of its Subsidiaries
is in violation of any thereof, which, individually or in the aggregate,
would or might have or cause a Material Adverse Effect.
SECTION 4.18. INSURANCE.
The Borrower and each of its Subsidiaries maintains
adequate insurance on, and in respect of the ownership and operation of, its
Properties in at least such amounts and against at least such risks as are
usually insured against in the same general area by companies of established
repute engaged in the same or similar business.
SECTION 4.19. Y2K PLAN.
By the Closing Date, the Borrower shall have developed and
delivered to the Administrative Agent a comprehensive plan (the "Y2K Plan"),
including milestones ("Y2K Plan Milestones"), to identify whether its and its
Subsidiaries' computer software and hardware systems which materially impact
or affect the business operations of the Borrower and such Subsidiaries will
be Year 2000 Compliant and Ready.
ARTICLE 5. COVENANTS
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable hereunder or under any Note
remains unpaid:
SECTION 5.1. INFORMATION.
The Borrower will deliver to the Administrative Agent and
each of the Banks:
5.1.1 ANNUAL AUDIT. As soon as available and in
any event within ninety (90) days after the end of each Fiscal Year, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
as of the end of such Fiscal Year and the related consolidated statements of
income, shareholders' equity and cash flows for such Fiscal Year, setting
forth in each case in comparative form the figures for the previous fiscal
year, all certified by independent public accountants of nationally
recognized standing, with such certification to be free of any material
exceptions and qualifications; PROVIDED that, the information required by
this paragraph may be satisfied by delivery of information pursuant to
Section 5.1.5 or Section 5.1.6;
5.1.2 INTERIM STATEMENTS. As soon as available
and in any event within fifty (50) days after the end of each of the first
three (3) Fiscal Quarters of each Fiscal Year, a consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of the end of such
Fiscal Quarter and the related statement of income and statement of cash
flows for such quarter and for the portion of the Fiscal Year ended at the
end of such quarter, setting forth in each case in comparative form the
figures for the
-34-
<PAGE>
corresponding quarter and the corresponding portion of the previous Fiscal
Year, all certified (subject to normal year-end adjustments) as to fairness
of presentation, GAAP and consistency by the chief financial officer of the
Borrower; PROVIDED that the information required by this paragraph may be
satisfied by delivery of information pursuant to Section 5.1.5 or Section
5.1.6;
5.1.3 COMPLIANCE CERTIFICATES. Simultaneously
with the delivery of each set of financial statements referred to in Sections
5.1.1 and 5.1.2, a certificate, substantially in the form of EXHIBIT G (a
"Compliance Certificate"), of the chief financial officer of the Borrower (i)
setting forth in reasonable detail the calculations required to establish
whether the Borrower was in compliance with the requirements of Sections 5.4,
5.5, 5.6, 5.7 and 5.20 on the date of such financial statements and (ii)
stating whether any Default exists on the date of such certificate and, if
any Default then exists, setting forth the details thereof and the action
which the Borrower is taking or proposes to take with respect thereto;
5.1.4 DEFAULT NOTICE. Promptly (and, in any
event, within five (5) Domestic Business Days) after the Borrower becomes
aware of the occurrence of any Default, a certificate of the chief financial
officer of the Borrower setting forth the details thereof and the action
which the Borrower is taking or proposes to take with respect thereto;
5.1.5 PROXY. Promptly upon the mailing thereof
to the shareholders of the Borrower generally, copies of all financial
statements, reports and proxy statements so mailed;
5.1.6 REGISTRATION STATEMENTS. Promptly upon the
filing thereof, copies of all registration statements and annual, quarterly
or monthly reports which the Borrower shall have filed with the Securities
and Exchange Commission;
5.1.7 ERISA NOTICES. If and when any member of
the Controlled Group (i) gives or is required to give notice to the PBGC of
any reportable event (as defined in Section 4043 of ERISA) with respect to
any Plan which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Plan has given
or is required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the PBGC;
(ii) receives notice of complete or partial withdrawal liability under Title
IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate or appoint a trustee to
administer any Plan, a copy of such notice; and
5.1.8 Y2K PLAN. Simultaneously with the delivery
of each set of annual and quarterly financial statements referred to in
SECTION 5.1.1 and SECTION 5.1.2 until such time as Borrower is Year 2000
Compliant and Ready, a statement of the chief executive officer, chief
financial officer, or chief technology officer of the Borrower to the effect
that nothing has come to his attention to cause him to believe that the Y2K
Plan Milestones have not been achieved (or cannot be achieved) in a manner
such that the Borrower's and its Subsidiaries' hardware and software systems
will not be Year 2000 Compliant and Ready in accordance with the Y2K Plan. In
addition, if, prior to the delivery date of any such
-35-
<PAGE>
statements, the Borrower becomes aware of any material deviations from the
Y2K Plan or any Y2K Plan Milestones which would be reasonably likely to cause
the Borrower and its Subsidiaries not to be Year 2000 Compliant and Ready, a
statement of the chief executive officer, chief financial officer, or chief
technology officer of Borrower setting forth the details thereof and the
action which the Borrower is taking or proposes to take with respect thereto
shall be delivered to each of the Banks promptly thereafter.
5.1.9 OTHER REPORTS. From time to time such
additional information regarding the financial position or business of the
Borrower and its Subsidiaries as the Administrative Agent, at the request of
any Bank, may reasonably request.
SECTION 5.2. INSPECTION OF PROPERTY, BOOKS AND RECORDS.
The Borrower will keep, and require each Subsidiary to
keep, proper books of record and account in which full, true and correct
entries in conformity with GAAP (or, in the case of any non-domestic
Subsidiary, such other accounting standards, rules, regulations and practices
applicable to businesses operating in the locality in which each such Person
operates); and permit, and cause each Subsidiary to permit, representatives
of any Bank at such Bank's expense prior to the occurrence of a Default and
at the Borrower's expense after the occurrence and during the continuance of
a Default to visit and inspect any of their respective properties, to examine
and make abstracts from any of their respective books and records and to
discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants. The Borrower agrees
to cooperate and assist in such visits and inspections in each case at such
reasonable times and as often as may reasonably be desired.
SECTION 5.3. Y2K. The Borrower will diligently endeavor to
meet the Y2K Plan Milestones such that all computer hardware and software
systems identified as material will be Year 2000 Compliant and Ready in
accordance with the Y2K Plan.
SECTION 5.4. ADJUSTED TOTAL DEBT/ADJUSTED TOTAL CAPITAL
RATIO.
The Adjusted Total Debt/Adjusted Total Capital Ratio will
not at any time exceed .70:1.0.
SECTION 5.5. FIXED CHARGE COVERAGE RATIO.
Borrower's Fixed Charge Coverage Ratio, measured on a
rolling four (4) Fiscal Quarters' basis as of the end of each Fiscal Quarter,
commencing with the Fiscal Quarter ended closest to June 30, 1999, shall be
(i) not less than 1.50:1, for the Fiscal Quarters ending closest to June 30,
1999, September 30, 1999 and December 31, 1999, (ii) not less than 1.75:1,
for the Fiscal Quarters ending closest to March 31, 2000, June 30, 2000,
September 30, 2000 and December 31, 2000; and (iii) not less than 2.00:1, for
each Fiscal Quarter ending thereafter.
SECTION 5.6. TOTAL DEBT/EBITDA RATIO.
-36-
<PAGE>
The ratio which (i) the Total Debt of the Borrower and its
Consolidated Subsidiaries at the end of any Fiscal Quarter, commencing with
the Fiscal Quarter ended closest to June 30, 1999, bears to (ii) the EBITDA
of the Borrower and its Consolidated Subsidiaries, measured on a rolling four
(4) Fiscal Quarters' basis as of the end of such Fiscal Quarter (the "Total
Debt/EBITDA Ratio"), shall be (i) not more than 4.00:1, for the Fiscal
Quarters ending closest to June 30, 1999, September 30, 1999 and December 31,
1999, (ii) not more than 3.75:1 for the Fiscal Quarters ending closest to
March 31, 2000, June 30, 2000, September 30, 2000 and December 31, 2000 and
(iii) not more than 3.50:1 for each Fiscal Quarter ending thereafter. In
computing EBITDA in respect of the foregoing ratio and the ratio set forth in
Section 5.7, (a) any asset or stock dispositions by the Borrower consisting
of the sale of a business line, segment or other group of related stores
occurring within a Fiscal Quarter shall be accounted for by reducing EBITDA
by the individual EBITDA attributable to each store within such group for
such Fiscal Quarter and the three (3) preceding Fiscal Quarters or, in the
event that any such store had negative individual EBITDA for such periods, by
increasing EBITDA by the amount of such negative EBITDA; and (b) any asset or
stock acquisitions by the Borrower consisting of the purchase of a business,
line, segment or other group of related stores occurring within a Fiscal
Quarter shall be accounted for by increasing EBITDA by the individual EBITDA
attributable to each store within such group for such Fiscal Quarter and for
the three (3) preceding Fiscal Quarters or, in the event that any such store
had negative individual EBITDA for such periods, by decreasing EBITDA by the
amount of such negative EBITDA; in each instance, on an historical basis, in
a manner which Borrower shall determine, but subject to prior review with,
and approval by, the Administrative Agent.
SECTION 5.7. TOTAL SENIOR DEBT/EBITDA RATIO. The ratio
which (i) the Total Senior Debt of the Borrower and its Consolidated
Subsidiaries at the end of any Fiscal Quarter, commencing with the Fiscal
Quarter ended closest to June 30, 1999, bears to (ii) EBITDA of the Borrower
and its Consolidated Subsidiaries, measured on a rolling Four Quarters' basis
as of the end of such Fiscal Quarter (adjusted, however, as reflected in
Section 5.6), shall be (i) not more than 3.00:1, for the Fiscal Quarters
ending closest to June 30, 1999, September 30, 1999 and December 31, 1999,
(ii) not more than 2.75:1 for the Fiscal Quarters ending closest to March 31,
2000, June 30, 2000, September 30, 2000 and December 31, 2000 and (iii) not
more than 2.50:1, for any Fiscal Quarter ending thereafter
SECTION 5.8. NEGATIVE PLEDGE.
The Borrower will not, nor will the Borrower permit any
Subsidiary to, create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, EXCEPT: (i) those Liens, if any, described
on SCHEDULE 5.8, concerning existing Debt of the Borrower, to be set forth
and described more particularly therein, together with any Lien arising out
of the refinancing, extension, renewal or refunding of any Debt secured by
any such Lien, PROVIDED that such Debt is not secured by any additional
assets, and the amount of such Debt secured by any such Lien is not
increased; (ii) Liens incidental to the conduct of its business or the
ownership of its Properties which (A) do not secure Debt and (B) do not in
the aggregate materially detract from the value of its Properties or
materially impair the use thereof or the operation of its business,
including, without limitation, easements, rights of way, restrictive
covenants, zoning and other
-37-
<PAGE>
similar restrictions on real property; (iii) materialmen's, mechanics',
warehousemen's, carriers', landlords' and other similar statutory Liens which
secure Debt or other obligations that are not past due, or, if past due are
being contested in good faith by the Borrower or the appropriate Subsidiary
by appropriate proceedings; (iv) Liens for taxes not delinquent or taxes
being contested in good faith and by appropriate proceedings; (v) pledges or
deposits in connection with worker's compensation, unemployment insurance and
other social security legislation; (vi) deposits to secure performance of
bids, trade contracts, leases, statutory obligations (to the extent not
excepted elsewhere herein); (vii) grants of security and rights of setoff in
deposit accounts, securities and other properties held at banks or financial
institutions to secure the payment or reimbursement under overdraft, letter
of credit, acceptance and other credit facilities; (viii) rights of setoff,
banker's liens and other similar rights arising solely by operation of law;
(ix) Purchase Money Liens, PROVIDED that the total amount of all such Debt,
when aggregated with any Debt described in clause (x) below then outstanding,
does not exceed, at any time, in aggregate amount, fifteen percent (15%) of
Tangible Net Worth; (x) Liens on any Properties acquired by Borrower or any
Subsidiary subsequent to the Closing Date, to the extent that (A) such Liens
are existing at the time of acquisition, (B) the Debt secured thereby is not
secured by any other Properties of Borrower or such Subsidiary except the
acquired Properties, (C) the amount of such Debt so secured thereby is not
increased at or subsequent to the acquisition and (D) the total amount of all
such Debt secured by all such acquired Properties, when aggregated with all
Purchase Money Debt then outstanding, does not exceed at any time, in
aggregate amount, fifteen percent (15%) of Tangible Net Worth; together with
any Lien arising out of the refinancing, extension, renewal or refunding of
any Debt secured by any such Lien, PROVIDED that such Debt is not secured by
any additional assets, and the amount of such Debt secured by any such Lien
is not increased; (xi) capital leases made in the ordinary course of business
(but excluding, however, sale-leaseback transactions in any event) in which
there is no provision for title to the leased Property to pass to the
Borrower or such Subsidiary at the expiration of the lease term or as to
which no bargain purchase option exists; and (xii) rights of lessors in
respect of Properties leased to the Borrower or its Subsidiaries under
operating leases.
SECTION 5.9. MAINTENANCE OF EXISTENCE.
Except as permitted in Section 5.10 and 5.11, the Borrower
shall, and shall cause each Subsidiary to, maintain its corporate existence
and carry on its business in substantially the same manner and in
substantially the same fields as such business is now carried on and
maintained.
SECTION 5.10. DISSOLUTION.
Neither the Borrower nor any of its Subsidiaries shall
suffer or permit dissolution or liquidation either in whole or in part,
except through corporate reorganization to the extent permitted by Section
5.11.
SECTION 5.11. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS.
-38-
<PAGE>
The Borrower will not, nor will it permit any Subsidiary
to, consolidate or merge with or into, or sell, lease or otherwise transfer
all or any substantial part of its assets to, any other Person, or
discontinue or eliminate any business line or segment, PROVIDED, HOWEVER,
that, (i) subject at all times to Section 5.20, the Borrower or any
Subsidiary may merge with another Person (which is not the Borrower or such
Subsidiary) if (A) such Person was organized under the laws of the United
States of America or one of its states, (B) the Borrower or such Subsidiary
(as the case may be) is the corporation surviving such merger and (C)
immediately after giving effect to such merger, no Default shall have
occurred and be continuing, (ii) any Subsidiaries of the Borrower may (A)
merge or consolidate with each other or with the Borrower (so long as the
Borrower is the corporation surviving such merger), or (B) sell assets to
each other or to the Borrower and (iii) in connection with acquisitions
permitted pursuant to clause (xii) of Section 5.20, the Borrower may cause
one or more Subsidiaries formed for such purpose to merge into acquisition
targets in order to consummate such acquisitions; and, PROVIDED, FURTHER,
that the Borrower may consummate Asset Sales so long as, unless otherwise
approved in writing by the Required Banks, each of the following conditions
is met: (i) the Asset Sales are to Persons other than Affiliates, (ii) the
Asset Sales are made for cash, (iii) the Net Cash Proceeds from all such
Asset Sales (other than any in respect of Non-Core Assets) in any one Fiscal
Year do not exceed Ten Million Dollars ($10,000,000), (iv) the proceeds of
all such Asset Sales (other than any in respect of Non-Core Assets) are
applied in the manner provided in Section 2.9.2, to the extent required
thereby, and to the extent not so required, to make optional prepayments of
the Revolving Loans pursuant to Section 2.8 hereof and for working capital in
Borrower's business, but for no other purpose, and (v) no Default has
occurred which is then continuing or otherwise would result from such sale
occurring.
SECTION 5.12. USE OF PROCEEDS.
The proceeds of the initial Revolving Loans will be used by
the Borrower to refinance all indebtedness then outstanding under its Credit
Agreement, dated as of April 1, 1998, with the banks named therein and
Wachovia, as Agent, as amended to date, and to refinance any other Debt
which, pursuant to the terms of this Agreement, is required to be paid in
full and refinanced as of the Closing Date. The proceeds of all subsequent
Revolving Loans and all Swing Loans will be used by the Borrower solely for
working capital, and for no other purpose except that Borrower may use such
proceeds to settle any Equity Forward Contracts then permitted to exist
hereunder. Without limitation of the foregoing, no portion of the proceeds of
the Revolving Loans or Swing Loans will be used by the Borrower (i) in
connection with, whether directly or indirectly, any tender offer for, or
other acquisition of, stock of any corporation with a view towards obtaining
control of such other corporation even if such acquisition is otherwise
permitted hereunder, (ii) directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin
Stock, (iii) generally, to finance investments, even if such investments are
otherwise permitted hereunder, or (iv) for any other purpose in violation of
any term of this Agreement or of any applicable law or regulation.
SECTION 5.13. COMPLIANCE WITH LAWS; PAYMENT OF TAXES.
-39-
<PAGE>
The Borrower will, and will cause each of its Subsidiaries
and each member of the Controlled Group to, comply in all material respects
with applicable laws (including but not limited to ERISA), regulations and
similar requirements of governmental authorities (including but not limited
to PBGC), except where the necessity of such compliance is being contested in
good faith through appropriate proceedings. The Borrower will, and will cause
each of its Subsidiaries to, pay promptly when due all taxes, assessments
governmental charges, claims for labor, supplies, rent and other obligations
which, if unpaid, might become a Lien against the Property of the Borrower or
any Subsidiary, except liabilities being contested in good faith and against
which, if requested by the Administrative Agent, the Borrower will set up
reserves in accordance with GAAP.
SECTION 5.14. INSURANCE.
The Borrower will maintain, and will cause each of its
Subsidiaries to maintain (either in the name of the Borrower or in such
Subsidiary's own name), with financially sound and reputable insurance
companies, insurance on, and in respect of the ownership and operation of,
its Properties in at least such amounts and against at least such risks as
are usually insured against in the same general area by companies of
established repute engaged in the same or similar business.
SECTION 5.15. CHANGE IN FISCAL YEAR.
The Borrower will not change its Fiscal Year without the
consent of the Required Banks.
SECTION 5.16. MAINTENANCE OF PROPERTY.
The Borrower shall, and shall cause each Subsidiary to,
maintain all of its Properties in good condition, repair and working order,
ordinary wear and tear excepted.
SECTION 5.17. ENVIRONMENTAL NOTICES.
The Borrower shall furnish to the Administrative Agent,
promptly after the Borrower becomes aware thereof, written notice of all
Environmental Liabilities, pending, threatened Environmental Proceedings,
Environmental Notices, Environmental Judgments and Orders and Environmental
Releases, at, on, in, under or in any way affecting the Properties or any
adjacent property and all facts, events, or conditions that could reasonably
be expected to lead to any of the foregoing.
SECTION 5.18. ENVIRONMENTAL MATTERS.
The Borrower will not, and will not permit any Third Party
to, use, produce, manufacture, process, treat, recycle, generate, store,
dispose of, manage at, or otherwise handled or ship or transport to or from
the Properties any Hazardous Materials EXCEPT for Hazardous Materials such as
cleaning solvents, pesticides and other similar materials used, produced,
manufactured, processed, treated, recycled,
-40-
<PAGE>
generated, stored, disposed, managed, or otherwise handled in the ordinary
course of business in compliance with all applicable Environmental
Requirements.
SECTION 5.19. ENVIRONMENTAL RELEASES.
The Borrower agrees that upon the occurrence of an
Environmental Release (EXCEPT for any Environmental Release which (x)
occurred in compliance with all Environmental Requirements and (y) could not
reasonably be expected to have or cause a Material Adverse Effect), it will
act immediately to investigate the extent of, and to take appropriate
remedial action to eliminate, such Environmental Release, whether or not
ordered or otherwise directed to do so by any Environmental Authority.
SECTION 5.20. INVESTMENTS.
The Borrower will not make (nor will the Borrower permit
any Subsidiary to make) any investment in any Person or Property (which term
"investment," for purposes hereof, shall mean and include, without
limitation, the acquisition of any property, the issuance, acquisition or
exchange of any capital stock, debt or other obligations or security to, from
or with any Person, the making of any loan, advance, extension of credit,
credit accommodation, Guarantee or capital contribution to or on behalf of
any Person, and the leasing or subleasing of any property to any Person, but
shall not include the issuance by the Borrower of its Capital Stock in
exchange for cash consideration), PROVIDED, HOWEVER, that, notwithstanding
the foregoing, the Borrower (or any Subsidiary) may, from time to time,
undertake the following, without the necessity of obtaining the Required
Banks' prior written consent thereto:
(i) CURRENT ASSETS. Acquire current assets for use in, or
arising from, the sale of goods or services in the ordinary course of its
business (including, for this purpose, but without limitation, credit card
receivables);
(ii) CAPITAL EXPENDITURES. Make capital expenditures in
the ordinary course of its business;
(iii) FRANCHISE FEES. Pay franchisee fees and royalties to
its franchisors in the ordinary course of its business;
(iv) ESCROW DEPOSITS. Make or maintain escrow deposits for
the payment of taxes, rents, utilities, insurance or like matters in the
ordinary course of its business;
(v) BANK ACCOUNTS. Make and maintain deposits of cash in
demand deposit accounts of banks in the ordinary course of its business, and
make endorsements of checks, drafts or other instruments in connection
therewith;
(vi) SURPLUS CASH. Consistent at all times with the
Borrower's internal Statement of Investment Policy, invest surplus cash in
(A) obligations of, or guaranteed by, the United States of America
-41-
<PAGE>
or any agency thereof, (B) short-term certificates of deposit issued by, and
time deposits with, any Bank or any other financial institution domiciled in
the United States of America with assets of at least $500,000,000, (C)
short-term commercial paper rated at least "A1" by Standard & Poors or "P1"
by Moody's, and (D) fixed or adjustable rate corporate debt securities with a
credit rating of at least double A (Aa/AA) by either Moody's or Standard &
Poors, provided that any fixed rate debt securities have a maturity of one
year or less;
(vii) SUBSIDIARIES. Have investments in Consolidated
Subsidiaries of the Borrower in the ordinary course of, and pursuant to the
reasonable requirements of, the Borrower's and such Subsidiaries' respective
businesses (including, without limitation, the issuance of Guarantees of the
obligations of such Consolidated Subsidiaries), PROVIDED that the aggregate
amount of such investments which may be outstanding at any one time
hereafter, as to all such Subsidiaries, other than any which are Subsidiary
Guarantors (as to which no limitation shall apply), shall not exceed (A) as
to the Hops Subsidiaries, the sum of (1) the aggregate amount thereof which
already has been invested and remains outstanding on the Closing Date, or has
been committed to be invested as of the Closing Date, as set forth on
SCHEDULE 5.20 attached hereto (without credit for any reductions thereof
which may occur subsequent to the Closing Date), PLUS (2) an additional
amount, which shall represent the maximum amount, in the aggregate, which may
be invested in the Hops Subsidiaries subsequent to the Closing Date, not to
exceed Two Million Five Hundred Thousand Dollars ($2,500,000) per annum,
measured from the Closing Date, in annual increments (without any rollover
from year-to-year); and (B) as to all Subsidiaries, other than the Hops
Subsidiaries and any Subsidiaries which are Subsidiary Guarantors, an
aggregate amount which does not exceed, when aggregated with all investments
(whether or not made in, by or through Subsidiaries) under clause (x) of this
Section 5.20, ten percent (10%) of the sum of (A) Borrower's Stockholders
Equity at any time PLUS (B) the amount of the TECONS at such time; it being
understood and agreed that there shall be deducted in any event from the
amount of investments in such Subsidiaries which may be made pursuant to this
subclause (B) the aggregate amount of Capitalized Lease Obligations of all
such Subsidiaries which are at any time outstanding, if and to the extent not
already counted against such amount as an investment of Borrower; I.E., as a
Capitalized Lease Obligation owing to Borrower as lessor or sublessor.
(viii) TRAVEL ADVANCES. Make travel and similar advances to
employees from time to time in the ordinary course of business;
(ix) SPECIAL LIFE INSURANCE PROGRAM. The Borrower may invest up
to Eight Hundred Fifty Thousand Dollars ($850,000) per Fiscal Year in the
making of annual premiums payable on the split dollar joint survivor life
insurance program implemented, or to be implemented, covering the lives of
Tom E. DuPree, Jr. and his spouse Anne DuPree, with an initial death benefit
of Fifty Million Dollars ($50,000,000), PROVIDED, HOWEVER, that (i) such
investments are made over a period not to exceed ten (10) Fiscal Years and
(ii) Borrower maintains at all times during the effective period of the
program a security interest in policy proceeds and cash values of policies
issued as part of the program equal in amount to not less than its then
cumulative premium investments;
-42-
<PAGE>
(x) RESTAURANT CONCEPTS. So long as no Default has occurred
and is continuing or would be caused thereby, make investments in restaurant
concepts and joint ventures (including, without limitation, by the issuance
of Guarantees of the obligations of such restaurant concepts and joint
ventures), and whether directly or through one or more Subsidiaries, for the
operation of restaurants so long as the total amount of all such investments
at any time (after subtracting therefrom the amount of cash returns received
on any such investments) does not exceed, when aggregated with all
investments in Subsidiaries described in and permitted under subclause (B) to
clause (vii) of this Section 5.20, ten percent (10%) of the sum of (A)
Borrower's Stockholders Equity at any time PLUS (B) the amount of the TECONS
at such time;
(xi) OTHER ADVANCES. Make loans or advances to Affiliates
(excluding therefrom, however, Subsidiaries), shareholders, directors,
officers or employees in addition to those described in clauses (i) through
(x) hereinabove, in an aggregate amount as to all such loans and advances at
any time outstanding to all such Persons not to exceed Eight Million Dollars
($8,000,000) so long as, and provided that, (A) no Default has occurred and
is continuing or would be caused thereby, (B) each such loan or advance is
repaid in full, not later than two (2) years from the date of its
disbursement and (C) the aforesaid Eight Million Dollar ($8,000,000)
limitation shall be reduced by the amount of such repayments until such
limitation is reduced to Five Million Dollars ($5,000,000);
(xii) ACQUISITIONS. Acquire all of the stock or assets of any
Person, so long as (A) the aggregate amount of cash, or value of Property,
paid as consideration in connection with all such acquisitions, and
liabilities assumed by the Borrower or any Subsidiary in connection with all
such acquisitions consummated during any eighteen (18) month period,
determined initially for the eighteen (18) month period commencing on the
Closing Date and thereafter for each eighteen (18) month period commencing on
the first day of each month thereafter, does not exceed the LESSER of (1)
five percent (5%) of consolidated total assets of Borrower and its
Consolidated Subsidiaries and (2) Fifty Million Dollars ($50,000,000) , (ii)
after giving effect to all such acquisitions, no Default has occurred and is
continuing and (iii) after giving effect to all such acquisitions, Borrower's
and its Consolidated Subsidiaries' total Senior Debt/EBITDA Ratio and Total
Debt/EBITDA Ratio, determined on a pro forma basis as of the most recently
ended Fiscal Quarter of the Borrower for which financial statements have been
delivered to the Administrative Agent and the Banks pursuant to Section
5.1.2, as if such acquisitions had been consummated prior to the date of such
financial statements, shall not exceed 2.50:1.0 and 3.50:1.0, respectively.
In the event that, and to the extent that, as of the Closing Date,
any of the terms or conditions set forth in this Section 5.20 (or in Section
5.21 or Section 5.22 below) shall operate to restrict the ability of any
Consolidated Subsidiary to (i) pay dividends or make distributions permitted
under applicable law on any capital stock of such Subsidiary owned by the
Borrower or any other Consolidated Subsidiary, (ii) pay any indebtedness or
other obligation owed to the Borrower or any other Consolidated Subsidiary,
(iii) make loans or advances to the Borrower or any other Consolidated
Subsidiary, or (iv) transfer any of its property or assets to Borrower or any
other Consolidated Subsidiary (the "SUBSIDIARY ACTIVITIES"), and the
imposition of such restriction on any such Subsidiary Activities pursuant
hereto is expressly prohibited
-43-
<PAGE>
under, or constitutes an event of default under, the terms of the Borrower's
existing indenture for its 9-3/4% senior notes of due June 1, 2006, then,
notwithstanding the foregoing, such Subsidiary Activities shall be permitted.
SECTION 5.21. DEBT.
The Borrower will not incur, assume or suffer to exist any
Debt or obligation under any Guarantee (or permit any Subsidiary to do so),
EXCEPT FOR: (i) Debt for Borrowed Money existing on the date of this
Agreement and disclosed in the interim financial statements described in
Section 4.4; (ii) Debt and Guarantees incurred pursuant to this Agreement or
the other Loan Documents; (iii) trade payables and contractual obligations to
suppliers and customers incurred in the ordinary course of business; (iv)
accrued pension fund and other employee benefit plan obligations and
liabilities (provided, however, that such Debt does not result in the
existence of any Event of Default or Default under any other provision of
this Agreement); (v) deferred taxes; (vi) Debt resulting from endorsements of
negotiable instruments received in the ordinary course of its business; (vii)
any Debt described in, and permitted within Section 5.8; (viii) Debt and
Guarantees described in and permitted pursuant to clauses (vii) and (x) of
Section 5.20; (ix) Debt arising under or in connection with interest rate
protection contracts entered into by the Borrower with a Bank in the ordinary
course of business, and not for speculation; (x) in the case of the Borrower
and Subsidiary Guarantors, Capitalized Lease Obligations;(xi) other Debt for
Borrowed Money in respect of letters of credit issued in conjunction with
debts, liabilities and obligations arising from time to time in the ordinary
course of, and pursuant to the customary operation of, Borrower's business;
and (xii) the Subordinated Debt.
SECTION 5.22. DIVIDENDS AND DISTRIBUTIONS. The Borrower
will not, nor will the Borrower permit any Subsidiary to, (i) pay any cash
dividend; (ii) make any capital distribution; (iii) redeem, repurchase or
retire for cash any Capital Stock (except as permitted pursuant to Section
5.25); or (iv) take any other action which would have an effect equivalent to
any of the foregoing (the actions described in the preceding clauses (i)
through (iv) herein called, generally, "DISTRIBUTIONS"); PROVIDED, HOWEVER,
that, notwithstanding the foregoing, (A) so long as no Default has occurred
and is continuing or would be caused thereby, the Borrower may pay cash
dividends on its Capital Stock in each Fiscal Year in an aggregate amount not
to exceed Three Million Dollars ($3,000,000) per Fiscal Year during its
Fiscal Years ending on or about December 31, 1999 and December 31, 2000 and
Four Million Dollars ($4,000,000) during each Fiscal Year thereafter, (B)
each Subsidiary may make Distributions on any Capital Stock of such
Subsidiary owned by the Borrower or another Consolidated Subsidiary which is
a Subsidiary Guarantor and (C) Borrower may make Distributions on the TECONS.
SECTION 5.23. TRANSACTIONS WITH AFFILIATES. The Borrower
will not, and will not permit any Subsidiary to enter into, or be a party to,
any transaction with any Affiliate, EXCEPT in the ordinary course of and
pursuant to the reasonable requirements of its business and upon fair and
reasonable terms and are no less favorable to Borrower or said Subsidiary
than would be obtained in a comparable arm's length transaction with a Person
not an Affiliate.
-44-
<PAGE>
SECTION 5.24. SUBSIDIARY GUARANTIES. The Borrower shall
cause each Consolidated Subsidiary of the Borrower acquired or coming into
existence after the Closing Date which is a wholly-owned Subsidiary, directly
or indirectly, of Borrower (excepting therefrom any having total assets of
less than Ten Thousand Dollars ($10,000)), as soon as practicable after, but
in any event within thirty (30) days after, its acquisition or creation, to
execute a Subsidiary Guaranty, together with all other such documents which
the Administrative Agent may reasonably request in connection therewith,
including a secretary's certificate, confirming the existence of enabling
authorization in respect of such Subsidiary Guarantor and signing officer
incumbency, and an opinion of counsel, confirming that such Subsidiary
Guaranty is a valid, binding and enforceable obligation of the Subsidiary
party thereto, subject to customary assumptions, exceptions and limitations
acceptable to Administrative Agent. There shall be excluded from the
foregoing requirements any Consolidated Subsidiary of the Borrower which, as
a result of planned transfers of Capital Stock to store managers, (A) will be
a wholly-owned Subsidiary of the Borrower for a period of not more than
ninety (90) days after its acquisition or creation or (B) becomes a
wholly-owned Subsidiary as a result of the return to the Borrower of, or the
cancellation of, any Capital Stock by any store manager for a period of not
more than ninety (90) days after such return or cancellation occurs;
PROVIDED, HOWEVER, THAT, (i) such requirements shall apply if such planned
transfers are not made during such period such that such Subsidiary continues
to be a wholly-owned Subsidiary at the expiration of such grace period and
(ii) all such Subsidiaries shall be treated at all times, for purposes of
Section 5.20(vii), as if such Subsidiaries were not wholly-owned
Subsidiaries. The requirements of this Section 5.24 shall likewise apply to
any Subsidiary as to which the Borrower is not required to deliver a
Subsidiary Guaranty pursuant to one of the exceptions set forth in the
parenthetical to Section 3.1.3(C) as and when such exception no longer
applies. In addition to the foregoing, the Borrower may, at its option, at
any time, cause any other Subsidiary to execute a Subsidiary Guaranty,
together with all other such documents as the Administrative Agent may
request in connection therewith, consistent with the foregoing provisions,
after which such Subsidiary shall be a Subsidiary Guarantor for all purposes
hereof.
SECTION 5.25. STOCK PURCHASES, ETC. The Borrower will not,
and will not permit any Consolidated Subsidiary of the Borrower, to purchase
any Capital Stock of the Borrower, whether in a "spot" transaction, pursuant
to an Equity Forward Contract or otherwise, except (i) in respect of shares
of Capital Stock which are subject to Equity Forward Contracts entered into
prior to October 1, 1998 which are pending settlement as of the Closing Date,
and (ii) so long as no Default has occurred and is continuing or would be
caused thereby, other purchases of Borrower's Capital Stock in an aggregate
amount not in excess of Five Million Dollars ($5,000,000) during the term of
this Agreement, nor will Borrower enter into, or permit any Consolidated
Subsidiary to enter into, any Equity Forward Contract or amend or modify any
Equity Forward Contract in effect on the Closing Date so as to increase the
amount of, or price of, any shares of Capital Stock which are subject to
Equity Forward Contracts pending settlement as of the Closing Date.
SECTION 5.26. NO PREPAYMENT OF SENIOR NOTES. The Borrower
will not prepay, and will not permit any Subsidiary to prepay, the principal
amount of any of the Borrower's 9-3/4% Senior
-45-
<PAGE>
Notes, due 2006, heretofore issued by the Borrower in the aggregate principal
amount of $125,000,000, nor will Borrower repurchase or permit any Subsidiary
to repurchase, such Notes.
SECTION 5.27. SUBORDINATED DEBT. The Borrower will not, and
will to permit any Subsidiary to: (i) make any payment (whether of principal,
interest, premium or otherwise) on any Subordinated Debt unless and except to
the extent, if any, expressly permitted by the express, written terms of
subordination governing such Subordination Debt as then approved in writing
by the Required Lenders; or (ii), in any event, make any prepayment of any
part or all of any Subordinated Debt, or otherwise repurchase, redeem or
retire any instrument evidencing any Subordinated Debt prior to maturity; or
enter into any agreement which could in any way be construed to amend,
modify, alter or terminate any one or more instruments or agreements
evidencing or relating to any Subordinated Debt.
ARTICLE 6. DEFAULTS
SECTION 6.1. EVENTS OF DEFAULT.
If one or more of the following events ("Events of
Default") shall have occurred and be continuing:
6.1.1 NON-PAYMENT. The Borrower (i) shall fail to
pay when due any principal of any Revolving Loan or Swing Loan or (ii) shall
fail to pay any interest on any Revolving Loan or Swing Loan within five (5)
Domestic Business Days after such interest shall become due, or (iii) shall
fail to pay any fee or other amount payable hereunder or under any Loan
Document within five (5) Domestic Business Days after such fee or other
amount becomes due; or
6.1.2 FAILURE TO OBSERVE CERTAIN COVENANTS. The
Borrower shall fail to observe or perform any covenant contained in Sections
5.3 through 5.12, 5.14, 5.15, or 5.20 through 5.28, inclusive; or
6.1.3 FAILURE TO OBSERVE COVENANTS GENERALLY.
The Borrower shall fail to observe or perform any covenant or agreement
contained or incorporated by reference in this Agreement (other than those
covered by Sections 6.1.1 and 6.1.2) and such failure shall not have been
cured within ten (10) days after the EARLIER to occur of (i) written notice
thereof has been given to the Borrower by the Administrative Agent at the
request of any Bank or (ii) an executive, senior financial or accounting
officer of the Borrower otherwise becomes aware of any such failure; or
6.1.4 MISREPRESENTATION. Any representation,
warranty, certification or statement made by the Borrower in Article IV of
this Agreement or in any certificate, financial statement or other document
delivered pursuant to this Agreement shall prove to have been incorrect or
misleading in any material respect when made (or deemed made); or
-46-
<PAGE>
6.1.5 CROSS-DEFAULT. The Borrower or any
Subsidiary shall fail to make any payment in respect of any debt, liability
or obligation outstanding individually or in the aggregate with all other
such debts, liabilities or obligations, equal to or in excess of Five Hundred
Thousand Dollars ($500,000), other than the Notes, when due or within any
applicable grace period; or any event or condition shall occur which results
in the acceleration of the maturity of any such debt, liability or obligation
outstanding of the Borrower or any Subsidiary individually or in the
aggregate with all other such debts, liabilities or obligations equal to or
in excess of Five Hundred Thousand Dollars ($500,000) or the mandatory
prepayment or purchase of any such debt, liability or obligation by the
Borrower (or its designee) or such Subsidiary (or its designee) individually
or in the aggregate with all other such debts, liabilities or obligations
equal to or in excess of Five Hundred Thousand Dollars ($500,000) prior to
the scheduled maturity thereof, or enables (or, with the giving of notice or
lapse of time or both, would enable) the holders of any such debt, liability
or obligation individually or in the aggregate with all other such debts,
liabilities or obligations equal to or in excess of Five Hundred Thousand
Dollars ($500,000) or any Person acting on such holders' behalf to accelerate
the maturity thereof or require the mandatory prepayment or purchase thereof
prior to the scheduled maturity thereof, without regard to whether such
holders or other Person shall have exercised or waived their right to do so;
or
6.1.6 VOLUNTARY BANKRUPTCY. The Borrower or any
Subsidiary shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing; or
6.1.7 INVOLUNTARY BANKRUPTCY. An involuntary
case or other proceeding shall be commenced against the Borrower or any
Subsidiary seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or an order for
relief shall be entered against the Borrower or any Subsidiary under the
federal bankruptcy laws as now or hereafter in effect; or
6.1.8 ERISA. The Borrower or any member of the
Controlled Group shall fail to pay when due any material amount which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans shall be filed under
Title IV of ERISA by the Borrower, any member of the Controlled Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such Plan or Plans or a proceeding
shall be instituted by a fiduciary of any such Plan or Plans to enforce
Section 515 or 4219(c)(5) of ERISA and such proceeding
-47-
<PAGE>
shall not have been dismissed within thirty (30) days thereafter; or a
condition shall exist by reason of which the PBGC would be entitled to obtain
a decree adjudicating that any such Plan or Plans must be terminated; or
6.1.9 JUDGMENTS. One or more judgments or orders
for the payment of money in an aggregate amount equal to or greater than Five
Hundred Thousand Dollars ($500,000) shall be rendered against the Borrower or
any Subsidiary and such judgment or order shall continue unsatisfied and
unstayed for a period of thirty (30) days; or
6.1.10 TAX LIENS. A federal tax Lien shall be
filed against the Borrower under Section 6323 of the Code or a Lien of the
PBGC shall be filed against the Borrower or any Subsidiary under Section 4068
of ERISA and in either case such Lien shall remain undischarged for a period
of thirty (30) days after the date of filing; or
6.1.11 CHANGE OF CONTROL. Tom E. DuPree, Jr.
shall cease to own and control, beneficially and with power to vote, at least
fifteen percent (15%) of the outstanding shares of the voting common stock of
the Borrower; or any Person (other than Tom E. DuPree, Jr.) or two or more
Persons acting in concert shall have acquired beneficial ownership (within
the meaning of Rule 13d- 3 of the Securities and Exchange Commission under
the Securities Exchange Act of 1934) of twenty percent (20%) or more of the
outstanding shares of the voting common stock of the Borrower; or as of any
date, a majority of the Board of Directors of the Borrower consists of
individuals who were not either (A) directors of the Borrower as of the
corresponding date of the previous year, (B) selected or nominated to become
directors by a Board of Directors of the Borrower of which a majority
consisted of individuals described in clause (A), or (C) selected or
nominated to become directors by the Board of Directors of the Borrower of
which a majority consisted of individuals described in clause (A) and
individuals described in clause (B); or
6.1.12 MATERIAL ADVERSE EFFECT. The occurrence
of any event, act, occurrence, or condition which the Required Banks
determine either does or has a reasonable probability of causing, or
resulting in, a Material Adverse Effect; or
then, and in every such event, the Administrative Agent shall (i) if
requested by the Required Banks, by notice to the Borrower terminate the
Commitments and they shall thereupon terminate, and (ii) if requested by the
Required Banks, by notice to the Borrower declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower, together
with interest at the Default Rate accruing on the principal amount thereof
from and after the date of such Event of Default; PROVIDED that if any Event
of Default specified in Sections 6.1.6 or 6.1.7 above occurs with respect to
the Borrower or any Subsidiary, without any notice to the Borrower or any
other acts by the Administrative Agent or the Banks, the Commitments shall
thereupon terminate and the Notes (together with accrued interest thereon)
shall become immediately due and payable without presentment, demand,
-48-
<PAGE>
protest or other notice of any kind, all of which are hereby waived by the
Borrower, together with interest thereon at the Default Rate accruing on the
principal amount thereof from and after the date of such Event of Default.
Notwithstanding the foregoing, the Administrative Agent shall have available
to it all other remedies at law or equity, and shall exercise any one or all
of them at the request of the Required Banks.
SECTION 6.2. NOTICE OF DEFAULT.
The Administrative Agent shall give notice to the Borrower
of any Default under Section 6.1.3 promptly upon being requested to do so by
any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7. THE ADMINISTRATIVE AGENT
SECTION 7.1. APPOINTMENT; POWERS AND IMMUNITIES.
Each Bank, the Syndication Agent, the Arranger and the
Co-Arranger hereby irrevocably appoints and authorizes the Administrative
Agent to act as its agent hereunder and under the other Loan Documents with
such powers as are specifically delegated to the Administrative Agent by the
terms hereof and thereof, together with such other powers as are reasonably
incidental thereto. The Administrative Agent: (a) shall have no duties or
responsibilities except as expressly set forth in this Agreement and the
other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee for any Bank, the Syndication Agent, the Arranger
or the Co-Arranger; (b) shall not be responsible to the Banks, the Arranger
or the Co-Arranger for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by
any Bank, the Arranger or the Co-Arranger under, this Agreement or any other
Loan Document, or for the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
any other document referred to or provided for herein or therein or for any
failure by the Borrower to perform any of its obligations hereunder or
thereunder; (c) shall not be required to initiate or conduct any litigation
or collection proceedings hereunder or under any other Loan Document except
to the extent requested by the Required Banks, and then only on terms and
conditions satisfactory to the Administrative Agent; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or
under any other Loan Document or any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith,
except for its own gross negligence or willful misconduct. The Administrative
Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The provisions of this Article VII are
solely for the benefit of the Administrative Agent and the Banks, the
Syndication Agent, the Arranger and the Co-Arranger, and the Borrower shall
not have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Agreement and under
the other Loan Documents, the Administrative Agent shall act solely as agent
of the Banks, the Syndication Agent, the Arranger and the Co-Arranger and
does not assume and shall not be deemed to have assumed any obligation
towards
-49-
<PAGE>
or relationship of agency or trust with or for the Borrower. The duties of
the Administrative Agent shall be ministerial and administrative in nature,
and the Administrative Agent shall not have by reason of this Agreement or
any other Loan Document a fiduciary relationship in respect of any Bank, the
Syndication Agent, the Arranger or the Co-Arranger.
SECTION 7.2. RELIANCE BY ADMINISTRATIVE AGENT.
The Administrative Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telefax, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel, independent and
accountants or other experts selected by the Administrative Agent. As to any
matters not expressly provided for by this Agreement or any other Loan
Document, the Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder and thereunder in accordance
with instructions signed by the Required Banks, and such instructions of the
Required Banks in any action taken or failure to act pursuant thereto shall
be binding on all of the Banks.
SECTION 7.3. DEFAULTS.
The Administrative Agent shall not be deemed to have
knowledge of the occurrence of a Default or an Event of Default (other than
the nonpayment of principal of or interest on the Revolving Loans or Swing
Loans) unless the Administrative Agent has received notice from a Bank or the
Borrower specifying such Default or Event of Default and stating that such
notice is a "Notice of Default". In the event that the Administrative Agent
receives such a notice of the occurrence of a Default or an Event of Default,
the Administrative Agent shall give prompt notice thereof to the Banks. The
Administrative Agent shall give each Bank prompt notice of each nonpayment of
principal of or interest on the Revolving Loans or Swing Loans whether or not
it has received any notice of the occurrence of such nonpayment. The
Administrative Agent shall (subject to Section 9.6) take such action
hereunder with respect to such Default or Event of Default as shall be
directed by the Required Banks, provided that, unless and until the
Administrative Agent shall have received such directions, the Administrative
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 Banks.
SECTION 7.4. RIGHTS OF ADMINISTRATIVE AGENT AS A BANK.
With respect to the Revolving Loans and Swing Loans made by
it, Wachovia in its capacity as a Bank hereunder shall have the same rights
and powers hereunder as any other Bank and may exercise the same as though it
were not acting as the Administrative Agent, and the term "Bank" or "Banks"
shall, unless the context otherwise indicates, include Wachovia in its
individual capacity. The Administrative Agent may (without having to account
therefor to any Bank) accept deposits from, lend money to and generally
engage in any kind of banking, trust or other business with the Borrower (and
any of its Affiliates)
-50-
<PAGE>
as if it were not acting as the Administrative Agent, and the Administrative
Agent may accept fees and other consideration from the Borrower (in addition
to any agency fees and arrangement fees heretofore agreed to between the
Borrower and the Administrative Agent) for services in connection with this
Agreement or any other Loan Document or otherwise without having to account
for the same to the Banks.
SECTION 7.5. INDEMNIFICATION.
Each Bank severally agrees to indemnify the Administrative
Agent, to the extent the Administrative Agent shall not have been reimbursed
by the Borrower, ratably in accordance with its Commitment, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including, without limitation, counsel fees and
disbursements) or disbursements of any kind and nature whatsoever which may
be imposed on, incurred by or asserted against the Administrative Agent in
any way relating to or arising out of this Agreement or any other Loan
Document or any other documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby (excluding, unless
an Event of Default has occurred and is continuing, the normal administrative
costs and expenses incident to the performance of its agency duties
hereunder) or the enforcement of any of the terms hereof or thereof or any
such other documents; PROVIDED, HOWEVER that no Bank shall be liable for any
of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Administrative Agent. If any indemnity furnished to
the Administrative Agent for any purpose shall, in the opinion of the
Administrative Agent, be insufficient or become impaired, the Administrative
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished.
SECTION 7.6. PAYEE OF NOTE TREATED AS OWNER.
The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment or transfer thereof shall have been filed
with the Administrative Agent and the provisions of Section 9.8 have been
satisfied. Any requests, authority or consent of any Person who at the time
of making such request or giving such authority or consent is the holder of
any Note shall be conclusive and binding on any subsequent holder, transferee
or assignee of that Note or of any Note or Notes issued in exchange therefor
or replacement thereof.
SECTION 7.7. NONRELIANCE ON ADMINISTRATIVE AGENT AND OTHER
BANKS.
Each Bank agrees that it has, independently and without
reliance on the Administrative Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by
-51-
<PAGE>
the Borrower of this Agreement or any of the other Loan Documents or any
other document referred to or provided for herein or therein or to inspect
the properties or books of the Borrower or any other Person. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Administrative Agent hereunder or under the
other Loan Documents, the Administrative Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower or
any other Person (or any of their Affiliates) which may come into the
possession of the Administrative Agent.
SECTION 7.8. FAILURE TO ACT.
Except for action expressly required of the Administrative
Agent hereunder or under the other Loan Documents, the Administrative Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction
by the Banks of their indemnification obligations under Section 7.5 against
any and all liability and expense which may be incurred by the Administrative
Agent by reason of taking, continuing to take, or failing to take any such
action.
SECTION 7.9. RESIGNATION OF ADMINISTRATIVE AGENT.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign
at any time by giving notice thereof to the Banks. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by
the Required Banks and shall have accepted such appointment within thirty
(30) days after the retiring Administrative Agent's notice of resignation,
then the retiring Administrative Agent may, on behalf of the Banks, appoint a
successor Administrative Agent. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent's resignation or removal hereunder as Administrative
Agent, the provisions of this Article 7 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Administrative Agent hereunder.
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 8.1. BASIS FOR DETERMINING INTEREST RATE
INADEQUATE OR UNFAIR.
If on or prior to the first day of any Interest Period, the
Administrative Agent determines that deposits in Dollars (in the applicable
amounts) are not being offered in the relevant market for such Interest
Period, or the Required Banks advise the Administrative Agent that the
Adjusted LIBOR Rate,
-52-
<PAGE>
as determined by the Administrative Agent, will not adequately and fairly
reflect the cost to such Banks of funding the relevant Euro-Dollar Rate Loans
for such Interest Period, then, the Administrative Agent shall forthwith give
notice thereof to the Borrower and the Banks, whereupon until the
Administrative Agent notifies the Borrower that the circumstances giving rise
to such suspension no longer exist, the obligations of the Banks to make the
Euro-Dollar Rate Loans specified in such notice shall be suspended. Unless
the Borrower notifies the Administrative Agent at least two (2) Domestic
Business days before the date of any Borrowing of such Euro-Dollar Rate Loans
for which a Notice of Borrowing has previously been given that it elects not
to borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
SECTION 8.2. ILLEGALITY.
If, after the date hereof, the adoption of any applicable
law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof (any such agency being referred to as an "Authority"
and any such event being referred to as a "Change of Law"), or compliance by
any Bank (or its Lending Office) with any request or directive (whether or
not having the force of law) of any Authority shall make it unlawful or
impossible for any Bank (or its Lending Office) to make, maintain or fund its
Euro-Dollar Rate Loans and such Bank shall so notify the Administrative
Agent, the Administrative Agent shall forthwith give notice thereof to the
other Banks and the Borrower, whereupon until such Bank notifies the Borrower
and the Administrative Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Bank to make Euro-Dollar
Rate Loans shall be suspended. Before giving any notice to the Administrative
Agent pursuant to this Section, such Bank shall designate a different Lending
Office if such designation will avoid the need for giving such notice and
will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank, in any respect deemed material by such Bank. If such Bank shall
determine that it may not lawfully continue to maintain and fund any of its
outstanding Euro-Dollar Rate Loans to maturity and shall so specify in such
notice, the Borrower shall immediately prepay in full the then outstanding
principal amount of each Euro-Dollar Rate Loan of such Bank, together with
accrued interest thereon. Concurrently with prepaying each such Euro-Dollar
Rate Loan, the Borrower shall borrow, pursuant to Section 2.2.3, a Base Rate
Loan in an equal principal amount from such Bank (on which interest and
principal shall be payable contemporaneously with the related Euro-Dollar
Rate Loans of the other Banks), and such Bank shall make such a Base Rate
Loan.
SECTION 8.3. INCREASED COST AND REDUCED RETURN.
8.3.1 CHANGE OF LAW. If after the date hereof, a
Change of Law or compliance by any Bank (or its Lending Office) with any
request or directive (whether or not having the force of law) of any
Authority either: (i) shall subject any Bank (or its Lending Office) to any
tax, duty or other charge with respect to its Revolving Loans (or, in the
case of the Swing Bank, Swing Loans), its Note or its obligation to make
Revolving Loans, or shall change the basis of taxation of payments to any
Bank (or its Lending Office) of the principal of or interest on its Revolving
Loans (or in the case of the Swing Banks, the Swing Loans) or any other
amounts due under this Agreement in respect of its Revolving Loans (or,
-53-
<PAGE>
in the case of the Swing Bank, Swing Loans) or its obligation to make
Revolving Loans (except for changes in the rate of tax on the overall net
income of such Bank or its Lending Office imposed by the jurisdiction in
which such Bank's principal executive office or Lending Office is located);
or (ii) shall impose, modify or deem applicable any reserve, special deposit
insurance or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System,
but excluding any such requirement included in an applicable Euro-Dollar
Reserve Percentage) against assets of, deposits with or for the account of,
or credit extended by, any Bank (or its Lending Office); or (iii) shall
impose on any Bank (or its Lending Office) or the London Interbank Market any
other similar condition affecting its Revolving Loans (or, in the case of the
Swing Bank, Swing Loans), its Notes or its obligation to make Revolving
Loans; and the result of any of the foregoing is to increase the cost to such
Bank (or its Lending Office) of making or maintaining any Revolving Loan (or,
in the case of the Swing Bank, Swing Loan), or to reduce the amount of any
such received or receivable by such Bank (or its Lending Office) under this
Agreement or under its Notes with respect thereto, by an amount deemed by
such Bank to be material, then, within fifteen (15) days after demand by such
Bank (with a copy to the Administrative Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
8.3.2 CAPITAL ADEQUACY. If any Bank shall have
determined that after the date hereof the adoption of any applicable law,
rule or regulation regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof, or compliance by any
Bank (or its Lending Office) with any request or directive regarding capital
adequacy (whether or not having the force of law) of any Authority, has or
would have the effect of reducing the rate of return on such Bank's capital
as a consequence of its obligations hereunder to a level below that which
such Bank could have achieved but for such adoption, change or compliance
(taking into consideration such Bank's policies with respect to capital
adequacy), by an amount deemed by such Bank to be material, then from time to
time, within fifteen (15) days after demand by such Bank, the Borrower shall
pay to such Bank such additional amount or amounts as will compensate such
Bank for such reduction.
8.3.3 NOTICE OF DETERMINATION. Each Bank will
promptly notify the Borrower and the Administrative Agent of any event of
which it has knowledge, occurring after the date hereof, which will entitle
such Bank to compensation pursuant to this Section and will designate a
different Lending Office if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank, in any respect deemed
material by such Bank. A certificate of any Bank claiming compensation under
this Section and setting forth the additional amount or amounts to be paid to
it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
8.3.4 ASSIGNEES COVERED. The provisions of this
Section 8.3 shall be applicable with respect to any Assignee or other
Transferee (excluding any Participants), and any calculations required by
such provisions shall be made based upon the circumstances of such Assignee
or other Transferee.
-54-
<PAGE>
SECTION 8.4. BASE RATE LOANS SUBSTITUTED FOR AFFECTED
EURO-DOLLAR RATE LOANS.
If (i) the obligation of any Bank to make or maintain
Euro-Dollar Rate Loans has been suspended pursuant to Section 8.2 or (ii) any
Bank has demanded compensation under Section 8.3.1, and the Borrower shall,
by at least five (5) Euro-Dollar Business Days' prior notice to such Bank
through the Administrative Agent, have elected that the provisions of this
Section shall apply to such Bank, then, unless and until such Bank notifies
the Borrower that the circumstances giving rise to such suspension or demand
for compensation no longer apply: (i) all Revolving Loans which would
otherwise be made by such Bank as Euro-Dollar Rate Loans, shall be made
instead as Base Rate Loans (in all cases interest and principal on such
Revolving Loans shall be payable contemporaneously with the related
Euro-Dollar Rate Loans of the other Banks), and (ii) after each of its
Euro-Dollar Rate Loans has been repaid, all payments of principal which would
otherwise be applied to repay such Euro-Dollar Rate Loans shall be applied to
repay its Base Rate Loans instead.
SECTION 8.5. REPLACEMENT OF A LENDER.
In addition to the foregoing, if (i) the obligation of any
Bank (but not all Banks) to make or maintain Euro-Dollar Rate Loans has been
suspended pursuant to Section 8.2 or (ii) any Bank (but not all Banks) has
demanded compensation under Section 8.3, then, in either such case, the
Borrower shall have the right, at its option, upon giving at least five (5)
Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, either: (i) notwithstanding any term of Section 2.7.2
to the contrary, to reduce the Commitment of such Bank to zero, in which case
the Borrower shall reduce, by repayment or prepayment, as the case may be,
its Borrowings from such Bank to zero effective upon such Commitment
reduction becoming effective, and the Commitment of each remaining Bank shall
remained unchanged; or (ii) to obtain one or more Banks or Assignees willing
to replace such Bank, in which case the Bank which is being replaced shall
execute and deliver to such Bank or Assignee an Assignment and Acceptance in
accordance with Section 9.8.3 with respect to such Bank's entire interest
under this Agreement and the Notes.
SECTION 8.6. COMPENSATION.
Upon the request of any Bank, delivered to the Borrower and
the Administrative Agent, the Borrower shall pay to such Bank such amount or
amounts as shall compensate such Bank for any loss, cost or expense incurred
by such Bank (in connection with the relevant Interest Period) as a result
of: (i) any payment or prepayment (whether pursuant to Section 8.2 or
otherwise) of a Euro-Dollar Rate Loan on a date other than the last day of an
Interest Period for such Euro-Dollar Rate Loan; or (ii) any failure by the
Borrower to prepay a Euro-Dollar Rate Loan on the date for such prepayment
specified in the relevant notice of prepayment hereunder; or (iii) any
failure by the Borrower to borrow a Euro-Dollar Rate Loan on the date for the
Euro-Dollar Borrowing of which such Euro-Dollar Rate Loan is a part specified
in the applicable Notice of Borrowing delivered pursuant to Section 2.2. Such
compensation shall include, without limitation, an amount equal to the
excess, if any, of (x) the amount of interest which would have
-55-
<PAGE>
accrued on the amount so paid or prepaid or not prepaid or borrowed for the
period from the date of such payment, prepayment or failure to prepay or
borrow to the last day of the then current Interest Period for such
Euro-Dollar Rate Loan (or, in the case of a failure to prepay or borrow, the
Interest Period for such Euro-Dollar Rate Loan which would have commenced on
the date of such failure to prepay or borrow) at the applicable rate of
interest for such Euro-Dollar Rate Loan provided for herein (EXCLUDING,
HOWEVER, therefrom the amount thereof attributable to the imposition of the
Applicable Margin) over (y) the amount of interest (as reasonably determined
by such Bank) such Bank would have paid on deposits in Dollars of comparable
amounts having terms comparable to such period placed with it by leading
banks in the London Interbank Market.
ARTICLE 9. MISCELLANEOUS
SECTION 9.1. NOTICES.
All notices, requests and other communications to any party
hereunder or under any Loan Document shall be in writing (including bank
wire, telecopier or similar writing) and shall be given to such party at its
address or telecopier number set forth on the signature pages hereof or such
other address or telecopier number as such party may hereafter specify for
the purpose by notice to each other party. Each such notice, request or other
communication shall be effective (i) if given by telecopier, when such
telecopy is transmitted to the telecopier number specified in this Section
and the appropriate confirmation is received, (ii) if given by mail,
seventy-two (72) hours after such communication is deposited in the United
States mails with first class postage prepaid, addressed as aforesaid or
(iii) if given by any other means, when delivered at the address specified in
this Section; PROVIDED that notices to the Administrative Agent under Article
2 or Article 8 shall not be effective until received.
SECTION 9.2. NO WAIVERS.
No failure or delay by the Administrative Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.3. EXPENSES; DOCUMENTARY TAXES.
The Borrower shall pay (i) all out-of-pocket expenses of
the Administrative Agent, including fees and disbursements of special counsel
for the Banks and the Administrative Agent, in connection with the
preparation of this Agreement and the other Loan Documents, any waiver or
consent hereunder or thereunder or any amendment hereof or thereof or any
Default or alleged Default hereunder or thereunder and (ii) if a Default
occurs, all out-of-pocket expenses incurred by the Administrative Agent
-56-
<PAGE>
and any Bank, including fees and disbursements of counsel (including a
reasonable allocation of the cost of internal counsel), in connection with
such Default and collection and other enforcement proceedings resulting
therefrom, including out-of-pocket expenses incurred in enforcing this
Agreement, the Notes and other Loan Documents. The Borrower shall indemnify
the Administrative Agent and each Bank against any transfer taxes,
documentary taxes, assessments or charges made by any Authority by reason of
the execution and delivery of this Agreement, the Notes or the other Loan
Documents.
SECTION 9.4. INDEMNIFICATION.
The Borrower shall indemnify the Administrative Agent, the
Syndication Agent, the Arranger, the Co-Arranger, the Banks and each
affiliate thereof and their respective directors, officers, employees and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject,
insofar as such losses, liabilities, claims or damages arise out of or result
from any actual or proposed use by the Borrower of the proceeds of any
extension of credit by any Bank hereunder or breach by the Borrower of this
Agreement, the Notes or any other Loan Document or from any investigation,
litigation or other proceeding (including any threatened investigation or
proceeding) relating to the foregoing, and the Borrower shall reimburse the
Administrative Agent, the Syndication Agent, the Arranger, the Co- Arranger
and each Bank, and each affiliate thereof and their respective directors,
officers, employees and agents, upon demand for any expenses (including,
without limitation, legal fees) incurred in connection with any such
investigation or proceeding; but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified. The indemnification
provisions (including, without limitation, provisions for default interest,
to the extent that this Section 9.4 might be construed as duplicating the
Borrower's obligation to pay interest at the Default Rate as required
elsewhere in this Agreement) set forth in this Section 9.4 are meant to be
without duplication of any other indemnification provisions set forth in this
Agreement.
SECTION 9.5. SHARING OF SETOFFS.
Each Bank agrees that if it shall, by exercising any right
of setoff or counterclaim or otherwise, receive payment of a proportion of
the aggregate amount of principal and interest owing with respect to the Note
held by it which is greater than the proportion received by any other Bank in
respect of the aggregate amount of all principal and interest owing with
respect to the Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the
Notes held by the other Banks owing to such other Banks, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Notes held by the Banks owing to
such other Banks shall be shared by the Banks pro rata; PROVIDED that (i)
nothing in this Section shall impair the right of any Bank to exercise any
right of setoff or counterclaim it may have and to apply the amount subject
to such exercise to the payment of indebtedness of the Borrower other than
its indebtedness under the Notes, and (ii) if all or any portion of such
payment received by the purchasing Bank is thereafter recovered from such
purchasing Bank, such purchase from each other Bank shall be
-57-
<PAGE>
rescinded and such other Bank shall repay to the purchasing Bank the purchase
price of such participation to the extent of such recovery together with an
amount equal to such other Bank's ratable share (according to the proportion
of (x) the amount of such other Bank's required repayment to (y) the total
amount so recovered from the purchasing Bank) of any interest or other amount
paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Borrower agrees, to the fullest extent it may effectively do
so under applicable law, that any holder of a participation in a Note,
acquired pursuant to the foregoing arrangements, may exercise rights of
setoff or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrower in the amount of such participation.
SECTION 9.6. AMENDMENTS AND WAIVERS.
Any provision of this Agreement, the Notes or any other
Loan Documents may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of the Administrative Agent are affected
thereby, by the Administrative Agent); PROVIDED that, no such amendment or
waiver shall, unless signed by all Banks, (i) except as otherwise provided in
Section 8.5, increase the Commitment of any Bank or subject any Bank to any
additional obligation, (ii) change the principal of, or decrease the rate of
interest on any Revolving Loan or Swing Loan or on any fees or other amounts
payable hereunder, (iii) extend the date fixed for any payment of principal
of or interest on any Revolving Loan or Swing Loan or any fees hereunder,
(iv) change the percentage of the Commitments or of the aggregate unpaid
amount of the Notes, or the percentage of Banks, which shall be required for
the Banks or any of them to take any action under this Section or any other
provision of this Agreement, (v) change the manner of application of any
payments made under this Agreement or the Notes, (vi) release or substitute
all or any substantial part of the collateral (if any) held as security for
the Revolving Loans and Swing Loans, or (vii) release any Guarantee given to
support payment of the Revolving Loans and Swing Loans. In connection with
the foregoing, the Borrower will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement unless each Bank shall be informed thereof by the Borrower or
the Administrative Agent and shall be afforded an opportunity of considering
the same and shall be supplied by the Borrower with sufficient information to
enable it to make an informed decision with respect thereto. Executed or true
and correct copies of any waiver or consent effected pursuant to the
provisions of this Agreement shall be delivered by the requisite percentage
of Banks.
SECTION 9.7. NO MARGIN STOCK COLLATERAL.
Each of the Banks represents to the Administrative Agent,
the Borrower and each of the other Banks that it in good faith is not, (i)
directly or indirectly (by negative pledge or otherwise), relying upon any
Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement or (ii) entering into this Agreement with an
immediate intention to resell its Commitment or Revolving Loans.
-58-
<PAGE>
SECTION 9.8. SUCCESSORS AND ASSIGNS.
9.8.1 NO ASSIGNMENT BY BORROWER. The provisions
of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided that the
Borrower may not assign or otherwise transfer any of its rights under this
Agreement.
9.8.2 PARTICIPATION. Any Bank may, without the
consent of the Borrower, at any time sell to one or more Persons (each a
"Participant") participating interests in any Revolving Loan owing to such
Bank (or, in the case of the Swing Bank, and Swing Loan), any Note held by
such Bank, any Commitment of such Bank hereunder or any other interest of
such Bank hereunder. In the event of any such sale by a Bank of a
participating interest to a Participant, such Bank's obligations under this
Agreement shall remain unchanged, such Bank shall remain solely responsible
for the performance thereof, such Bank shall remain the holder of any such
Note for all purposes under this Agreement, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under this
Agreement. In no event shall a Bank that sells a participation be obligated
to the Participant to take or refrain from taking any action hereunder except
that such Bank may agree that it will not (except as provided below), without
the consent of the Participant, agree to (i) an extension of any date fixed
for the payment of principal of or interest on the related Revolving Loan or
Revolving Loans or Swing Loan or Swing Loans, (ii) the change of the amounts
of any principal of, or the decrease of any interest or fees due on any date
fixed for the payment thereof with respect to the related Revolving Loan or
Revolving Loans or Swing Loan or Swing Loans, (iii) the change of the
principal or the related Revolving Loan or Revolving Loans or Swing Loan or
Swing Loans, (iv) any decrease in the rate at which either interest is
payable thereon or (if the Participant is entitled to any part thereof), a
commitment fee is payable hereunder from the rate at which the Participant is
entitled to receive interest or a commitment fee (as the case may be) in
respect of such participation, (v) the release or substitution of all or any
substantial part of the collateral (if any) held as security for the
Revolving Loans and Swing Loans, or (vi) the release of any Guarantee given
to support payment of the Revolving Loans and Swing Loans. Each Bank selling
a participating interest in any Revolving Loan, Swing Loan, Note, Commitment
or other interest under this Agreement shall, within ten (10) Domestic
Business Days of such sale, provide the Borrower and the Administrative Agent
with written notification stating that such sale has occurred and identifying
the Participant and the interest purchased by such Participant. Except as
otherwise expressly provided in Article 8, the Administrative Agent, the
Banks and the Borrower agree that each Participant shall be entitled to the
benefits of Article 8 with respect to its participation in Revolving Loans
and Swing Loans outstanding from time to time, but only to the extent that
such Bank which sold the relevant participation would have been entitled
thereto pursuant to the terms of this Agreement.
9.8.3 ASSIGNMENTS. Any Bank may at any time
assign to one or more banks or financial institutions (each an "Assignee")
all, or a proportionate part of all, of its rights and obligations under this
Agreement and the Notes, and such Assignee shall assume all such rights and
obligations, pursuant to an Assignment and Acceptance, executed by such
Assignee, such transferor Bank and the Administrative Agent (and, in the case
of an Assignee that is not then a Bank, by the Borrower); provided that (i)
no
-59-
<PAGE>
interest may be sold by a Bank pursuant to this Section unless the Assignee
shall agree to assume ratably equivalent portions of the transferor Bank's
Commitment, (ii) the amount of the Commitment of the transferor Bank subject
to such assignment (determined as of the effective date of the assignment),
if less than the entirety of such Commitment, shall be equal to at least Five
Million Dollars ($5,000,000), (iii) no interest may be sold by a Bank
pursuant to this Section to any Assignee that is not then a Bank or an
Affiliate of a Bank without the consent of the Borrower and the
Administrative Agent (which consent shall not be unreasonably withheld),
except after the occurrence of, and during the continuance of, an Event of
Default. Upon (A) execution of the Assignment and Acceptance by such
transferor Bank, such Assignee, the Administrative Agent and (if applicable)
the Borrower, (B) delivery of an executed copy of the Assignment and
Acceptance of the Borrower and the Administrative Agent, (C) payment by such
Assignee to such transferor Bank of an amount equal to the purchase price
agreed between such transferor Bank and such Assignee, and (D) payment of a
processing and recordation fee of Three Thousand Five Hundred Dollars
($3,500) to the Administrative Agent (which fee shall be reduced to One
Thousand Five Hundred Dollars ($1,500) if the Assignee is an existing Bank or
an Affiliate of a Bank, such Assignee shall for all purposes be a Bank party
to this Agreement and shall have all the rights and obligations of a Bank
under this Agreement to the same extent as if it were an original party
hereto with a Commitment as set forth in such instrument of assumption, and
the transferor Bank shall be released from its future obligations hereunder
to a corresponding extent, and no further consent or action by the Borrower,
the Banks or the Administrative Agent shall be required. Upon the
consummation of any transfer to an Assignee pursuant to this Section 9.8.3,
the transferor Bank, the Administrative Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is issued to such
Assignee.
9.8.4 DISCLOSURES. Subject to the provisions of
Section 9.9, the Borrower authorizes each Bank to disclose to any
Participant, Assignee or other transferee (each a "Transferee") and any
prospective Transferee any and all information in such Bank's possession
concerning the Borrower which has been delivered to such Bank by the Borrower
pursuant to this Agreement or which has been delivered to such Bank by the
Borrower in connection with such Bank's credit evaluation prior to entering
into this Agreement.
9.8.5 STATUS OF TRANSFEREE. No Transferee shall
be entitled to receive any greater payment under Section 8.3 than the
transferor Bank would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.2 or 8.3
requiring such Bank to designate a different Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 9.9. CONFIDENTIALITY.
Each Bank, the Administrative Agent, the Syndication Agent,
the Arranger and the Co-Arranger agrees to exercise its best efforts (and, in
any event, with at least the same degree of care as it ordinarily exercises
with respect to confidential information of its other customers) to keep any
information delivered or made available by the Borrower to it, including,
without limitation, information obtained by the
-60-
<PAGE>
Administrative Agent or such Bank by reason of a visit or investigation by
any Person contemplated in Section 5.2, confidential from any one other than
persons employed or retained by such Bank who are or are expected to become
engaged in evaluating, approving, structuring or administering the Revolving
Loans and, in the case of the Swing Bank, the Swing Loans; PROVIDED, HOWEVER
that nothing herein shall prevent the Administrative Agent, the Syndication
Agent, the Arranger, the Co-Arranger or any Bank from disclosing such
information (i) to the any other such Person, (ii) upon the order of any
court or administrative agency, (iii) upon the request or demand of any
regulatory agency or authority having jurisdiction over such Person, (iv)
which has been publicly disclosed other than by an act or omission of any
such Person except as permitted herein, (v) to the extent reasonably required
in connection with any litigation (with respect to this Agreement, any of the
other Loan Documents, in connection with any of the foregoing, or any other
obligations of the Borrower or any Subsidiary owing to any such Person) to
which any such Person or their respective Affiliates may be a party, (vi) to
the extent reasonably required in connection with the exercise of any remedy
hereunder, (vii) to such Person's legal counsel and independent auditors and
(viii) to any actual or proposed Participant, Assignee or other Transferee of
all or part of any Bank's rights hereunder which has agreed in writing to be
bound by the provisions of this Section 9.9.
SECTION 9.10. REPRESENTATION BY BANKS.
Each Bank hereby represents that it is a commercial lender
or financial institution which makes Revolving Loans in the ordinary course
of its business and that it will make its Revolving Loans hereunder for its
own account in the ordinary course of such business; PROVIDED, HOWEVER that,
subject to Section 9.8, the disposition of a Note or the Notes held by that
Bank shall at all times be within its exclusive control.
SECTION 9.11. OBLIGATIONS SEVERAL.
The obligations of each Bank hereunder are several, and no
Bank shall be responsible for the obligations or commitment of any other Bank
hereunder. Nothing contained in this Agreement and no action taken by Banks
pursuant hereto shall be deemed to constitute the Banks to be a partnership,
an association, a joint venture or any other kind of entity. The amounts
payable at any time hereunder to each Bank shall be a separate and
independent debt, and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement or any other Loan Document and it shall
not be necessary for any other Bank to be joined as an additional party in
any proceeding for such purpose.
SECTION 9.12. GEORGIA LAW.
THIS AGREEMENT, EACH NOTE AND EACH OTHER LOAN DOCUMENT
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
GEORGIA.
SECTION 9.13. INTERPRETATION.
-61-
<PAGE>
No provision of this Agreement or any of the other Loan
Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated
such provision.
SECTION 9.14. CONSENT TO JURISDICTION.
EACH OF THE BORROWER, EACH BANK, THE ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT, THE ARRANGER AND THE CO-ARRANGER IRREVOCABLY (A)
SUBMITS TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF GEORGIA,
THE COURTS THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING THEREIN, FOR
THE ENFORCEMENT OF THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS,
(B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO
OBJECT ON ANY BASIS (INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM)
TO JURISDICTION OR VENUE WITHIN THE STATE OF GEORGIA FOR THE PURPOSE OF
LITIGATION TO ENFORCE THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS,
AND (C) AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN THE MANNER
PRESCRIBED IN SECTION 9.1 FOR THE GIVING OF NOTICE TO THE BORROWER. NOTHING
HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE ADMINISTRATIVE AGENT FROM
BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY AND AGAINST
THE BORROWER PERSONALLY, AND AGAINST ANY ASSETS OF THE BORROWER, WITHIN ANY
OTHER STATE OR JURISDICTION.
SECTION 9.15. COUNTERPARTS.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
SECTION 9.16. SURVIVAL.
All representations, warranties and covenants made herein
shall survive the execution and delivery of all of the Loan Documents. The
terms and provisions of this Agreement shall continue in full force and
effect until the payment of the Notes and termination of the Commitments.
SECTION 9.17. ENTIRE AGREEMENT; AMENDMENT; SEVERABILITY.
This Agreement shall constitute the entire agreement among
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged,
modified or terminated orally, but only by an instrument in writing in
accordance with Section 9.6. If any provision of any of the Loan Documents or
the application thereof to any party thereto or circumstances shall be
invalid or unenforceable to any extent, the remainder of such Loan Documents
and the application of such provisions to any other party thereto or
circumstance shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
-62-
<PAGE>
SECTION 9.18. TIME OF THE ESSENCE.
TIME IS OF THE ESSENCE IN THIS AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS.
SECTION 9.19. NO JOINT VENTURE .
Neither this Agreement nor any agreements, instruments,
documents or transactions contemplated hereby (including the Loan Documents),
shall in any respect be interpreted, deemed or construed as making any Bank,
the Administrative Agent, the Syndication Agent, the Arranger or the
Co-Arranger a partner or joint venturer with the Borrower or as creating any
similar relationship or entity.
SECTION 9.20. CERTAIN DESIGNATIONS.
The designations "Syndication Agent," "Arranger" and
"Co-Arranger," as used herein and in any other Loan Document, are honorary
designations and shall have no substantive effect; nor shall any parties so
designated have any other or additional duties, powers or responsibilities
hereunder or under any other Loan Document as a result of such designation.
-63-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, under seal, by their respective authorized
officers, as of the day and year first above written.
"BORROWER"
AVADO BRANDS, INC.
(SEAL)
By: /s/ Louis J. Profumo
-------------------------------
Louis J. Profumo
Senior Vice President of Finance
Attest: /s/ John G. McLeod, Jr.
---------------------------
John G. McLeod, Jr.
Secretary
Avado Brands, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attn: Erich J. Booth,
Chief Financial Officer
Telecopier Number: (706) 342-4057
-64-
<PAGE>
"BANKS"
WACHOVIA BANK, NATIONAL
ASSOCIATION, as the Administrative
Agent and as a Bank
(SEAL)
By: /s/ W. Tompkins Rison, Jr.
---------------------------------
W. Tompkins Rison, Vice President
LENDING OFFICE:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
30th Floor
Atlanta, Georgia 30303-1757
Attention: Georgia Corporate
Commercial Group
Telecopier Number: (404) 332-6920
Commitment Amount: $35,000,000
-65-
<PAGE>
BANKBOSTON, N.A., as Syndication Agent
and as a Bank
(SEAL)
By: /s/ Debra Zurka
-------------------------------
Name: Debra Zurka
Title: Director
LENDING OFFICE:
BankBoston, N.A.
Large Corporate -- Restaurant Division
100 Federal Street
Mail Stop 01-09-05
Boston, Massachusetts 02110
Telecopier Number: (617) 434-0637
Commitment Amount: $25,000,000
-66-
<PAGE>
SUNTRUST BANK, ATLANTA,
as a Bank
By: /s/ Brian K. Peters
-------------------------------
Name: Brian K. Peters
Title: Director
By: /s/ Nathan Bickford
-------------------------------
Name: Nathan Bickford
Title: Associate
LENDING OFFICE:
SunTrust Bank, Atlanta
303 Peachtree Street, N.E.
2nd Floor
Atlanta, Georgia 30308
Telecopier Number: (404) 588-8833
Commitment Amount: $20,000,000
-67-
<PAGE>
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL,"
NEW YORK BRANCH
By: /s/ Thomas Dove
-------------------------------
Name: Thomas Dove
Title: Vice President
By: /s/ N.J. O'Connor
-------------------------------
Name: Nancy J. O'Connor
Title: Vice President
LENDING OFFICE:
Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A.,
"Rabobank International,"
New York Branch
245 Park Avenue
36th Floor
New York, New York 10167
Telecopier Number (404) 877-9150
Commitment Amount: $25,000,000
-68-
<PAGE>
COMERICA BANK,
as a Bank
(SEAL)
By: /s/ David W. Shirey
-------------------------------
Name: David W. Shirey
Title: Assistant Vice President
LENDING OFFICE:
Comerica Bank
500 Woodward Avenue
9th Floor, MC 3280
Detroit, Michigan 48226
Telecopier Number (313) 222-3330
Commitment Amount: $10,000,000
-69-
<PAGE>
SOUTHTRUST BANK, NATIONAL ASSOCIATION,
as a Bank
(SEAL)
By: /s/ Carl E. Peoples
-------------------------------
Name: Carl E. Peoples
Title: Vice President
LENDING OFFICE:
SouthTrust Bank, N.A.
27th Floor
Mail Code PT007
One Georgia Center
600 West Peachtree Street
Atlanta, Georgia 30308
Telecopier Number (404) 853-5766
Commitment Amount: $10,000,000
-70-
<PAGE>
"ARRANGER"
WACHOVIA SECURITIES, INC.
By: /s/ Marshall Meier
-------------------------------
Name: Marshall Meier
Title: Vice President
LENDING OFFICE:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
26th Floor
Atlanta, Georgia 30303-1757
Telecopier Number (404) 332-4005
-71-
<PAGE>
"CO-ARRANGER"
BANCBOSTON ROBERTSON
STEPHENS, INC.
By: /s/ Steve DeMenna
-------------------------------
Name: Steve DeMenna
Title: Managing Director
LENDING OFFICE:
BancBoston Robertson Stephens, Inc.
100 Federal Street
Boston, Massachusetts 02110
Telecopier Number (617) 434-0637
-72-
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE
Dated ________ __, ____
Reference is made to the Credit Agreement dated as of June
22, 1999 (together with all amendments and modifications thereto, the "Credit
Agreement" among Avado Brands, Inc., a Georgia corporation (the "Borrower"),
the Banks (as defined in the Credit Agreement), Wachovia Bank, National
Association, as Administrative Agent (the "Administrative Agent"),
BankBoston, N.A., as Syndication Agent, Wachovia Securities, Inc., as
Arranger, and BancBoston Robertson Stephens, Inc., as Co-Arranger. Terms
defined in the Credit Agreement are used herein with the same meaning.
________________________________________ (the "Assignor") and
________________________________________ (the "Assignee") agree
as follows:
1. The Assignor hereby sells and assigns to the Assignee,
and the Assignee hereby purchases and assumes from the Assignor, a ________%
interest in and to all of the Assignor's rights and obligations under the
Credit Agreement as of the Effective Date (as defined below) (including,
without limitation, a _____% interest (which on the Effective Date hereof is
$__________) in the Assignor's Commitment [AND] a _____% interest (which on
the Effective Date hereof is $__________) in the Revolving Loans owing to the
Assignor (which on the Effective Date hereof is $__________)
[AND A ____% INTEREST IN THE SWING LOANS OWING TO THE ASSIGNOR (WHICH ON THE
EFFECTIVE DATE HEREOF IS $_______)]
.
2. The Assignor (i) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement or any other instrument or document furnished pursuant
thereto, other than that it is the legal and beneficial owner of the interest
being assigned by it hereunder, that such interest is free and clear of any
adverse claim and that as of the date hereof its Commitment (without giving
effect to assignments thereof which have not yet become effective) is
$__________ and the aggregate outstanding principal amount of Revolving Loans
[AND SWING LOANS] owing to it (without giving effect to assignments thereof
which have not yet become effective) is $__________; (ii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under the Credit Agreement or any other
instrument
-1-
<PAGE>
or document furnished pursuant thereto; and (iii) attaches the Note(s)
referred to in paragraph 1 above and requests that the Administrative Agent
exchange such Note(s) for [a new Note dated __________, ____ in the principal
amount of $__________ payable to the order of the Assignee) (new Notes as
follows: a Note dated __________, ____ in the principal amount of $__________
payable to the order of the Assignor and a Note dated __________, ____ in the
principal amount of $__________ payable to the order of the Assignee].
3. The Assignee (i) confirms that it has received a copy of
the Credit Agreement, together with copies of the financial statements
referred to in Section 4.4 thereof (or any more recent financial statements
of the Borrower delivered pursuant to Sections 5.1.1 or 5.1.2 thereof) and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Administrative Agent, the Assignor or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under the
Credit Agreement; (iii) confirms that it is a bank or financial institution;
(iv) appoints and authorizes the Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such powers under the
Credit Agreement as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; (v)
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank; (vi) specifies as its Lending Office (and address
for notices) the office set forth beneath its name on the signature pages
hereof, (vii) represents and warrants that the execution, delivery and
performance of this Assignment and Acceptance are within its corporate powers
and have been duly authorized by all necessary corporate action, and (viii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to the Assignee's status for purposes of determining
exemption from United States withholding taxes with respect to all payments
to be made to the Assignee under the Credit Agreement and the Notes or such
other documents as are necessary to indicate that all such payments are
subject to such taxes at a rate reduced by an applicable tax treaty.
4. The Effective Date for this Assignment and Acceptance
shall be _____________________________ (the "Effective Date"). Following the
execution of this Assignment and Acceptance, it will be delivered to the
Administrative Agent for execution and acceptance by the Administrative Agent
and, if the Assignee is not a Bank prior to the Effective Date, to the
Borrower for execution by the Borrower.
5. Upon such execution and acceptance by the Administrative
Agent and execution by the Borrower, if the Assignee is not a Bank prior to
the Effective Date, from and after the Effective Date, (i) the Assignee shall
be a party to the Credit Agreement and, to the extent rights and obligations
have been transferred to it by this Assignment and Acceptance, have the
rights and obligations of a Bank thereunder and (ii) the Assignor shall, to
the extent its rights and obligations have been transferred to the Assignee
by this Assignment and Acceptance, relinquish its rights (other than under
Section 8.3 of the Credit Agreement) and be released from its obligations
under the Credit Agreement.
-2-
<PAGE>
6. Upon such execution and acceptance by the Administrative
Agent and execution by the Borrower, if the Assignee is not a Bank prior to
the Effective Date, from and after the Effective Date, the Administrative
Agent shall make all payments in respect of the interest assigned hereby to
the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments for periods prior to such acceptance by the
Administrative Agent directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
[NAME OF ASSIGNOR]
By:______________________________
Title:________________________
[NAME OF ASSIGNEE]
By:______________________________
Title:________________________
Lending Office:
[Address]
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By:______________________________
Title:________________________
[IF THE ASSIGNEE IS NOT A BANK PRIOR TO THE
EFFECTIVE DATE]
AVADO BRANDS, INC.
By:______________________________
Title:________________________
-3-
<PAGE>
-4-
<PAGE>
EXHIBIT B
FORM OF REVOLVING LOAN NOTE
REVOLVING LOAN NOTE
Atlanta, Georgia
June 22, 1999
FOR VALUE RECEIVED, the undersigned, AVADO BRANDS, INC., a
Georgia corporation (the "Borrower"), promises to pay to the order
of_____________________________ (the "Bank"), for the account of its Lending
Office, the principal sum of ____________ Dollars ($_________), or such
lesser amount as shall equal the unpaid principal amount of each Revolving
Loan [AND SWING LOAN] made by the Bank to the Borrower pursuant to the Credit
Agreement referred to below, on the dates and in the amounts provided in the
Credit Agreement. The Borrower promises to pay interest on the unpaid
principal amount of this Revolving Loan Note on the dates and at the rate or
rates provided for in the Credit Agreement referred to below. Interest on any
overdue principal of and, to the extent permitted by law, overdue interest on
the principal amount hereof shall bear interest at the Default Rate, as
provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or
other immediately available funds at the office of Wachovia Bank, National
Association, 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such
other address as may be specified from time to time pursuant to the Credit
Agreement.
All Revolving Loans [AND SWING LOANS] made by the Bank, the
respective maturities thereof, the interest rates from time to time
applicable thereto, and all repayments of the principal thereof may be
recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank
on the schedule attached hereto, or on a continuation of such schedule
attached to and made a part hereof; PROVIDED that the failure of the Bank to
make any such recordation or endorsement shall not affect the obligations of
the Borrower hereunder or under the Credit Agreement.
This Revolving Loan Note is one of the Notes referred to in
the Credit Agreement dated as of June 22, 1999, among the Borrower, the Banks
listed on the signature pages thereof and Wachovia Bank, National
Association, as Administrative Agent, BankBoston, N.A., as Syndication Agent,
Wachovia Securities, Inc. and BancBoston Robertson Stephens, Inc. (as the
same may be amended and modified from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for the provisions for the optional
and mandatory prepayment and the repayment hereof and the acceleration of the
maturity hereof.
-1-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Revolving
Loan Note to be duly executed, under seal, by its duly authorized officer as
of the day and year first above written.
AVADO BRANDS, INC. (SEAL)
By:_______________________________
Louis J. Profumo
Senior Vice President of Finance
Attest:___________________________
John G. McLeod, Jr.
Secretary
-2-
<PAGE>
Revolving Loan Note (cont'd)
REVOLVING LOANS [AND SWING LOANS] AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount
of
Base Rate Revolving Loan Amount of
or Euro- [OR Principal Maturity Notation
Date Dollar Loan SWING LOAN] Repaid Date Made By
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT C
FORM OF NOTICE OF BORROWING
NOTICE OF BORROWING
________________, 199_
Wachovia Bank, National
Association, as Administrative Agent
191 Peachtree Street, N.W.
Atlanta, Georgia 30303-1757
Attention: Commercial Group
Re: Credit Agreement (as amended or modified from time to time,
the "Credit Agreement") dated as of June 22, 1999, by and
among Avado Brands, Inc., Wachovia Bank, National Association,
as a Bank and as the Administrative Agent, Bank Boston, N.A.,
as a Bank and as Syndication Agent, the other Banks from time
to time party thereto, Wachovia Securities, Inc., as Arranger,
and BancBoston Robertson Stephens, Inc., as Co-Arranger
Ladies and Gentlemen:
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings attributable thereto in the Credit Agreement.
This Notice of Borrowing is delivered to you pursuant to Section 2.2
of the Credit Agreement.
The Borrower hereby requests a Borrowing in the aggregate principal
amount of $________________ to be made on ______________, _____, and for
interest to accrue thereon at the rate established by the Credit Agreement for
(check one):
1. _____ Base Rate Loans
2. _____ Euro-Dollar Rate Loans
The duration of the Interest Period with respect thereto in the case of
Euro-Dollar Rate Loans shall be (check one):
-1-
<PAGE>
1. _____ 1 month
2. _____ 2 months
3. _____ 3 months
4. _____ 6 months
If, immediately after the Borrowing requested herein, the outstanding
balance of the Revolving Loans and Swing Loans following such Borrowing will be
in excess of the aggregate outstanding principal balance of the Revolving Loans
and Swing Loans immediately preceding such Borrowing, the Borrower hereby
represents and warrants that on the date the Borrowing requested hereunder is
made (both before and after giving effect to the making of such and after giving
effect to the application, directly or indirectly, of the proceeds thereof):
(a) no Default has occurred and is continuing; and
(b) the representations and warranties of the Borrower
contained in Article IV of the Credit Agreement are true.
The Borrower has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer as of this ____ day of __________,
_____.
AVADO BRANDS, INC.
By:_________________________________
Title:___________________________
-2-
<PAGE>
EXHIBIT D
FORM OF OPINION OF
COUNSEL FOR THE BORROWER
June __, 1999
To the Banks, the Administrative Agent,
the Syndication Agent, the Arranger
and the Co-Arranger Referred to below
c/o Wachovia Bank,
National Association, as Administrative Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Ladies and Gentlemen:
We have acted as legal counsel to Avado Brands, Inc. (the
"Borrower") in connection with the Credit Agreement (the "Credit Agreement")
dated as of June __, 1999, among the Borrower, the Banks from time to time
parties thereto, Wachovia Bank, National Association, as Administrative
Agent, BankBoston, N.A., as Syndication Agent, Wachovia Securities, Inc., as
Arranger, and BancBoston Robertson Stephens, Inc., as Co-Arranger. Terms
defined in the Credit Agreement are used herein as therein defined.
We have examined original or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted
such other investigations of fact and law as we have deemed necessary or
advisable for purposes of this opinion. We have assumed for purposes of our
opinions set forth below that the execution and delivery of the Credit
Agreement by each Bank, the Administrative Agent, the Syndication Agent, the
Arranger and the Co-Arranger have been duly authorized by each Bank, the
Administrative Agent, the Syndication Agent, the Arranger and the Co-Arranger.
When facts relevant to these opinions were not
independently established by us, we have relied upon certificates of the
Secretaries of the Borrower and the Subsidiary Guarantors. We have assumed
the genuineness of all signatures, the authenticity of all documents
delivered to us as originals, the legal capacity of natural persons, the
conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents.
-1-
<PAGE>
Upon the basis of the foregoing, and subject to the further
qualifications and assumptions set forth below, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Georgia and has
all corporate powers required to carry on its business as now conducted. Each
Subsidiary Guarantor is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of its incorporation and has all
corporate powers required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower
and each Subsidiary Guarantor of the Credit Agreement, the Notes, the
Subsidiary Guaranty executed on the Closing Date and the other Loan Documents
to which it is party (i) are within the Borrower's or such Subsidiary
Guarantor's corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) require no action by or in respect of, or filing
with, any governmental body, agency or official, (iv) do not contravene, or
constitute a default under, any provision of (A) applicable law or regulation
or (B) the articles or certificate of incorporation or by-laws of the
Borrower or such Subsidiary Guarantor or (C) any material judgment,
injunction, order or decree which to our knowledge is binding upon the
Borrower or any Subsidiary Guarantor or (D) any material indenture, mortgage,
deed of trust, loan agreement or other financial agreement or instrument (but
not including leases) known to us which to our knowledge is binding on the
Borrower or any Subsidiary Guarantor and (V) do not, to our knowledge, result
in the creation or imposition of any Lien on any asset of the Borrower or any
Subsidiary Guarantor.
3. The Credit Agreement, the Notes, the Subsidiary Guaranty
executed on the Closing Date and the other Loan Documents constitute valid
and binding agreements of the Borrower and each Subsidiary Guarantor to the
extent that each is party thereto, enforceable against the Borrower and each
Subsidiary Guarantor, to the extent that each is party thereto, in accordance
with its terms, except as such enforceability may be limited: (i) by
bankruptcy, insolvency, reorganization, fraudulent conveyance, voidable
preference, moratorium or similar laws applicable to creditors' rights or the
collection of debtors' obligations generally and (ii) by general principles
of equity (including, without limitation, the availability of equitable
remedies).
4. To our knowledge, there is no action, suit or proceeding
pending, or threatened, against or affecting the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency
or official in which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or which in any manner
questions the validity or enforceability of the Credit Agreement, any Note or
the Subsidiary Guaranty.
5. Neither the Borrower nor any of its Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
-2-
<PAGE>
We are qualified to practice law in the State of Georgia
and do not purport to be experts on any laws other than the federal laws of
the United States and the laws of the State of Georgia, and this opinion is
rendered only with respect to such laws. We have made no investigation of the
laws of any other jurisdiction.
Very truly yours,
-3-
<PAGE>
EXHIBIT E
FORM OF CLOSING CERTIFICATE
AVADO BRANDS, INC.
CLOSING CERTIFICATE
Reference is made to the Credit Agreement ("the Credit Agreement")
dated as of June 22, 1999, among Avado Brands, Inc., the Banks listed
therein, Wachovia Bank, N.A., as Administrative Agent, BankBoston, N.A., as
Syndication Agent, Wachovia Securities, Inc., as Arranger, and BancBoston
Robertson Stephens, Inc., as Co-Arranger. Capitalized terms used herein have
the meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 3.1.3(E) of the Credit Agreement, the
undersigned, Louis J. Profumo, Senior Vice President of Finance of Avado
Brands, Inc., in his aforesaid official capacity and not personally, hereby
certifies to the Administrative Agent and the Banks on behalf of the Borrower
that (i) no Default has occurred and is continuing as of the date hereof, and
(ii) the representations and warranties contained in Article IV of the Credit
Agreement are true on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate in
his aforesaid official capacity and not personally as of June 22, 1999.
By:_________________________________
Louis J. Profumo
Senior Vice President of Finance
for and on behalf of Avado Brands, Inc.
-1-
<PAGE>
EXHIBIT F
FORM OF SECRETARY'S CERTIFICATE
SECRETARY'S CERTIFICATE
The undersigned, being the duly elected, qualified and acting
Secretary of AVADO BRANDS, INC., a Georgia corporation (the "Corporation"),
and, in such capacity, being duly authorized and empowered to issue this
certificate on its behalf, does hereby certify that:
1. Attached hereto as EXHIBITS A and B, respectively, are true,
correct and complete copies of the Articles or Certificate of Incorporation
and Bylaws of the Corporation, as in effect on the date hereof, and such
Articles or Certificate of Incorporation and Bylaws are in full force and
effect and, except as set forth in EXHIBIT A or EXHIBIT B, have not been
amended or modified in any respect;
2. On or prior to the date hereof, by unanimous consent of the Board
of Directors of the Corporation, obtained in accordance with and pursuant to
the Articles or Certificate of Incorporation and By-Laws of the Corporation,
the resolutions set forth and described on EXHIBIT C were unanimously adopted
and, being the only effective resolutions adopted by the Board of Directors
of this Corporation (or any committee thereof) with respect to the matters
referred to therein, remain unmodified and in full force and effect as of the
date hereof;
3. The following are the names of the duly elected officers of this
Corporation now holding the respective offices indicated, and that the
signature set forth opposite the name of each such officer is the true and
genuine signature of such officer (complete as applicable):
Louis J. Profumo ______________________________
Senior Vice President of Finance (Signature)
John G. McLeod, Jr. ______________________________
Secretary (Signature)
IN WITNESS WHEREOF, I have hereunto set my hand as Assistant
Secretary and the seal of the Corporation as of the 22nd day of June, 1999.
[CORPORATE SEAL] ______________________________
John G. McLeod, Jr., Secretary
-1-
<PAGE>
EXHIBIT G
FORM OF COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
Reference is made to that certain Credit Agreement dated as of June
22, 1999 (as modified and supplemented and in effect from time to time, the
"Credit Agreement") among Avado Brands, Inc., the Banks from time to time
party thereto, Wachovia Bank, National Association, as a Bank and as
Administrative Agent, BankBoston, N.A., as Syndication Agent, Wachovia
Securities, Inc., as Arranger, and BancBoston Robertson Stephens, Inc., as
Co-Arranger, as ascribed thereto in the Credit Agreement.
Pursuant to Section 5.1.3 of the Credit Agreement, the undersigned,
the [Chief Financial Officer/Chief Accounting Officer] of the Borrower,
hereby certifies that (i) attached hereto as Annex 1 are the true and
accurate calculations required to establish whether the Borrower was in
compliance with Sections 5.4, 5.5, 5.6, 5.7 and 5.20 of the Credit Agreement
as of the end of the Fiscal [Quarter/Year] ended __________, ____, each
determined in accordance with the requirements of the Credit Agreement and
(ii) [no Default exists on the date hereof] [the following Defaults (including
the details thereof) exist and the Borrower is taking or proposes to take the
following actions with respect thereto]:
_________________________
_________________________
_________________________
_________________________
IN WITNESS WHEREOF, the undersigned has executed this Certificate in
his capacity as [Chief Financial Officer] and not personally as of the ____
day of __________, ____.
By:_________________________________
_______________________, as
_________________,for and on
behalf of Avado Brands, Inc.
-1-
<PAGE>
EXHIBIT H
FORM OF SUBSIDIARY GUARANTY
SUBSIDIARY GUARANTY
THIS SUBSIDIARY GUARANTY (this "GUARANTY") is made by the
undersigned (the "GUARANTOR"), to and in favor of WACHOVIA BANK, NATIONAL
ASSOCIATION, as Administrative Agent for the "Banks" defined and described
below (in such capacity herein called the "ADMINISTRATIVE AGENT"), in
connection with, and in furtherance of, the terms of that certain Credit
Agreement, dated as of June 22, 1999, among AVADO BRANDS, INC., a Georgia
corpora tion (the "BORROWER"), the "Banks" (as that term is defined therein;
herein called the "BANKS"), the Administrative Agent, BankBoston, N.A., as
Syndication Agent, Wachovia Securities, Inc., as Arranger, and BancBoston
Robertson Stephens, Inc., as Co-Arranger, as it is now or hereafter may be
amended or modified (the "CREDIT AGREEMENT"), and evidences the guaranty by
the Guarantor of all "Obligations" (as that term is defined hereinbelow) of
the Borrower to the Banks and the Administrative Agent subject to the terms
and conditions set forth hereinbelow, being given in consideration of the
extension, renewal or continuation of credit and other financial
accommodations made or to be made by the Banks to the Borrower pursuant to
the Credit Agreement, which the Guarantor acknowledges will result in direct
and material benefit to it as a Consolidated Subsidiary of the Borrower.
Capitalized terms used herein, but not expressly defined herein, shall have
the meanings given to such terms in the Credit Agreement.
Accordingly, for value received, the Guarantor hereby
unconditionally guarantees to each Bank and the Administrative Agent, jointly
and severally, the punctual payment, when due, whether at stated maturity,
upon acceleration of maturity or otherwise, of all debts, liabilities and
obligations of the Borrower to the Banks and the Administrative Agent arising
under, pursuant to or in connection with the Credit Agreement, whether now or
hereafter existing, including, without limitation, all unpaid principal of
and any accrued but unpaid interest on, any Notes, all fees, charges and
expenses payable or reimbursable by the Borrower to the Banks and/or the
Administrative Agent under the Credit Agreement, and all costs of collection
thereof and of this Guaranty, including reasonable attorneys' fees (including
a reasonable allocation of the costs of any internal counsel) if any of the
foregoing is sought to be collected by or through an attorney at law (herein
collectively called the "OBLIGATIONS").
The Guarantor consents that, at any time, and from time to time,
either with or without consideration, the whole or any part of any security
now or hereafter held for any Obligations may be exchanged, compromised or
surrendered by the Administrative Agent or any of the Banks; the time or
place of payment of any Obligations or of any security thereof may be changed
or extended, in whole or in part, to a time certain or otherwise, and may be
renewed or accelerated, in whole or in part by the Administrative Agent or
any of the Banks; the Borrower may be granted indulgences generally by the
-1-
<PAGE>
Administrative Agent or any of the Banks; any of the provisions of any Note
or any other instrument evidencing any Obligations or any security therefor
may be modified or waived by the Administrative Agent or any of the Banks;
any party liable for the payment thereof (including but not being limited to
any co-guarantor) may be granted indulgences or released by the
Administrative Agent or any of the Banks; neither the termination of
existence, bankruptcy, lack of authority nor disability of the Borrower or
the guarantor, shall affect the continuing obligation of Guarantor, and that
no claim need be asserted by the Administrative Agent or any of the Banks
against the custodian, trustee or debtor in bankruptcy or receiver of any
bankrupt or insolvent guarantor; any deposit balance to the credit of the
Borrower or any other party liable for the payment of the Obligations or
liable upon any security therefor may be released, in whole or in part, by
the Administrative Agent or any of the Banks at, before and/or after the
stated, extended or accelerated maturity of any Obligations; and the
Administrative Agent or any of the Banks may release, discharge, compromise
or enter into any accord and satisfaction with respect to any collateral for
the Obligations, or the liability of the Borrower or Guarantor, or any
liability of any other person primarily or secondarily liable on any of the
Obligations, all without notice to or further assent by the Guarantor, who
shall remain bound hereon, notwithstanding any such exchange, compromise,
surrender, extension, renewal, acceleration, modification, indulgence,
release, discharge or accord and satisfaction.
In the event of dissolution or insolvency (as defined by the Georgia
Uniform Commercial Code as in effect at the time) of the Borrower, or if a
petition in bankruptcy be filed by or against the Borrower, or if a receiver be
appointed for any part of the property or assets of the Borrower, the Guarantor
agrees to pay to the Banks upon demand the full amount which would be payable
here under by the Guarantor if all such Obligations were then due and payable.
The Guarantor expressly waives: (a) notice of acceptance of this
Guaranty and of all extensions or renewals of credit or other financial
accommodations to the Borrower made by the Administrative Agent or any of the
Banks pursuant to the Credit Agreement; (b) presentment and demand for
payment of any of the Obligations; (c) protest and notice of dishonor or of
default to the Guarantor or to any other party with respect to any of the
Obligations or with respect to any security therefor; (d) any invalidity or
disability in whole or in part at the time of the acceptance of, or at any
time with respect to, any security for the Obligations or with respect to any
party primarily or secondarily liable for the payment of the Obligations; (e)
the fact that any security for the Obligations may at any time or from time
to time be in default or be inaccurately estimated or may deteriorate in
value for any cause whatsoever; (f) any diligence in the creation or
perfection of a security interest or collection or protection of or
realization upon the Obligations or any security therefor, any liability
hereunder, or in respect of any party primarily or secondarily liable for the
payment of the Obligations or any lack of commercial reasonableness in
dealing with any security for the Obligations; (g) any duty or obligation on
the part of the Administrative Agent or any of the Banks to ascertain the
extent or nature of any security for the Obligations, or any insurance or
other rights respecting such security, or the liability of any party
primarily or secondarily liable for the Obligations, or to take any steps or
action to safeguard, protect, handle, obtain or convey information
respecting, or otherwise follow in any manner, any such security, insurance
or other right; (h) any duty or obligation on the Administrative Agent or any
of the Banks to proceed to collect the Obligations from, or to commence an
action against,
-2-
<PAGE>
the Borrower, any other guarantor, or any other Person, or to resort to any
security or to any balance of any deposit account or credit on the books of
the Banks in favor of the Borrower or any other Person, despite any notice or
request of the Guarantor to do so; (i) any rights of the Guarantor pursuant
to Official Code of Georgia Section 10-7-24 or any similar or subsequent law;
(j) all other notices to which the Guarantor might oth erwise be entitled;
and (k) demand for payment under this Guaranty.
This is a guaranty of payment and not of collection. The liability
of the Guarantor on this Guaranty shall be continuing, direct and immediate
and not conditional or contingent upon either the pursuit of any remedies
against the Borrower or any other Person or foreclosure of any security
interest or liens available to the Banks. The Banks may accept any payment,
plan for adjustment of debts, plan for reorganization or liquidation, or plan
of composition or extension proposed by, or on behalf of, the Borrower or any
other guarantor without in any way affecting or discharging the liability of
the Guarantor hereunder. If the Obligations are partially paid, the Guarantor
shall remain liable for any balance of such Obligations. The Guaranty shall
be revived and reinstated in the event any payment received by the Banks on
any Obligations is required to be repaid or rescinded under present or future
federal or state law or regulation relating to bankruptcy, insolvency or
other relief of debtors.
The Banks or the Administrative Agent, acting on their behalf, may,
without notice to the Guarantor, sell, assign or transfer all or any of the
Obligations, and in such event each and every immediate and successive
assignee, transferee, or holder of all or any of the Obligations shall have
the right to enforce this Guaranty, by suit or otherwise, for the benefit of
such assignee, transferee or holder, as fully as if such assignee, transferee
or holder were herein by name specifically given such rights, powers and
benefits, but the Administrative Agent shall have an unimpaired right, prior
and superior to that of any such assignee, transferee or holder, to enforce
this Guaranty for the benefit of the Banks, as to so much of the Obligations
as has not been sold, assigned or transferred.
No delay or failure on the part of the Banks or the Administrative
Agent in the exercise of any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by the Banks or the Administrative
Agent of any right or remedy shall preclude other or further exercise thereof
or the exercise of any other right or remedy.
For the purpose of this Guaranty, the Obligations shall include all
debts, liabilities and obligations of the Borrower to the Banks,
notwithstanding any right or power of the Borrower or anyone else to assert
any claim or defense as to the invalidity or unenforceability thereof, and no
such claim or defense shall impair or affect the obligations and liabilities
of the Guarantor hereunder.
Any amount received by the by the Administrative Agent or any of the
Banks from whatever source and applied by it toward the payment of the
Obligations shall be applied in such order of application as the Banks may
from time to time elect in accordance with the applicable terms of the Credit
Agreement.
-3-
<PAGE>
This Guaranty shall bind and inure to the benefit of the Banks and
the Administrative Agent, and their respective successors and assigns, and
likewise shall bind the Guarantor and its successors and assigns. If more
than one Person shall execute this Guaranty, the term "Guarantor" shall mean,
as used herein, all parties executing this Guaranty and all such parties
shall be liable jointly and severally, one with the other and with the
Borrower, for each of the undertakings, agreements, obli gations, covenants
and liabilities provided for herein with respect to the Guarantor. This
Guaranty contains the entire agreement and there is no understanding that any
Person, other than the Guarantor shall execute this or a similar Guaranty as
a condition to its effectiveness. Furthermore, no course of prior dealing
between the parties, no usage of trade, and no parol or extrinsic evidence
shall be used to supplement or modify any terms of this Guaranty; nor are
there any conditions to the complete effectiveness of this Guaranty.
THIS GUARANTY SHALL BE DEEMED ACCEPTED BY THE ADMINISTRATIVE AGENT
ON BEHALF OF THE BANKS IN THE STATE OF GEORGIA. THE PARTIES AGREE THAT THIS
GUARANTY SHALL BE DEEMED, MADE, DELIVERED, PERFORMED AND ACCEPTED BY THE
ADMINISTRATIVE AGENT ON BEHALF OF THE BANKS IN THE STATE OF GEORGIA AND SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF GEORGIA. WHEREVER POSSIBLE, EACH
PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH MANNER AS TO BE
EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
GUARANTY SHALL BE PROHIBITED BY OR INVALID UNDER SUCH LAW, SUCH PROVISION
SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF
THIS GUARANTY.
THE GUARANTOR (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF
GEORGIA, THE COURTS THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING
THEREIN, FOR THE ENFORCEMENT OF THIS GUAR ANTY, (B) WAIVES ANY AND ALL
PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO OBJECT ON ANY BASIS
(INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM) TO JURISDICTION OR
VENUE WITHIN THE STATE OF GEORGIA FOR THE PURPOSE OF LITIGATION TO ENFORCE
THIS GUARANTY, AND (C) AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON THE
GUARANTOR BY FIRST CLASS POSTAGE PREPAID MAIL, ADDRESSED TO THE GUARANTOR AT
THE LATEST ADDRESS OF THE GUARANTOR KNOWN TO THE ADMINISTRATIVE AGENT (OR AT
SUCH OTHER ADDRESS AS THE GUARANTOR MAY SPECIFY FOR THE PURPOSE BY WRITTEN
NOTICE TO SUCH EFFECT TO THE ADMINISTRATIVE AGENT). NOTHING HEREIN CONTAINED,
HOWEVER, SHALL PREVENT THE ADMINISTRATIVE AGENT OR THE BANKS FROM BRINGING
ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY AND AGAINST THE
GUARANTOR PERSONALLY, AND AGAINST ANY ASSETS OF THE GUARANTOR, WITHIN ANY
OTHER STATE OR JURISDICTION.
The Guarantor expressly waives, for the Administrative Agent's and
the Banks' collective benefit and the benefit of the Borrower and any other
guarantor, maker or endorser of the Obligations, any and all claims or
actions against Borrower, any other guarantor, maker or endorser of the
Obligations and any and all rights of recourse against any property or assets
of Borrower, any other guarantor, maker or endorser of the Obligations
(including without limitation, any security for the Obligations) arising out
of or related to any payment made by the Guarantor under this Guaranty,
including, without limitation, any claim of the Guarantor for subrogation,
reimbursement, exonera tion, contribution or indemnity that the Guarantor may
have against the Borrower, any other guarantor, maker or endorser of the
Obligations, and any benefit
-4-
<PAGE>
of, and any other right to participate in, any security for the Obligations
or any guaranty of the Obligations now or hereafter held by the
Administrative Agent or any of Banks. The waiver contained in this paragraph
shall continue and survive until the termination of this Guaranty and the
full payment and satisfaction of the Obligations.
NOTWITHSTANDING ANY TERM OF THIS GUARANTY WHICH IS, OR MAY BE
CONSTRUED TO BE, TO THE CONTRARY, IT IS THE MUTUAL INTENT OF THE GUARANTOR,
THE ADMINISTRATIVE AGENT AND THE BANKS THAT GUARANTOR'S MAXIMUM LIABILITY
ARISING HEREUNDER IN RESPECT OF THE OBLIGATIONS SHALL NOT, IN ANY EVENT,
EXCEED THE MAXIMUM AMOUNT PERMITTED BY APPLICABLE FEDERAL BANKRUPTCY, STATE
INSOLVENCY, OR SIMILAR LAWS AFFECTING THE ENFORCEMENT OF CREDITORS' RIGHTS
GENERALLY ("APPLICABLE LAW"). TO THAT END, BUT ONLY TO THE EXTENT THAT THE
OBLIGATIONS OF THE GUARANTOR HEREUNDER, OR ANY PORTION THEREOF, WOULD
OTHERWISE BE SUBJECT TO AVOIDANCE UNDER APPLICABLE LAW IF THE GUARANTOR IS
NOT DEEMED TO HAVE RECEIVED VALUABLE CONSIDERATION, FAIR VALUE OR REASONABLY
EQUIVALENT VALUE FOR THE INCURRENCE THEREOF, THE GUARANTOR'S OBLIGATIONS
HEREUNDER SHALL BE REDUCED TO THAT AMOUNT WHICH, AFTER GIVING EFFECT THERETO,
WOULD NOT RENDER THE GUARANTOR INSOLVENT, OR LEAVE GUARANTOR WITH AN
UNREASONABLY SMALL CAPITAL TO CONDUCT ITS BUSINESS, OR CAUSE GUARANTOR TO
HAVE INCURRED DEBTS (OR INTENDED TO HAVE INCURRED DEBTS) BEYOND ITS ABILITY
TO PAY SUCH DEBTS AS THEY MATURE, AT THE TIME SUCH OBLIGATIONS ARE DEEMED TO
HAVE BEEN INCURRED UNDER APPLICABLE LAW. AS USED HEREIN, THE TERMS
"INSOLVENT" AND "UNREASONABLY SMALL CAPITAL" SHALL LIKEWISE BE DETERMINED IN
ACCORDANCE WITH APPLICABLE LAW. THIS SECTION IS INTENDED SOLELY TO PRESERVE
THE RIGHTS OF THE ADMINISTRATIVE AGENT AND THE BANKS HEREUNDER TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAW, AND NEITHER GUARANTOR NOR ANY OTHER
PERSONS SHALL HAVE ANY RIGHT OR CLAIM UNDER THIS PARAGRAPH THAT WOULD NOT
OTHERWISE BE AVAILABLE UNDER APPLICABLE LAW.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed under seal as of __________________, ____.
By:________________________________
Title:__________________________
Attest:____________________________
Title:______________________
-5-
<PAGE>
Accepted:
WACHOVIA BANK, NATIONAL
ASSOCIATION, AS ADMINISTRATIVE AGENT
By:__________________________
W. Tompkins Rison
Vice President
-6-
<PAGE>
EXHIBIT 12.1
AVADO BRANDS INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------
Dec. 31, Dec. 31, Dec. 29, Dec. 28, Jan. 3,
1994 1995 1996 1997 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) before income taxes 29,960 34,429 18,224 42,073 107,044
(Earnings) loss from investments
carried at equity ................ -- -- -- -- (1,025)
Interest expense ................... 3,131 6,189 11,417 20,575 25,313
Dividends on Preferred Securities .. -- -- -- 6,412 8,205
Interest portion of rent expense (a) 3,433 4,533 5,200 8,100 9,167
Earnings available for fixed charges 36,524 45,151 34,841 77,160 148,704
Fixed Charges:
Interest expense ................... 3,131 6,189 11,417 20,575 25,313
Dividends on Preferred Securities .. -- -- -- 6,412 8,205
Interest portion of rent expense (a) 3,433 4,533 5,200 8,100 9,167
Capitalized Interest ............... 676 1,074 1,572 2,509 1,426
Total fixed charges ................ 7,240 11,796 18,189 37,596 44,111
Ratio of Earnings to Fixed Charges .... 5.04 3.83 1.92 2.05 3.37
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
THIRTEEN-WEEK TWELVE-MONTH
PERIODS ENDED PERIODS ENDED
-------------------- -------------------
Mar. 29, Apr. 4, Jan. 3, Apr. 4,
1998 1999 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Earnings (loss) before income taxes 61,364 9,102 (3,216) (1,101)
(Earnings) loss from investments
carried at equity ................ (703) 133 (1,025) (189)
Interest expense ................... 7,139 5,490 26,624 26,292
Dividends on Preferred Securities .. 2,012 2,012 8,205 8,205
Interest portion of rent expense (a) 2,336 2,191 6,656 7,361
Earnings available for fixed charges 72,148 18,928 37,244 40,568
Fixed Charges:
Interest expense ................... 7,139 5,490 26,624 26,292
Dividends on Preferred Securities .. 2,012 2,012 8,205 8,205
Interest portion of rent expense (a) 2,336 2,191 6,656 7,361
Capitalized Interest ............... 411 463 -- --
Total fixed charges ................ 11,898 10,156 41,485 41,858
Ratio of Earnings to Fixed Charges .... 6.06 1.86 0.90 0.97
</TABLE>
- --------------------
(a) One-third of total rental expense is the portion deemed representative of
the interest factor.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Avado Brands, Inc.:
We consent to the inclusion in the registration statement on Form S-4 of our
report dated January 29, 1999 related to the consolidated balance sheets of
Avado Brands, Inc. as of December 28, 1997 and January 3, 1999 and for each of
the years in the three-year period ended January 3, 1999 and to the reference to
our firm under the heading "Experts" in the prospectus. Our report refers to a
change in reporting the cost of start-up activities.
/s/ KPMG LLP
Atlanta, Georgia
July 2, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM T-1
-------------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
---------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)
-------------------
SUNTRUST BANK, ATLANTA
(Exact name of trustee as specified in its charter)
25 PARK PLACE, N.E.
SUITE 1100
ATLANTA, GEORGIA 30303 58-0466330
(Address of principal (Zip Code) (I.R.S. employer identification
executive offices) number)
-------------------
KRISTINE PRALL
SUNTRUST BANK, ATLANTA
25 PARK PLACE, N.E.
24TH FLOOR
ATLANTA, GEORGIA 30303-2900
404-588-7296
(Name, address and telephone number of agent for service)
-------------------
AVADO BRANDS, INC.
GEORGIA 59-2778983
(State or other (IRS employer
jurisdiction of incorporation identification no.)
or organization)
HANCOCK AT WASHINGTON
MADISON, GEORGIA 30650
(Address of principal executive offices) (Zip Code)
-------------------
11 3/4% Senior Subordinated Notes due 2009
(Title of the indenture securities)
- --------------------------------------------------------------------------------
333-
- --------------------------------------------------------------------------------
Registration No.
<PAGE>
1. GENERAL INFORMATION.
Furnish the following information as to the trustee--
Name and address of each examining or supervising authority to
which it is subject.
DEPARTMENT OF BANKING AND FINANCE,
STATE OF GEORGIA
ATLANTA, GEORGIA
FEDERAL RESERVE BANK OF ATLANTA
104 MARIETTA STREET, N.W.
ATLANTA, GEORGIA
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
Whether it is authorized to exercise corporate trust powers.
YES.
2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
NONE.
16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this statement of
eligibility; exhibits identified in parentheses are filed with the
Commission and are incorporated herein by reference as exhibits hereto
pursuant to Rule 7a-29 under the Trust Indenture Act of 1939, as
amended, and Rule 24 of the Commission's Rules of Practice.
(1) A copy of the Articles of Amendment and Restated Articles of
Association of the trustee as now in effect. (Exhibit 1 to Form
T-1, Registration No. 333-25463.)
(2) A copy of the certificate of authority of the trustee to
commence business. (included in Exhibit 1.)
(3) A copy of the authorization of the trustee to exercise
corporate trust powers. (included in Exhibit 1.)
<PAGE>
(4) A copy of the existing by-laws of the trustee. (included in
Exhibit 4 to Form T-1, Registration No. 333-25463.)
(6) The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939.
(7) A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority as of the close of business
on March 31, 1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, Suntrust Bank, Atlanta, a banking corporation organized and existing
under the laws of the State of Georgia, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Atlanta and the State of Georgia,
on the 1st day of July, 1999.
SUNTRUST BANK, ATLANTA
By: /s/ Kristine Prall
----------------------------------
Kristine Prall
Trust Officer
<PAGE>
EXHIBIT 1 TO FORM T-1
ARTICLES OF ASSOCIATION
OF
SUNTRUST BANK, ATLANTA
<PAGE>
EXHIBIT 2 TO FORM T-1
CERTIFICATE OF AUTHORITY
OF
SUNTRUST BANK, ATLANTA
TO COMMENCE BUSINESS
<PAGE>
EXHIBIT 3 TO FORM T-1
AUTHORIZATION
OF
SUNTRUST BANK, ATLANTA
TO EXERCISE CORPORATE TRUST POWERS
<PAGE>
EXHIBIT 4 TO FORM T-1
BY-LAWS
OF
SUNTRUST BANK, ATLANTA
<PAGE>
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939 in connection with the proposed issuance of 11 3/4% Senior
Subordinated Notes due 2009 of Avado Brands, Inc., SunTrust Bank, Atlanta hereBy
consents that reports of examinations by Federal, State, Territorial or District
Authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
SUNTRUST BANK, ATLANTA
By: /s/ Kristine Prall
----------------------------------
Kristine Prall
Trust Officer
<PAGE>
EXHIBIT 7 TO FORM T-1
REPORT OF CONDITION
<PAGE>
<TABLE>
<S> <C> <C> <C>
SUNTRUST BANK ATLANTA Call Date: 3/31/99 State #: 130330 FFIEC 031
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert. #: 0086 RC-1
ATLANTA, GA 30302 Transit #: 61000104
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
C400
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
1. Cash and balances due from depository institutions (from Schedule RC-A): RCF
---
a. Noninterest-bearing balances and currency and coin (1).................................... 0081 1,081,713 1.a
b. Interest-bearing balances (2)............................................................. 0071 5,142 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)................................ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D).............................. 1773 3,241,327 2.b
3. Federal funds sold and securities purchased under agreements to resell........................ 1350 1,613,979 3.
4. Loans and lease financing receivables: RCF
---
a. Loans and leases, net of unearned income (from Schedule RC-C)............................. 2122 13,334,252 4.a
b. LESS: Allowance for loan and lease losses................................................. 3123 138,668 4.b
c. LESS: Allocated transfer risk reserve..................................................... 3128 0 4.c
d. Loans and leases, net of unearned income, RCF
---
allowance, and reserve (item 4.a minus 4.b and 4.c)....................................... 2125 13,195,584 4.d
5. Trading assets (from Schedule RC-D)........................................................... 3545 40,090 5.
6. Premises and fixed assets (including capitalized leases)...................................... 2145 98,357 6.
7. Other real estate owned (from Schedule RC-M).................................................. 2150 946 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)...... 2130 12,664 8.
9. Customers' liability to this bank on acceptances outstanding.................................. 2155 319,845 9.
10. Intangible assets (from Schedule RC-M)........................................................ 2143 14,156 10.
11. Other assets (from Schedule RC-F)............................................................. 2160 188,834 11.
12. Total assets (sum of items 1 through 11)...................................................... 2170 19,812,637 12.
</TABLE>
- -------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
SUNTRUST BANK ATLANTA Call Date: 3/31/99 State #: 130330 FFIEC 031
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 00867 RC-2
ATLANTA, GA 30302 Transit #: 61000104
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------
LIABILITIES
<S> <C> <C> <C> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from RCON
----
Schedule RC-E, part I)................................................ CON 2200 7,087,839 13.a
---
(1) Noninterest-bearing (1)........................................... 6631 2,901,413 13.a.1
(2) Interest-bearing.................................................. 6636 4,186,426 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs RCF
---
(from Schedule RC-E, part II)........................................ RCF 2200 3,411,325 13.b
---
(1) Noninterest-bearing.............................................. 6631 0 13.b.1
(2) Interest-bearing................................................. 6636 3,411,325 RCF 13.b.2
---
14. Federal funds purchased and securities sold under agreements to repurchase.................... 2800 4,959,624 14
RCON
----
15. a. Demand notes issued to the U.S. Treasury.................................................. 2840 0 15.a
RCF
---
b. Trading liabilities (from Schedule RC-D).................................................. 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less............................................. 2332 280,094 16.a
b. With a remaining maturity of more than one year through three years....................... A547 2,568 16.b
c. With a remaining maturity of more than three years........................................ A548 114 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding...................................... 2920 319,845 18
19. Subordinated notes and debentures(2).......................................................... 3200 250,000 19
20. Other liabilities (from Schedule RC-G)........................................................ 2930 1,182,362 20
21. Total liabilities (sum of items 13 through 20)................................................ 2948 17,493,771 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus................................................. 3838 0 23
24. Common stock.................................................................................. 3230 21,601 24
25. Surplus (exclude all surplus related to preferred stock)...................................... 3839 703,406 25
26. a. Undivided profits and capital reserves.................................................... 3632 640,727 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities.................... 8434 953,132 26.b
c. Accumulated net gains (losses) on cash flow hedges........................................ 4336 0 26.c
27. Cumulative foreign currency translation adjustments........................................... 3284 0 27
28, Total equity capital (sum of items 23 through 27)............................................. 3210 2,318,866 28
29. Total liabilities and equity capital (sum of items 21 and 28)................................. 3300 19,812,637 29
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that RCF Number
best describes the most comprehensive level of auditing work performed for ---
the bank by independent external auditors as of any date during 1998.......................... 6724 2 M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus,
<PAGE>
LETTER OF TRANSMITTAL
FOR
TENDER OF 11 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
11 3/4% SENIOR SUBORDINATED NOTES DUE 2009
AVADO BRANDS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, ATLANTA, GEORGIA TIME, ON
_______, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). OUTSTANDING NOTES
TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
Deliver To The Exchange Agent: SunTrust Bank, Atlanta
<TABLE>
<CAPTION>
<S> <C> <C>
BY HAND/OVERNIGHT COURIER: BY MAIL: BY FACSIMILE:
25 Park Place, N.E. 25 Park Place N.E. 1-404-588-7335
24th Floor 24th Floor (For Eligible Institutions Only)
Atlanta, GA 30303-2900 Atlanta, GA 30303-2900 Confirm by Telephone: 1-404-588-7296
Attention Corporate Trust Division Attention Corporate Trust Division
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the
Prospectus dated _________, 1999 (the "Prospectus") of Avado Brands, Inc. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together describe the Company's offer (the "Exchange Offer") to exchange its 11
3/4% Senior Subordinated Notes due 2009 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for a
like principal amount of its issued and outstanding 11 3/4% Senior Subordinated
Notes due 2009 (the "Outstanding Notes"). Capitalized terms used but not defined
herein have the respective meaning given to them in the Prospectus.
The Company reserves the right, at any time and from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended. The Exchange Offer will no event, however, be extended to a date
beyond ________, 1999. The Company shall notify the holders of the Outstanding
Notes of any extension by oral or written notice prior to 9:00 A.M., Atlanta,
Georgia time, on the next Business Day after the previously scheduled Expiration
Date.
This Letter of Transmittal is to be used by a Holder of Outstanding
Notes either if original Outstanding Notes are to be forwarded herewith or if
delivery of Outstanding Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository Trust
Company (the "Depository") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer - Book-Entry Transfer."
Delivery of documents to the Depository does not constitute delivery to the
Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Outstanding Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered Holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Outstanding
Notes must complete this Letter of Transmittal in its entirety.
<PAGE>
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space below is inadequate, list the registered numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- ----------------------------------------------------------------------------------------------------------------------
Aggregate* Registered
Name(s) and Address(es) of Registered Holder(s) Principal Amount Numbers**
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
----------------- ------------------
----------------- ------------------
----------------- ------------------
----------------- ------------------
----------------- ------------------
----------------- ------------------
----------------- ------------------
- ----------------------------------------------------------------------------------------------------------------------
Attach separate schedule if necessary
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise indicated, any tendering Holder of Outstanding Notes will
be deemed to have tendered the entire aggregate principal amount represented
by such Outstanding Notes. All tenders must be in integral multiples of
$1,000.
** Need not be completed by book-entry Holders.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE ENCLOSED HEREWITH.
-2-
<PAGE>
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH THE DEPOSITORY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE
FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Outstanding Notes:
---------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------
Window Ticket Number (if available):
--------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
--------------------------
Account Number (if delivered by book-entry transfer):
---------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
-----------------------------------------
Address:
--------------------------------------
--------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Outstanding Notes, it acknowledges
that the Outstanding Notes were acquired as a result of market-making activities
or other trading activities and that it will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW;
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company for exchange the principal amount of
Outstanding Notes indicated above. Subject to and effective upon the acceptance
for exchange of the principal amount of Outstanding Notes tendered in accordance
with this Letter of Transmittal, the undersigned hereby exchanges, assigns and
transfers to the Company all right, title and interest in and to the Outstanding
Notes tendered for exchange hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Outstanding Notes with full power of substitution to (i) deliver such
Outstanding Notes, or transfer ownership of such Outstanding Notes on the
account books maintained by the Depository, to the Company and deliver all
accompanying evidences of transfer and authenticity, and (ii) present such
Outstanding Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Outstanding Notes, all in accordance with the terms of the Exchange Offer. The
power of attorney granted in this paragraph shall be deemed to be irrevocable
and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the
Outstanding Notes tendered hereby and to acquire the Exchange Notes issuable
-3-
<PAGE>
upon the exchange of such tendered Outstanding Notes, and that the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim,
when the same are accepted for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made
in reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission"), that the Exchange Notes issued in exchange for the Outstanding
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such Holders' business and such Holders are not
engaging in and do not intend to engage in a distribution of the Exchange Notes
and have no arrangement or understanding with any person to participate in a
distribution of such Exchange Notes. The undersigned hereby further represent(s)
to the Company that (i) any Exchange Notes acquired in exchange for Outstanding
Notes tendered hereby are being acquired in the ordinary course of business of
the person receiving such Exchange Notes, whether or not the undersigned is such
person, (ii) neither the undersigned nor any such other person is engaging in or
intends to engage in a distribution of the Exchange Notes, (iii) neither the
undersigned nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such Exchange Notes, and (iv)
neither the Holder nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company or, if it is an affiliate, it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account in exchange
for Outstanding Notes that were acquired as a result of market-making activities
or other trading activities, the undersigned acknowledges that it or such other
person will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that the undersigned or such other
person is an "underwriter" within the meaning of the Securities Act. The
undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the Commission in
certain no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Exchange
Notes, in which case the registration statement must contain the selling
security holder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission, and (ii) failure to comply with such
requirements in such instance could result in the undersigned incurring
liability under the Securities Act for which the undersigned is not indemnified
by the Company.
If the undersigned or the person receiving the Exchange Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act), the undersigned
represents to the Company that the undersigned understands and acknowledges that
the Exchange Notes may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Outstanding
Notes tendered hereby, including the transfer of such Outstanding Notes on the
account books maintained by the Depository.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Outstanding Notes when, as and if the
Company gives oral or written notice thereof to the Exchange Agent. Any tendered
Outstanding Notes that are not accepted for exchange pursuant to the Exchange
Offer for any reason will be returned, without expense, to the undersigned at
the address shown below or at a different address as may be indicated herein
under "Special Delivery Instructions" as promptly as practicable after the
Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
-4-
<PAGE>
The undersigned acknowledges that the Company's acceptance of properly
tendered Outstanding Notes pursuant to the procedures described under the
caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus and
in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions,"
please issue the Exchange Notes issued in exchange for the Outstanding Notes
accepted for exchange and return any Outstanding Notes not tendered or not
exchanged, in the name(s) of the undersigned. Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail or deliver the
Exchange Notes issued in exchange for the Outstanding Notes accepted for
exchange and any Outstanding Notes not tendered or not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address shown
below the undersigned's signature(s). In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the Exchange Notes issued in exchange for the Outstanding Notes accepted for
exchange in the name(s) of, and return any Outstanding Notes not tendered or not
exchanged to, the person(s) so indicated. The undersigned recognizes that the
Company has no obligation pursuant to the "Special Issuance Instructions" and
"Special Delivery Instructions" to transfer any Outstanding Notes from the name
of the registered holder(s) thereof if the Company does not accept for exchange
any of the Outstanding Notes so tendered for exchange.
-5-
<PAGE>
SIGN HERE
(Complete Substitute Form W-9 on Reverse)
Signature(s) of Owner(s)
(See Guarantee Requirement Below)
Date:
---------------
(Must be signed by the registered Holder(s) exactly as name(s)
appear(s) on Outstanding Notes or on a security position listing or by person(s)
authorized to become registered Holder(s) by a properly completed bond power
from the registered Holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Outstanding Notes to which this Letter of Transmittal
relate are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signing is by an executor,
administrator, trustee, guardian, attorney-in-fact, agent or other person acting
in a fiduciary or representative capacity, please provide the following
information. See Instruction 5.)
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Address, Including Zip Code)
Area Code and Telephone Number
--------------------------------------------------
Tax Identification or Social Security No.
---------------------------------------
(Complete Substitute Form W-9 on Reverse)
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 4)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
-----------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: ,1999
---------------------------------------------------------------------
SPECIAL INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
-6-
<PAGE>
Box A: SPECIAL ISSUANCE
INSTRUCTIONS
To be completed ONLY (i) if Outstanding Notes in a principal amount not
tendered, or Exchange Notes issued in exchange for Outstanding Notes accepted
for exchange, are to be issued in the name of someone other than the
undersigned, or (ii) if Outstanding Notes tendered by book-entry transfer which
are not exchanged are to be returned by credit to an account maintained by at
the Depository.
Issue Exchange Notes and/or Outstanding Notes to:
Name:
------------------------------------------------------
(Print Name)
Address:
---------------------------------------------------
---------------------------------------------------
(Print Address, Including Zip Code)
- -----------------------------------------------------------
(Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
(Attach Separate Signed Schedule if Necessary)
Box B: SPECIAL DELIVERY
INSTRUCTIONS
To be completed ONLY if Outstanding Notes in a principal amount not
tendered, or Exchange Notes issued in exchange for Outstanding Notes accepted
for exchange, are to be mailed or delivered to someone other than the
undersigned, or to the undersigned at an address other than that shown below the
undersigned's signature.
Mail to:
Name:
------------------------------------------------------
(Print Name)
Address:
---------------------------------------------------
---------------------------------------------------
(Print Address, Including Zip Code)
Check ONLY if the address above is a new permanent address.
(Attach Separate Signed Schedule if Necessary)
[ ] Credit unexchanged Outstanding Notes delivered by book-entry transfer
to the Depository set forth below:
-------------------------------------------------
(Depository Account Number, if applicable)
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE
OFFER.
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OUTSTANDING NOTES OR
BOOK-ENTRY CONFIRMATIONS. All physically delivered Outstanding Notes or any
confirmation of a book-entry transfer to the Exchange Agent's account at the
Depository of Outstanding Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 12:00 midnight, Atlanta, Georgia time, on the
Expiration Date. The method of delivery of the tendered Outstanding Notes, this
Letter of Transmittal and all other required documents to the Exchange Agent is
at the election and risk of the Holder and, except as otherwise provided below,
the delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Outstanding Notes should be sent to the Company.
2. TENDER BY HOLDER. Only a Holder of Outstanding Notes may tender such
Outstanding Notes in the Exchange Offer. Any beneficial Holder of Outstanding
Notes who is not the registered Holder and who wishes to tender should arrange
with the registered Holder to execute and deliver this Letter of Transmittal on
his behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his Outstanding Notes, either make appropriate arrangements to
register ownership of the Outstanding Notes in such Holder's name or obtain a
properly completed bond power from the registered Holder.
3. PARTIAL TENDERS. Tenders of Outstanding Notes will be accepted only
in integral multiples of $1,000. If less than the entire principal amount of any
Outstanding Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the second column of the box entitled "Description of
Outstanding Notes
-7-
<PAGE>
- -9Tendered" above. The entire principal amount of Outstanding Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Outstanding Notes is not
tendered, then Outstanding Notes for the principal amount of Outstanding Notes
not tendered and Exchange Notes issued in exchange for any Outstanding Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Outstanding Notes are accepted for exchange.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal
(or facsimile hereof) is signed by the record Holder(s) of the Outstanding Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Outstanding Notes without alteration, enlargement or any change
whatsoever. If this Letter of Transmittal is signed by a participant in the
Depository, the signature must correspond with the name as it appears on the
security position listing as the Holder of the Outstanding Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Outstanding Notes listed and tendered hereby and
the Exchange Note(s) issued in exchange therefor are to be issued (or any
untendered principal amount of Outstanding Notes is to be reissued) to the
registered Holder, the said Holder need not and should not endorse any tendered
Outstanding Notes, nor provide a separate bond power. In any other case, such
Holder must either properly endorse the Outstanding Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person other than the registered Holder or Holders of any Outstanding Notes
listed, such Outstanding Notes must be endorsed or accompanied by appropriate
bond powers, in each case signed as the name of the registered Holder or Holders
appears on the Outstanding Notes.
If this Letter of Transmittal (or facsimile hereof) or any Outstanding
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, or officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, evidence satisfactory to the Company
of their authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Outstanding Notes or signatures on bond powers required
by this Instruction 4 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Outstanding Notes tendered herewith
(or by a participant in the Depository whose name appears on a security position
listing as the owner of the tendered Outstanding Notes) and the issuance of
Exchange Notes (and any Outstanding Notes not tendered or not accepted) are to
be issued directly to such registered holder(s) (or, if signed by a participant
in the Depository, any Exchange Notes or Outstanding Notes not tendered or not
accepted are to be deposited to such participant's account at such Depository)
and neither the box entitled "Special Delivery Instructions" nor the box
entitled "Special Registration Instructions" has been completed, or (ii) such
Outstanding Notes are tendered for the account of an Eligible Institution. In
all other cases, all signatures on this Letter of Transmittal must be guaranteed
by an Eligible Institution.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Depository) to which Exchange Notes or substitute Outstanding
Notes for principal amounts not tendered or not accepted for exchange are to be
issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Outstanding Notes pursuant to the Exchange Offer.
If, however, Exchange Notes or Outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Outstanding Notes tendered hereby, or if tendered Outstanding
-8-
<PAGE>
Notes are registered in the name of any person other than the person signing
this Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Outstanding Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder or
any other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
this Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OUTSTANDING NOTES LISTED IN THIS LETTER
OF TRANSMITTAL.
7. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder of any Outstanding Notes which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Company is not provided with the correct TIN, the Holder
may be subject to a $50 penalty imposed by Internal Revenue Service. (If
withholding results in an over-payment of taxes, a refund may be obtained.)
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Outstanding Notes are registered in more than one name or are not in the
name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number of Substitute Form W-9" for information on which
TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
8. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Outstanding
Notes will be determined by the Company, in its sole discretion, which
determination will be final and binding. The Company reserves the right to
reject any and all Outstanding Notes not validly tendered or any Outstanding
Notes, the Company's acceptance of which would, in the opinion of the Company or
its counsel, be unlawful. The Company also reserves the right to waive any
conditions of the Exchange Offer or defects or irregularities in tenders of
Outstanding Notes as to any ineligibility of any holder who seeks to tender
Outstanding Notes in the Exchange Offer. The interpretation of the terms and
conditions of the Exchange Offer (which includes this Letter of Transmittal and
the instructions hereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Outstanding Notes must be cured within such time as the Company shall
determine. The Company will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Outstanding Notes, but
shall not incur any liability for failure to give such notification.
9. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
10. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Outstanding Notes on transmittal of this Letter of
Transmittal will be accepted.
11. MUTILATED, LOST, STOLEN, OR DESTROYED OUTSTANDING NOTES. Any Holder
whose Outstanding Notes have been mutilated, lost, stolen, or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance or for additional copies of the Prospectus or this Letter of
Transmittal may be directed to the Exchange Agent at the
-9-
<PAGE>
address or telephone number set forth on the cover page of this Letter of
Transmittal. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
13. ACCEPTANCE OF TENDERED OUTSTANDING NOTES AND ISSUANCE OF EXCHANGE
NOTES; RETURN OF OUTSTANDING NOTES. Subject to the terms and conditions of the
Exchange Offer, the Company will accept for exchange all validly tendered
Outstanding Notes as soon as practicable after the Expiration Date and will
issue Exchange Notes therefor as soon as practicable thereafter. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted tendered
Outstanding Notes when, as and if the Company has given written and oral notice
thereof to the Exchange Agent. If any tendered Outstanding Notes are not
exchanged pursuant to the Exchange Offer for any reason, such unexchanged
Outstanding Notes will be returned, without expense, to the undersigned at the
address shown above (or credited to the undersigned's account at the Depository
designated above) or at a different address as may be indicated under the box
entitled "Special Delivery Instructions."
14. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
-10-
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH THE OUTSTANDING NOTES WHICH MUST BE DELIVERED BY
BOOK-ENTRY TRANSFER OR IN ORIGINAL HARD COPY FORM) OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 12:00 MIDNIGHT ON THE
EXPIRATION DATE.
(TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 4))
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: AVADO BRANDS, INC.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PART 1 - PLEASE PROVIDE YOUR TIN IN THE Social security number
BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW. OR _______________________________
SUBSTITUTE Employer Identification Number
-------------------------------------------------------------------------------------
PART 2 - Check the box if you are NOT subject to backup withholding under the
provisions of Section 3406(a)(i)(C) of the Internal Revenue Code because (1) you
Form W-9 have not been notified that you are subject to backup withholding as a
Department of the Treasury result of failure to report all interest or dividends, or (2) the Internal
Internal Revenue Service revenue Service has notified you that you are no longer subject to backup
Payer's Request for Taxpayer withholding.
Identification Number ("TIN") -------------------------------------------------------------------------------------
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY PART 3-
THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, Awaiting TIN
CORRECT AND COMPLETE
SIGNATURE DATE
------------------------------------------------ ------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Part 1 - Taxpayer Identification No. - For All Accounts. Enter your taxpayer
identification number in the appropriate box. For most individuals and sole
proprietors, this is your social security number. For other entities, it is your
Employer Identification Number. If you do not have a number, see How to Obtain a
TIN in the enclosed Guidelines. Note: If the account is in more than one name,
see the chart on page 2 of the enclosed Guidelines to determine what number to
enter.
Part 2 - For Payees Exempt from Backup Withholding (see enclosed Guidelines).
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU WITH RESPECT TO THE EXCHANGE
NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
SIGNATURE DATE
-------------------------------------------- ----------------------
-11-
