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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-18051
FLAGSTAR COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3487402
(State or other jurisdiction (I.R.S. employer
of incorporation or identification no.)
organization)
203 EAST MAIN STREET 29319-9966
SPARTANBURG, SOUTH CAROLINA (Zip code)
(Address of principal
executive offices)
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Registrant's telephone number, including area code: (803) 597-8700.
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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None None
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Securities registered pursuant to Section 12(g) of the Act:
$.50 Par Value, Common Stock
TITLE OF CLASS
$.10 Par Value, $2.25 Series A Cumulative Convertible Exchangeable Preferred
Stock
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. H
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $67,987,000 based upon the closing sales price of
registrant's Common Stock on March 31, 1994 of $9 1/2 per share.
As of March 31, 1994, 42,369,319 shares of registrant's Common Stock, $.50
par value per share, were outstanding.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business..................................................................................................... 1
Item 2. Properties................................................................................................... 9
Item 3. Legal Proceedings............................................................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.......................................................... 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................ 12
Item 6. Selected Financial Data...................................................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 14
Item 8. Financial Statements and Supplementary Data.................................................................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant........................................................... 20
Item 11. Executive Compensation....................................................................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and Management............................................... 30
Item 13. Certain Relationships and Related Transactions............................................................... 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................. 39
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES......................................................... F-1
SIGNATURES..............................................................................................................
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Flagstar Companies, Inc. ("FCI"), through its wholly-owned subsidiary
Flagstar Corporation ("Flagstar"), is one of the largest food service
enterprises in the United States, operating (directly and through franchisees)
2,500 moderately priced restaurants and providing contract food services to more
than 1,600 business, industrial and institutional clients and vending services
at approximately 11,400 locations.
The Company's restaurant operations are conducted through three principal
chains. Denny's is the nation's largest chain of family-oriented full service
restaurants, with over 1,500 units in 49 states and eight foreign countries,
including 490 in California and Florida. According to an independent survey
conducted in 1993, Denny's has the leading share of the national market in the
family segment. Hardee's is a chain of fast-food restaurants of which the
Company, with 564 units located primarily in the southeast, is the largest
franchisee. Although specializing in sandwiches, the Company's Hardee's
restaurants have introduced fresh fried chicken and also offer a breakfast menu
that accounts for approximately 38% of total sales and features the chain's
famous "made-from-scratch" biscuits. Quincy's, with more than 200 locations, is
one of the largest chains of steakhouse restaurants in the southeastern United
States, offering steak, chicken and seafood entrees as well as a buffet food
bar, called the "Country Sideboard," that features as many as 87 different
items. A weekend breakfast buffet is available at most Quincy's locations. The
Company also operates El Pollo Loco, a chain of fast-food restaurants featuring
flame-broiled chicken and steak products and related Mexican food items, with a
strong regional presence in California.
Although operating in three distinct segments of the restaurant
industry -- family-style, fast-food and steakhouse -- the Company's restaurants
benefit from a single management strategy that emphasizes superior value and
quality, friendly and attentive service and appealing facilities. During the
past year, the Company has remodeled 59 of its existing restaurants and added a
net of 86 new restaurants to its principal chains.
The Company's contract food and vending services are conducted through
Canteen, one of the three largest contract food and vending companies in the
nation. Canteen also operates food, beverage and lodging facilities and gift
shops and provides ancillary services at various national and state parks,
sports stadiums, amphitheaters and arenas throughout the United States.
FCI is a holding company that was organized in Delaware in 1988 in order to
effect the acquisition of Flagstar in 1989. On November 16, 1992, FCI and
Flagstar consummated the principal elements of a recapitalization (the
"Recapitalization"), which included, among other things, an equity investment by
TW Associates, L.P. ("TW Associates") and KKR Partners II, L.P. ("KKR Partners
II") (collectively, "Associates"), partnerships affiliated with Kohlberg Kravis
Roberts & Co. ("KKR"), and a restructuring of Flagstar's bank credit facility
and public debt securities. As a result of such transactions, Associates
acquired control of FCI and Flagstar. Prior to June 16, 1993, FCI and Flagstar
had been known, respectively, as TW Holdings, Inc. and TW Services, Inc. As used
herein, the term "Company" includes, in addition to FCI, Flagstar and its
subsidiaries, except as the context otherwise requires.
GENERAL
The Company's operating revenues and operating income by business segment
for the periods shown were as follows:
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PREDECESSOR SUCCESSOR
JANUARY 1 JULY 21 TO
TO JULY 20, DECEMBER 31, YEAR ENDED DECEMBER 31,
1989 1989 1990 1991 1992
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(IN MILLIONS)
Operating Revenues:
Restaurants.......................................... $ 1,180.9 $ 931.7 $2,303.9 $2,338.7 $2,443.0
Contract food service................................ 735.9 586.2 1,322.6 1,279.2 1,277.3
$ 1,916.8 $1,517.9 $3,626.5 $3,617.9 $3,720.3
Operating Income (Loss):
Restaurants.......................................... $ 112.9 $ 74.4 $ 196.5 $ 192.0 $ 214.1
Contract food service................................ 29.4 26.5 51.9 45.9 50.9
Corporate, net....................................... (7.1) (4.0) (10.1) (13.9) (18.6)
Acquisition-related costs and unusual expenses....... (30.1) (69.9) -- -- --
$ 105.1 $ 27.0 $ 238.3 $ 224.0 $ 246.4
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1993
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Operating Revenues:
Restaurants.......................................... $ 2,598.9
Contract food service................................ 1,371.3
$ 3,970.2
Operating Income (Loss):
Restaurants.......................................... $(1,085.9)(1)
Contract food service................................ (313.3)(1)
Corporate, net....................................... (61.6)(1)
Acquisition-related costs and unusual expenses....... --
$(1,460.8)
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(1) Operating income by business segment reflects the write-off of goodwill and
other intangible assets and the provision for restructuring charges (see
Notes 2 and 3 to the Consolidated Financial Statements) as follows:
restaurants $1,265.6 million, contract food service $359.8 million, and
corporate, net $41.4 million.
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For additional financial information about the Company's business segments, see
Note 14 of the Notes to Consolidated Financial Statements appearing elsewhere
herein.
On July 1, 1993, culminating a dialogue which began in early 1992, the
Company signed a Fair Share Agreement with the NAACP "as a commitment to
continue and expand opportunities at Flagstar for African-American and other
minorities." Pursuant to that agreement, the Company agreed to place special
emphasis on management and employment advancement, advertising and marketing,
franchising opportunities, purchasing and professional service opportunities,
philanthropic and charitable contributions and policy development, to enhance
policies and programs by which African-Americans and other minorities realize
greater participation in business opportunities at Flagstar. The Company and the
NAACP have agreed to meet quarterly during the first year of the agreement and
semiannually thereafter to review progress toward the stated goals of the
agreement.
RESTAURANTS
The Company believes its restaurant operations benefit from the diversity
of the restaurant concepts represented by its three principal chains, the strong
market positions and consumer recognition enjoyed by each of these chains, the
benefits of a centralized support system for purchasing, menu development, human
resources, management information systems, site selection, restaurant design and
construction, and an aggressive new management team. The Company owns or has
rights in all trademarks it believes are material to its restaurant operations.
Denny's and Quincy's are expected to benefit from the demographic trend of aging
baby boomers and the growing population of elderly persons. The largest
percentage of "family style" customers comes from the 35 and up age group. The
Company also expects its chain of Hardee's restaurants to maintain its strong
market position in the southeast.
During the fourth quarter of 1993, the Company approved a restructuring
plan which includes the identification of units that have produced inadequate
returns on investment, have been difficult to supervise or lack market
penetration so that such units can be sold, closed or converted to another
restaurant concept. These actions should result in a redeployment of capital to
activities which produce a higher rate of return. Accordingly, such units were
written down to their net realizable value. The plan includes changes to the
field management structure which will eliminate a layer of management,
increasing the regional manager's "span of control" and expanding the restaurant
general manager's decision making role. Also, the Company will consolidate
certain Company operations and eliminate overhead positions in the field and in
its corporate marketing, accounting, and administrative functions. The Company's
restructuring charge reflected in the accompanying Consolidated Financial
Statements includes the severance and relocation costs related to these changes.
The plan includes specific action plans to fundamentally change the competitive
positions of Denny's, El Pollo Loco, and Quincy's, as discussed below.
DENNY'S
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YEAR ENDED DECEMBER 31,
1989 1990 1991 1992
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Operating Units (end of year)
Owned/operated.................................................................... 1,001 992 996 1,013
Franchised........................................................................ 273 302 326 378
International..................................................................... 68 64 69 69
Revenues (in millions) (1).......................................................... $1,284 $1,407 $1,429 $1,449
Operating Income (Loss) (in millions) (1)........................................... $ 98 $ 118 $ 128 $ 130
Depreciation and Amortization (in millions) (1)..................................... $ 57 $ 68 $ 75 $ 82
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,117 $1,209 $1,232 $1,231
Franchised........................................................................ $ 865 $ 949 $1,040 $1,065
Average Check....................................................................... $ 4.05 $ 4.20 $ 4.37 $ 4.56
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1993
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Operating Units (end of year)
Owned/operated.................................................................... 1,024
Franchised........................................................................ 427
International..................................................................... 63
Revenues (in millions) (1).......................................................... $1,530
Operating Income (Loss) (in millions) (1)........................................... $ (625)(2)
Depreciation and Amortization (in millions) (1)..................................... $ 88
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,233
Franchised........................................................................ $1,057
Average Check....................................................................... $ 4.76
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(1) Includes distribution and processing operations.
(2) Operating income reflects the write-off of goodwill and other intangible
assets and the provision for restructuring charges for the year ended
December 31, 1993 of $716 million.
Denny's is the largest full-service family restaurant chain in the United
States in terms of both number of units and total revenues and, according to an
independent survey conducted in 1993 by Consumer Reports on Eating Share Trends
(CREST), an industry market research firm, Denny's has the leading share of the
national market in the family segment. Denny's restaurants currently operate in
49 states and eight foreign countries, with principal concentrations in
California, Florida, Texas, Washington, Arizona, Illinois, Pennsylvania and
Ohio. Denny's restaurants are designed to provide a casual
2
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dining atmosphere with moderately priced food and quick, efficient service to a
broad spectrum of customers. The restaurants generally are open 24 hours a day,
seven days a week. All Denny's restaurants have uniform menus (with some
regional and seasonal variations) offering traditional family fare (including
breakfast, steaks, seafood, hamburgers, chicken and sandwiches) and provide both
counter and table service for breakfast, lunch and dinner as well as a "late
night" menu.
The Company acquired the Denny's chain in September 1987. Since the
acquisition, the Company has reduced corporate level overhead (including through
the relocation of key operating personnel to the Company's Spartanburg, South
Carolina headquarters), accelerated Denny's remodeling program, added
point-of-sale ("POS") systems to the chain's restaurants, simplified the menu
and created new advertising and marketing programs.
The Company remodeled 125 Denny's restaurants in 1992 and another 41 in
1993, raising the total number of restaurants remodeled since the Company's
aquisition of Denny's to over one-half of all Denny's restaurants. The Company
expects to remodel approximately 90 units this year so that, by the end of 1994,
Company-owned Denny's restaurants will be remodeled on an eight year cycle. A
typical Denny's remodeling requires approximately ten days to complete (with the
temporary closing of the restaurant), is managed by the Company's in-house
design and construction staff, and currently costs approximately $265,000 per
unit. The 90 units to be remodeled in 1994 will represent the first phase in a
"reimaging" strategy. This reimaging strategy includes an updated exterior look,
new signage, an improved interior layout with more comfortable seating and
enhanced lighting. Reimaging also includes a new menu, new menu offerings, new
uniforms, and enhanced dessert offerings, including a current market test of
Baskin-Robbins ice cream. The Company believes this reimaging program, currently
being tested at its units in Houston, will increase customer satisfaction and
customer traffic.
The Company completed the rollout of its Denny's restaurants with POS
systems in January 1993. This system provides hourly sales reports, cash control
and marketing data and information regarding product volumes. POS systems
improve labor scheduling, provide information to evaluate more effectively the
impact of menu changes on sales, and reduce the paperwork of managers.
Additional efficiency improvements are being designed in 1994.
Marketing initiatives in 1994 will emphasize positioning Denny's as the
price value leader within its segment, initially concentrating on breakfast. The
Company intends to support these initiatives by expanding the number of media
markets and using co-op advertising with franchisees in other markets. These
promotions are designed to capitalize on the strong public recognition of the
Denny's name.
The Company intends to open relatively few Company-owned Denny's
restaurants and to expand its franchising efforts in 1994 in order to increase
its market share, establish a presence in new areas and further penetrate
existing markets. To accelerate the franchise expansion, the Company will
identify units to sell to franchisees which are not part of its growth strategy
for Company-owned Denny's units. These units are in addition to 105 units that
are to be sold to franchisees or closed under the Company's restructuring plan.
The restructured field management infrastructures established to serve the
existing Denny's system are expected to provide sufficient support for
additional units with moderate incremental expense. Expanded franchising also
will permit the Company to exploit smaller markets where a franchisee's ties to
the local community are advantageous.
During 1993, the Company added a net of 49 new Denny's franchises, bringing
total franchised units to 427, or 28% of all Denny's restaurants. The initial
fee for a single Denny's franchise is $35,000, and the current royalty payment
is 4% of gross sales. In 1993, Denny's realized $33.5 million of revenues from
franchising. Franchisees also purchase food and supplies from a Company
subsidiary.
During 1993, the Company also made certain changes in the management of
Denny's, including the appointment of C. Ronald Petty as chief operating
officer. Mr. Petty, 49, has twenty years of experience in the food service
industry, including senior leadership positions with other national restaurant
chains. Mr. Petty has assumed overall responsibility for the operation of the
Denny's chain.
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HARDEE'S
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YEAR ENDED DECEMBER 31,
1989 1990 1991 1992
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Operating Units (end of year)
Owned/operated.................................................................... 465 483 500 528
Revenues (in millions).............................................................. $ 467 $ 510 $ 525 $ 607
Operating Income (Loss) (in millions)............................................... $ 61 $ 52 $ 52 $ 72
Depreciation and Amortization (in millions)......................................... $ 27 $ 40 $ 40 $ 44
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,040 $1,077 $1,062 $1,185
Average Check....................................................................... $ 2.55 $ 2.64 $ 2.72 $ 2.88
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1993
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Operating Units (end of year)
Owned/operated.................................................................... 564
Revenues (in millions).............................................................. $ 682
Operating Income (Loss) (in millions)............................................... $ (179)(1)
Depreciation and Amortization (in millions)......................................... $ 48
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,255
Average Check....................................................................... $ 3.09
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(1) Operating income reflects the write-off of goodwill and other intangible
assets and the provision for restructuring charges for the year ended
December 31, 1993 of $260 million.
The Company's Hardee's restaurants are operated under licenses from
Hardee's Food Systems, Inc. ("HFS"). The Company is HFS' largest franchisee,
operating 17% of Hardee's restaurants nationwide. HFS is the third largest
sandwich chain in the United States. Of the 564 Hardee's restaurants operated by
the Company at December 31, 1993, 544 were located in ten southeastern states.
The Company's Hardee's restaurants provide uniform menus in a fast-food format
targeted to a broad spectrum of customers. The restaurants offer hamburgers,
chicken, roast beef and fish sandwiches, hot dogs, salads and low-fat yogurt, as
well as a breakfast menu featuring Hardee's popular "made-from-scratch"
biscuits. To add variety to its menu, further differentiate its restaurants from
those of its major competitors and increase customer traffic during the
traditionally slower late afternoon and evening periods, HFS added fresh fried
chicken as a menu item in a number of its restaurants beginning in 1991. The
Company first tested fresh fried chicken in one of its market areas in October
1991. Based on the success experienced in this market area and the early success
experienced by HFS, the Company accelerated the introduction of fresh fried
chicken as a regular menu item during 1992 and completed the planned rollout in
1993.
Substantially all of the Company's Hardee's restaurants have drive-thru
facilities, which provided 51% of the chain's revenues in 1993. Most of the
restaurants are open 18 hours a day, seven days a week. Operating hours of
selected units have been extended to 24 hours a day, primarily on weekends.
Hardee's breakfast menu, featuring the chain's signature "made-from-scratch"
biscuits, accounts for approximately 38% of total sales at the Company's
Hardee's restaurants. The Company plans to remodel its Hardee's restaurants
every ten years at a current average cost of $175,000 per unit for major
remodels.
Each Hardee's restaurant is operated under a separate license from HFS.
Each license grants the exclusive right, in exchange for a franchise fee,
royalty payments and certain covenants, to operate a Hardee's restaurant in a
described territory, generally a town or an area measured by a radius from the
restaurant site. Each license has a term of 20 years from the date the
restaurant is first opened for business and is non-cancellable by HFS, except
for the Company's failure to abide by its covenants. Earlier issued license
agreements are renewable under HFS' renewal policy; more recent license
agreements provide for successive five-year renewals upon expiration, generally
at rates then in effect for new licenses. A number of the Company's licenses are
scheduled for renewal. The Company has historically experienced no difficulty in
obtaining such renewals and does not anticipate any problems in the future.
The Company has a territorial development agreement with HFS which calls
for the Company to open an additional 69 new Hardee's restaurants in its
existing development territory in the southeast (and certain adjacent areas) by
the end of 1996. The Company presently plans to open new restaurants in an
amount not less than that required by the territorial development agreement. It
is anticipated that construction of 69 additional units will require
approximately $69 million in capital expenditures. If the Company determines not
to open the total number of specified units in the territory within the time
provided, its development rights may become non-exclusive. The Company may seek
to expand its Hardee's operations by purchasing existing Hardee's units from HFS
and other franchisees, subject to HFS' right of first refusal, but any such
purchases will not be counted toward the number of new unit openings called for
under the agreement.
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QUINCY'S
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YEAR ENDED DECEMBER 31,
1989 1990 1991 1992
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Operating Units (end of year)
Owned/operated.................................................................... 213 212 216 217
Revenues (in millions).............................................................. $ 263 $ 282 $ 283 $ 290
Operating Income (Loss) (in millions)............................................... $ 18 $ 20 $ 15 $ 11
Depreciation and Amortization (in millions)......................................... $ 17 $ 21 $ 22 $ 22
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,247 $1,324 $1,320 $1,335
Average Check....................................................................... $ 5.30 $ 5.38 $ 5.40 $ 5.32
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1993
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Operating Units (end of year)
Owned/operated.................................................................... 213
Revenues (in millions).............................................................. $ 279
Operating Income (Loss) (in millions)............................................... $ (154)(1)
Depreciation and Amortization (in millions)......................................... $ 21
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,302
Average Check....................................................................... $ 5.61
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(1) Operating income reflects the write-off of goodwill and other intangible
assets and the provision for restructuring charges for the year ended
December 31, 1993 of $164 million.
Ranked by 1993 sales, Quincy's is the sixth largest steakhouse chain in the
country and one of the largest such chains in the southeastern United States.
The Quincy's chain consists of 213 Company-owned restaurants at December 31,
1993 which are designed to provide families with limited-service dining at
moderate prices. All Quincy's are open seven days a week for lunch and dinner.
The restaurants serve steak, chicken and seafood entrees along with a
buffet-style food bar, called the "Country Sideboard," offering hot foods,
soups, salads and desserts and featuring as many as 87 items at a time. In
addition, weekend breakfast service, which is available at most locations,
allows Quincy's to utilize its asset base more efficiently.
Since 1986 Quincy's has remodeled approximately 85 restaurants to expand
seating capacity from approximately 225 to approximately 280 seats. During 1993,
seven units were remodeled to introduce the new scatter bar format.
The Company also began testing a unit concept conversion in 1993 by
remodeling and converting three steakhouses in Columbia, S.C., to a buffet only
concept. Under the Company's restructuring plan, 90 units have been identified
that currently are not producing adequate returns and, therefore, are to be
converted, sold, or closed. Upon successful completion of its concept conversion
tests, the Company plans to convert most of these units to the buffet only
concept or other concepts under consideration. The concept remodels are expected
to have an average cost of approximately $250,000 per unit.
EL POLLO LOCO
El Pollo Loco, which accounted for only 4.2% of the Company's total
restaurant revenues (2.7% of consolidated revenues) in the year ended December
31, 1993, is the leading chain in the quick service chain segment of the
restaurant industry to specialize in flame-broiled chicken. As of December 31,
1993, there were 209 El Pollo Loco units (of which 139 were operated by the
Company, 64 were operated by franchisees and 6 were operated under foreign
licensing agreements). Approximately 92% of these restaurants are located in
southern California. El Pollo Loco directs its marketing at customers desiring
an alternative to other fast food products. The Company's El Pollo Loco
restaurants are designed to facilitate customer viewing of the preparation of
the flame-broiled chicken. El Pollo Loco restaurants generally are open 12 hours
a day, seven days per week. El Pollo Loco restaurants feature a limited, but
expanding menu highlighted by marinated flame-broiled chicken and steak products
and related Mexican food items.
As a part of the restructuring plan, the Company has identified 45 units
which do not generate an adequate return on investment, and thus will be sold to
franchisees or closed. The Company's restructuring plan includes reimaging the
existing units through a limited remodeling program, expanded menu items
(including fried foods) and an all-you-can-eat salsa bar. These changes are
intended to increase customer satisfaction and expand the customer market
resulting in higher customer traffic.
OPERATIONS
The Company believes that successful execution of basic restaurant
operations in each of its restaurant chains is critical to its success.
Accordingly, significant effort is devoted to ensuring that all restaurants
offer quality food and service. Through a network of division leaders, region
leaders, district leaders and restaurant managers, the Company standardizes
specifications for the preparation and efficient service of quality food, the
maintenance and repair of its premises and the appearance and conduct of its
employees. Major emphasis is placed on the proper preparation and delivery of
the product to the consumer and on the cost-effective procurement and
distribution of quality products.
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A principal feature of the Company's restaurant operations is the constant
focus on improving operations at the unit level. Unit managers are especially
hands-on and versatile in their supervisory activities. Region and district
leaders have no offices and spend substantially all of their time in the
restaurants. A significant majority of restaurant management personnel began as
hourly employees in the restaurants and therefore perform restaurant functions
and train by example. The Company benefits from an experienced management team.
Each of the Company's restaurant chains maintains training programs for
employees and restaurant managers. Restaurant managers and assistant managers
receive training at specially designated training units. Areas of training for
managers include customer interaction, kitchen management and food preparation,
data processing and cost control techniques, equipment and building maintenance
and leadership skills. Video training tapes demonstrating various restaurant job
functions are located at each restaurant location and are viewed by employees
prior to a change in job function or utilizing new equipment or procedures.
Each of the Company's restaurant chains continuously evaluates its menu.
New products are developed in Company test kitchens and then introduced in
selected restaurants to determine customer response and to ensure that
consistency, quality standards and profitability are maintained. If a new item
proves successful at the research and development level, it is usually tested in
selected markets, both with and without market support. A successful menu item
is then incorporated into the restaurant system. In the case of the Hardee's
restaurants, menu development is coordinated through HFS.
Financial and management control of the Company's restaurants is
facilitated by the use of POS systems. Detailed sales reports, payroll data and
periodic inventory information are transmitted to the Company for management
review. These systems economically collect accounting data and enhance the
Company's ability to control and manage these restaurant operations. Such
systems are in use in all of the Company's Hardee's and Quincy's restaurants,
and installation of such systems in the Denny's chain was completed in January
1993.
Denny's size allows it to operate its own distribution and supply
facilities, thereby controlling costs and improving efficiency of food delivery
while enhancing quality and availability of products. Denny's operates seven
regional centers for distribution of substantially all of the ingredients and
supplies used by the Denny's restaurants. As opportunities arise, the Company is
extending these operations to its other restaurant chains. The Company also
operates a food-processing facility in Texas which supplies beef, pork sausage,
soup and many other food products currently used by the Company's restaurants.
Food and packaging products for the Company's Hardee's restaurants are
purchased from HFS and independent suppliers approved by HFS. A substantial
portion of the products for the Company's Hardee's and Quincy's restaurants is
obtained from MBM Corporation, an independent supplier/distributor. Adequate
alternative sources of supply for required items are believed to be available.
ADVERTISING
Denny's primarily relies upon regional television and radio advertising.
Advertising expenses for Denny's restaurants were $41.1 million for 1993, or
about 3.1% of Denny's system-wide restaurant revenues. Individual restaurants
are also given the discretion to conduct local advertising campaigns. In
accordance with HFS licensing agreements, the Company spends approximately 5.6%
of Hardee's total gross sales on marketing and advertising. Of this amount,
approximately 2.4% of total gross sales is contributed to media cooperatives and
HFS' national advertising fund. The balance is directed by the Company on local
levels. HFS engages in substantial advertising and promotional activities to
maintain and enhance the Hardee's system and image. The Company participates
with HFS in planning promotions and television support for the Company's primary
markets and engages in local radio, outdoor and print advertising for its
Hardee's operations. The Company, together with a regional advertising agency,
advertises its Quincy's restaurants primarily through print, radio and
billboards. Quincy's has focused on in-store promotions as well as regional
marketing. The Company spent approximately 4.1% of Quincy's gross sales on
Quincy's marketing in 1993. During 1993, El Pollo Loco's advertising focused on
promoting large meals and menu variety.
SITE SELECTION
The success of any restaurant depends, to a large extent, on its location.
The site selection process for Company-owned restaurants consists of three main
phases: strategic planning, site identification and detailed site review. The
planning phase ensures that restaurants are located in strategic markets. In the
site identification phase, the major trade areas within a market area are
analyzed and a potential site identified. The final and most time consuming
phase is the detailed
6
<PAGE>
site review. In this phase, the site's demographics, traffic and pedestrian
counts, visibility, building constraints and competition are studied in detail.
A detailed budget and return on investment analysis are also completed. The
Company considers its site selection standards and procedures to be rigorous and
will not compromise those standards or procedures in order to achieve
accelerated growth.
CONTRACT FOOD, VENDING AND RECREATION SERVICES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1989 1990 1991 1992
<S> <C> <C> <C> <C>
(IN MILLIONS)
Revenues:
Food and Vending.......................................................... $1,073 $1,071 $1,015 $ 990
Concession and Recreation Services........................................ 249 252 264 287
Total................................................................... $1,322 $1,323 $1,279 $1,277
Operating Income (Loss)..................................................... $ 56 $ 52 $ 46 $ 51
Depreciation and Amortization............................................... $ 61 $ 70 $ 69 $ 68
<CAPTION>
1993
<S> <C>
Revenues:
Food and Vending.......................................................... $1,049
Concession and Recreation Services........................................ 322
Total................................................................... $1,371
Operating Income (Loss)..................................................... $ (313)(1)
Depreciation and Amortization............................................... $ 75
</TABLE>
(1) Operating income reflects the write-off of goodwill and other intangible
assets and the provision for restructuring charges for the year ended
December 31, 1993 of $360 million.
Through Canteen, the Company conducts its contract food and vending
services on a national basis. According to NATION'S RESTAURANT NEWS (published
August 9, 1993), Canteen is the third largest provider of contract food and
vending services in the United States (on the basis of U.S. system-wide sales).
It had approximately 1,600 food service clients and served approximately 11,400
vending locations at December 31, 1993. Canteen provides its clients with
on-site food preparation, cooking and service as well as vending machines that
dispense a variety of food and beverage products. These services are offered
both independently and in conjunction with each other. Canteen also grants
franchises to distributors to operate contract food service facilities and
vending businesses. In addition, Canteen licenses its trademark internationally
and currently has licensees in Japan and Sweden. Canteen provides both its
franchised distributors and international licensees with marketing assistance,
training, purchasing services and financial and accounting systems.
Canteen's concession and recreation services operations provide food,
beverage, novelty, and ancillary services in sports stadiums, amphitheaters,
arenas and other locations, including five major league baseball parks (Hubert
H. Humphrey Metrodome, Oakland-Alameda County Coliseum, Royals Stadium, Yankee
Stadium and Candlestick Park), five minor league baseball parks and five
professional football stadiums (Arrowhead Stadium, Hubert H. Humphrey Metrodome,
Los Angeles Coliseum, Tampa Stadium and Candlestick Park). It operates food,
beverage and lodging facilities and gift shops and provides other ancillary
services at a number of national parks (including Yellowstone, Mount Rushmore,
Everglades, Bryce Canyon, Zion and the North Rim of the Grand Canyon) and at
state parks in Ohio and New York. In addition, Canteen operates food and
beverage services, gift shops, bus tours and the IMAX Theatre at Spaceport USA
at the Kennedy Space Center. Contracts to provide these services usually are
obtained on the basis of competitive bids. In most instances, Canteen receives
the exclusive right to provide the services in a particular location for a
period of several years, with the duration of the term often a function of the
required investment in facilities or other financial considerations.
Canteen's contract food service and vending operations are conducted
throughout the United States. Approximately 30% of the Company's revenues from
these operations are derived from industrial plants in the automotive, defense
and other manufacturing industries. These industries have experienced a general
reduction in employment over the past several years, which has been accelerated
by the nation's recent recession. To ameliorate the effects of this trend,
Canteen has increased its penetration of the educational, lifecare and
correctional facility markets and has targeted these (along with concession and
recreation services) as areas of potential growth. These target markets, which
accounted for 39% of Canteen's revenues in 1993, are recession-resistant and, at
present, are not widely served by contract food service companies. Management
believes that growing budgetary pressures on institutions in these target
markets should favor their increasing reliance on private sector contractors who
can provide required food service at lower costs. As part of the restructuring
plan, the Company will de-emphasize vending operations in certain markets
resulting in the sale of certain vending branches, with the related
severance and lease buy-out costs included in the restructuring charges.
Canteen operates through four primary divisions: the Eastern, Central, and
California divisions within the food and vending divisions, and the concession
and recreation services division. These operations are managed on a regional
basis, each of which is led by a regional vice president with responsibility for
operations, sales and marketing in the assigned area. Field operations are
supported by centralized legal, human resources, finance, purchasing, data
processing and other services. Formal training programs on a variety of subjects
are regularly provided to field personnel at 28 learning centers
7
<PAGE>
maintained on clients' premises and at other on-site locations. In addition,
management training is provided at the Company's central training facility in
Spartanburg, South Carolina.
Canteen has improved its performance and responsiveness to clients by
transferring more responsibility to field operations, while at the same time
ensuring that innovative ideas for servicing the customer are shared across
operations. Redundant accounting functions were reduced when Canteen closed 12
field accounting centers in 1993. The restructuring plan includes
severance and other costs related to further consolidation of accounting
and administrative functions. These steps have created a more focused and
responsive operational structure and reduced administrative costs.
Canteen normally contracts with customers for food and vending services on
a local basis, but, in the case of national customers, it may serve many
geographically dispersed facilities. Approximately 47% of Canteen's food service
accounts are conducted under management fee arrangements, whereby Canteen
typically receives a fixed dollar amount or a fixed percentage of revenues in
return for providing food services at price and service levels determined by its
clients. Management fee arrangements are prevalent where companies subsidize
food services as part of the benefits provided to employees. In other food
service accounts, Canteen contracts to provide food service on a profit/loss
basis. In the case of vending operations, service is predominantly provided on a
profit/loss basis, and a commission is usually payable by Canteen to the owner
of the premises on which the vending machines are located. The ability of
Canteen to increase its prices in order to cover its cost increases is an
important factor in maintaining satisfactory profit levels from operations not
conducted pursuant to management fee arrangements. Canteen's ability to increase
prices is materially affected by competitive factors and resistance from
consumers and from firms and institutions on whose premises Canteen's operations
are conducted and whose prior approval is usually required. Food and vending
service contracts generally may be terminated on short notice given by either
side. The equipment, other than vending equipment (which can be moved to another
location), used by Canteen at an on-site operation is usually owned by its
customer.
New business is obtained primarily through solicitation of new customers
and responding to requests for bids. In competitive bid situations, financial
terms as well as other factors, such as reputation and ability to perform,
influence customers' decisions in awarding contracts, particularly in the
private sector. Canteen capitalizes on its name recognition and owns or has
rights in all trademarks it believes are material to its operations. Canteen's
sales force is decentralized in order to tailor sales efforts to customers in
various regions. As opportunities arise, Canteen also seeks to expand its
operations through the acquisition of small regional food service companies that
can be integrated into its existing operations.
COMPETITION
The restaurant industry can be divided into three main categories: quick
service (fast-food), midscale (family) and upscale (dinner house). The quick
service segment (which includes Hardee's and El Pollo Loco) is overwhelmingly
dominated by the large sandwich, pizza and chicken chains. The midscale segment
(which includes Denny's and Quincy's) includes a much smaller number of national
chains and many local and regional chains, as well as thousands of independent
operators. The upscale segment consists primarily of small independents in
addition to several regional chains.
The restaurant industry is highly competitive and affected by many factors,
including changes in economic conditions affecting consumer spending, changes in
socio-demographic characteristics of areas in which restaurants are located,
changes in customer tastes and preferences and increases in the number of
restaurants generally and in particular areas. Competition among a few major
companies that own or operate fast-food restaurant chains is especially intense.
Restaurants, particularly those in the fast-food segment, compete on the basis
of name recognition and advertising, the quality and perceived value of their
food offerings, the quality and speed of their service, the attractiveness of
their facilities and, to a large degree in a recessionary environment, price and
perceived value.
Denny's, which has a strong national presence, competes primarily with
regional family chains such as IHOP, Big Boy, Shoney's, Friendly's and
Perkins -- all of which are ranked among the top six midscale restaurant chains.
According to an independent survey conducted during 1993, Denny's had a 14.4%
share of the national market in the family segment.
Hardee's restaurants compete principally with four other national fast food
chains: McDonald's, Burger King, Wendy's and Taco Bell. In addition, Hardee's
restaurants compete with fast-food restaurants serving other kinds of foods,
such as chicken outlets (e.g., Kentucky Fried and Bojangles), family restaurants
(e.g., Shoney's and Friendly's) and dinner houses. Management believes that
Hardee's has the highest breakfast sales per unit of any major fast-food
restaurant chain.
Quincy's primary competitors include Ryan's and Western Sizzlin', both of
which are based in the southeast. Quincy's also competes with other family
restaurants and with dinner houses and fast-food outlets. Nationwide, the top
five chains
8
<PAGE>
are Sizzler, Ponderosa, Golden Corral, Ryan's, and Western Sizzlin'. According
to NATION'S RESTAURANT NEWS (published August 9, 1993), Quincy's ranked sixth
nationwide in system-wide sales and third in sales per unit among the steak
chains.
All aspects of Canteen's operations are highly competitive. Competition
takes a number of different forms, including pricing, capital investment,
maintaining food and service standards and securing and maintaining accounts
with firms and institutions. Canteen competes with several national and a large
number of local and regional companies, some of which, including Marriott and
ARA, are substantial in size and scope. In addition, firms and institutions may,
as an alternative to using a food service company such as Canteen, operate
vending and food service businesses themselves. Many Canteen facilities must
also compete with local alternatives such as restaurants, sandwich shops,
convenience stores, delicatessans and other public arenas, convention centers,
and entertainment venues.
EMPLOYEES
At December 31, 1993, the Company had approximately 123,000 employees, of
whom 88,000 were employed in restaurant operations and 34,000 were engaged in
contract food, vending and recreation services. Less than 1% of the restaurant
employees are union members. Many of the Company's restaurant employees work
part time, and many are paid at or slightly above minimum wage levels.
Approximately 20% of Canteen's employees are unionized. The Company has
experienced no significant work stoppages and considers its relations with its
employees to be satisfactory.
ITEM 2. PROPERTIES
Most of the Company's restaurants are free-standing facilities. An average
Denny's restaurant ranges from 3,900 to 5,800 square feet and seats 100 to 175
customers. Denny's restaurants generally occupy 35,000 to 45,000 square feet of
land. An average Hardee's restaurant operated by the Company has approximately
3,300 square feet and provides seating for 94 persons, and most have drive-thru
facilities. Each of the Company's Hardee's restaurants occupies approximately
50,000 square feet of land. The average Quincy's restaurant has approximately
7,100 square feet and provides seating for 250 persons. Each Quincy's restaurant
occupies approximately 63,000 square feet of land. A typical El Pollo Loco
restaurant has 2,250 square feet and seats 66 customers.
The following table sets forth certain information regarding the Company's
restaurant properties as of December 31, 1993:
<TABLE>
<CAPTION>
LAND LEASED
LAND AND AND LAND AND
BUILDING BUILDING BUILDING
OWNED OWNED LEASED
<S> <C> <C> <C>
TYPE OF RESTAURANT
DENNY'S............... 284 42 698
HARDEE'S.............. 266 102 196
QUINCY'S.............. 161 45 7
EL POLLO LOCO......... 12 42 85
Total............... 723 231 986
</TABLE>
9
<PAGE>
The number and location of the Company's restaurants in each chain as of
December 31, 1993 are presented below:
<TABLE>
<CAPTION>
DENNY'S EL POLLO LOCO
FRANCHISED FRANCHISED
STATE OWNED LICENSED HARDEE'S QUINCY'S OWNED LICENSED
<S> <C> <C> <C> <C> <C> <C>
Alabama.................................................... 1 9 152 47 -- --
Alaska..................................................... -- 4 -- -- -- --
Arizona.................................................... 34 23 -- -- -- --
Arkansas................................................... 5 1 1 -- -- --
California................................................. 255 82 -- -- 137 59
Colorado................................................... 25 9 -- -- -- --
Connecticut................................................ 9 1 -- -- -- --
Delaware................................................... 3 -- -- -- -- --
Florida.................................................... 103 50 50 41 -- --
Georgia.................................................... -- 23 9 11 -- --
Hawaii..................................................... 4 3 -- -- -- --
Idaho...................................................... 4 2 -- -- -- --
Illinois................................................... 50 6 -- -- -- --
Indiana.................................................... 19 5 -- -- -- --
Iowa....................................................... 6 -- -- -- -- --
Kansas..................................................... 8 3 -- -- -- --
Kentucky................................................... 3 16 -- 1 -- --
Louisiana.................................................. 8 2 1 -- -- --
Maine...................................................... -- 3 -- -- -- --
Maryland................................................... 14 14 -- -- -- --
Massachusetts.............................................. 10 -- -- -- -- --
Michigan................................................... 40 1 -- -- -- --
Minnesota.................................................. 14 4 -- -- -- --
Mississippi................................................ 2 2 38 8 -- --
Missouri................................................... 30 5 -- -- -- --
Montana.................................................... -- 1 -- -- -- --
Nebraska................................................... 4 2 -- -- -- --
Nevada..................................................... 11 1 -- -- 2 2
New Hampshire.............................................. 2 1 -- -- -- --
New Jersey................................................. 15 2 -- -- -- --
New Mexico................................................. 2 11 -- -- -- --
New York................................................... 26 6 -- -- -- --
North Carolina............................................. 9 9 66 41 -- --
North Dakota............................................... -- 2 -- -- -- --
Ohio....................................................... 39 14 18 1 -- --
Oklahoma................................................... 9 5 -- -- -- --
Oregon..................................................... 16 5 -- -- -- --
Pennsylvania............................................... 52 5 2 -- -- --
Rhode Island............................................... -- -- -- -- -- --
South Carolina............................................. 11 5 116 41 -- --
South Dakota............................................... -- 1 -- -- -- --
Tennessee.................................................. 3 10 108 17 -- --
Texas...................................................... 70 31 -- -- -- 3
Utah....................................................... 7 7 -- -- -- --
Vermont.................................................... -- 3 -- -- -- --
Virginia................................................... 20 6 3 5 -- --
Washington................................................. 58 10 -- -- -- --
West Virginia.............................................. -- 2 -- -- -- --
Wisconsin.................................................. 13 5 -- -- -- --
Wyoming.................................................... -- 6 -- -- -- --
Canada..................................................... 10 13 -- -- -- --
International.............................................. -- 59 -- -- -- 6
Total.................................................... 1,024 490 564 213 139 70
</TABLE>
At December 31, 1993, the Company owned seven warehouses in California,
Illinois, Florida, Pennsylvania, Texas and Washington, and one manufacturing
facility in Texas. At that date, Canteen owned approximately 94,600 vending
machines in its food and vending service operations, of which approximately
6,700 were leased to distributors. In addition, Canteen owned approximately 42
buildings with approximately 704,000 square feet and leased approximately
934,000 square feet for warehousing and office space throughout the United
States for use in its food and vending services and recreation services
operations.
The Company also owns a 19-story, 187,000 square foot office tower, which
serves as its corporate headquarters, located in Spartanburg, South Carolina.
The Company's corporate offices currently occupy approximately 14 floors of the
tower, with the balance leased to others.
See Item 13. Certain Relationships and Related Transactions -- Description
of Indebtedness and Note 4 to the accompanying Consolidated Financial Statements
for information concerning encumbrances on certain properties of the Company.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Trans World Airlines, Inc. ("TWA") commenced a lawsuit on October 8, 1986
against Transworld Corporation ("Transworld"), certain contingent liabilities of
which were assumed by Flagstar, and against certain of its past and present
directors and certain former TWA directors, in the Supreme Court of the State of
New York, New York County, alleging fraud and breach of fiduciary obligations in
the execution and subsequent termination of a tax allocation agreement between
Transworld and its former subsidiary, TWA. TWA's complaint seeks the following
remedies: (i) damages equal to $52 million for investment tax credits ("ITC")
claimed by Transworld on its 1984 federal income tax return, (ii) damages equal
to the "present value" of Transworld's potential liability to TWA as of December
31, 1983 for net operating losses and ITC claimed by Transworld, including the
$52 million in ITC, (iii) the voiding of a tax allocation agreement and damages
to be determined at trial, or (iv) the voiding of certain sections of the tax
allocation agreement and the payment to TWA of certain amounts as provided in
such tax allocation agreement. There has been no activity relating to this
lawsuit since 1988.
FCI, Flagstar, El Pollo Loco and Denny's, along with several officers and
directors of those companies, have been named as defendants in an action filed
on August 28, 1991 in the Superior Court of Orange County, California. The
plaintiffs are several current and former El Pollo Loco franchisees. They allege
that the defendants, among other things, failed or caused a failure to promote,
develop and expand the El Pollo Loco franchise system in breach of contractual
obligations to the plaintiff franchisees and made certain misrepresentations to
the plaintiffs concerning the El Pollo Loco system. Asserting various legal
theories, the plaintiffs seek actual and punitive damages in excess of $90
million, together with declaratory and certain other equitable relief. FCI,
Flagstar and the other defendants have filed answers in this action. FCI and
Flagstar have also filed cross-complaints against various plaintiffs in the
action for breach of contract and other claims. Discovery has not yet been
completed. Accordingly, it is premature for the Company to express a judgment
herein as to the likely outcome of the action. The defendants, through counsel,
intend to defend the action vigorously.
The Company has received proposed deficiencies from the Internal Revenue
Service (the "IRS") for federal income taxes and penalties totalling
approximately $46.6 million. Proposed deficiencies of $34.3 million relate to
examinations of certain income tax returns filed by Denny's for periods ending
prior to Flagstar's purchase of Denny's on September 11, 1987. The deficiencies
primarily involve the proposed disallowance of certain expenses associated with
borrowings and other costs incurred at the time of the leveraged buy-out of
Denny's in 1985 and the purchase of Denny's by Flagstar in 1987. The Company has
filed protests of the proposed deficiencies with the Appeals Division of the
IRS, stating that, with minor exceptions, it believes the proposed deficiencies
are erroneous. The Company and the IRS have reached a preliminary agreement on
substantially all of the issues included in the original proposed deficiency.
Based on this preliminary agreement, the IRS has agreed to waive all penalties,
and the Company estimates that its ultimate federal income tax deficiency will
be less than $5 million. The remaining $12.3 million of proposed deficiencies
relates to examinations of certain income tax returns filed by the Company for
the four fiscal years ended December 31, 1989. The deficiencies primarily
involve the proposed disallowance of deductions associated with borrowings and
other costs incurred prior to, at and just following the time of the acquisition
of Flagstar in 1989. The Company intends to vigorously contest the proposed
deficiencies because it believes the proposed deficiencies are substantially
incorrect.
On March 26, 1993, a consent decree was signed by Flagstar and its
subsidiary Denny's, Inc. and by the U.S. Department of Justice with respect to a
complaint filed by the Department of Justice on that same date in the U.S.
District Court for the Northern District of California. Such complaint alleged
that the Company, through Denny's, had engaged in a pattern or practice of
discrimination against African-American customers. The Company denied any
wrongdoing. The consent decree, which was approved by the court on April 1,
1993, enjoins the Company from racial discrimination and requires the Company to
implement certain employee training and testing programs and provide public
notice of Denny's non-discrimination policies. It carries no direct monetary
penalties. In a related matter, on March 24, 1993, a public accommodations
lawsuit was filed against the Company by certain private plaintiffs in the U.S.
District Court for the Northern District of California alleging that certain
Denny's restaurants in California have engaged in racially discriminatory
practices and seeking certification as a class action in California, unspecified
actual, compensatory and punitive damages, and injunctive relief. The Company is
also a defendant in various other public accommodations actions brought in
various jurisdictions. The principal additional action was filed on May 24, 1993
in Maryland. This action was filed in the U.S. District for the District of
Maryland, alleging that a Denny's restaurant in Annapolis, Maryland engaged in
racially discriminatory practices, and seeks certification as a class action
covering all states except California, unspecified actual compensatory and
punitive damages, and injunctive relief. Other individual public accommodations
cases have also been filed, including some cases which allege substantial
compensatory and punitive damages for each plaintiff, statutory damages and
injunctive relief. Discovery in these actions has not yet been completed. Class
certification hearings in the two
11
<PAGE>
purported class actions are scheduled to occur in 1994. The Company believes
that these actions lack merit and, unless there is an early resolution thereof,
intends to defend them vigorously.
The Company is also the subject of pending and threatened employment
discrimination claims principally in California and Alabama. In certain of these
claims, the plaintiffs have threatened to seek to represent a class alleging
racial discrimination in employment practices at Company restaurants and to seek
actual, compensatory and punitive damages, and injunctive relief. The Company
believes that these claims also lack merit and, unless there is an early
resolution thereof, intends to defend them vigorously.
The parties in the foregoing actions have explored and continue to explore
the possibility of reaching an early resolution of these matters in an effort to
avoid the costs and risks of litigation. No assurances can be given, however,
that these matters can be resolved on mutually acceptable terms.
Other proceedings are pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company, and in
others presenting allegations that are nonroutine and include compensatory or
punitive damage claims. The ultimate legal and financial liability of the
Company with respect to the matters mentioned above and these other proceedings
cannot be estimated with certainty. However, the Company believes, based on its
examination of these matters and its experience to date, that sufficient
accruals have been established by the Company to provide for known
contingencies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of FCI, $.50 par value per share (the "Common Stock"), is
currently traded on the NASDAQ National Market System using the symbol "FLST."
As of March 31, 1994, 42,369,319 shares of Common Stock were outstanding, and
there were approximately 13,000 record and beneficial stockholders. FCI has not
paid and does not expect to pay dividends on its outstanding Common Stock.
Restrictions contained in the instruments governing the outstanding indebtedness
of Flagstar restrict its ability to provide funds that might otherwise be used
by FCI for the payment of dividends on its Common Stock. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources and Note 4 to the accompanying
Consolidated Financial Statements of the Company. The closing sales prices
indicated below for the Common Stock were obtained from the National Association
of Securities Dealers, Inc. and have been adjusted on a retroactive basis to
reflect FCI's 5-for-1 reverse stock split with respect to the Common Stock
effected as of June 16, 1993.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1992
First quarter..................................................................... 23 3/4 14 1/16
Second quarter.................................................................... 20 15/16 13 3/4
Third quarter..................................................................... 19 1/16 13 7/16
Fourth quarter.................................................................... 20 5/8 15
1993
First quarter..................................................................... 20 15/16 15 5/16
Second quarter.................................................................... 16 7/8 11
Third quarter..................................................................... 12 1/4 8 1/2
Fourth quarter.................................................................... 12 8 1/2
</TABLE>
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are certain selected financial data concerning the Company
for each of the five years ended December 31, 1993. Such data have been derived
from the Consolidated Financial Statements of the Company for such periods which
have been audited. The following information should be read in conjunction with
the Consolidated Financial Statements of the Company and Notes thereto presented
elsewhere herein and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
JANUARY 1 JULY 21 TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
TO JULY 20, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1989(2) 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT RATIOS)
Income Statement data:
Operating revenues................. $ 1,916.8 $1,517.9 $3,626.5 $3,617.9 $3,720.3 $3,970.2
Operating income................... 105.1 27.0 238.3 224.0 246.4 (1,460.8)(3)
Income (loss) from continuing
operations (4)................... 20.8 (77.1) (67.8) (67.6) (51.8) (1,648.2)
Earnings (loss) per share
applicable to common
shareholders:
Continuing operations............ 0.43 (3.51) (3.08) (3.04) (2.32) (39.23)
Discontinued operations (4)...... (0.02) -- -- -- -- --
Net income (loss)(5)............. 0.41 (3.51) (3.08) (3.04) (9.29) (40.14)
Cash dividends per common share
(6).............................. 0.05 -- -- -- -- --
Ratio of earnings to fixed
charges(7)....................... 1.53x -- -- -- -- --
Deficiency in the coverage of fixed
charges to earnings before fixed
charges(7)....................... -- 85.7 78.3 85.9 58.6 1,729.7
Balance Sheet data (at end of
period):
Current assets..................... -- 257.4 222.0 199.7 206.6 251.0
Working capital (deficiency)(8).... -- (616.4) (318.4) (356.9) (284.1) (304.6)
Net property and equipment......... -- 1,519.6 1,490.4 1,447.6 1,443.2 1,337.7
Total assets....................... -- 3,637.3 3,507.8 3,394.5 3,390.0 1,797.3
Long-term debt..................... -- 1,948.0 2,305.7 2,261.3 2,179.5 2,352.2
</TABLE>
(1) Certain amounts for the four years ended December 31, 1992 have been
reclassified to conform to the 1993 presentation.
(2) FCI acquired Flagstar as of July 20, 1989 in a business combination
accounted for as a purchase. As a result of the acquisition, the financial
data for the Successor periods are presented on a different basis of
accounting than that of the Predecessor period, and therefore, are not
directly comparable.
(3) Operating income for the year ended December 31, 1993 reflects charges for
the write-off of goodwill and other intangible assets of $1,474.8 million
and the provision for restructuring charges of $192.0 million.
(4) The Company sold American Medical Services, Inc., The Rowe Corporation and
Milnot Company in 1990 and Preferred Meal Systems, Inc. in 1991. These
entities have been treated as discontinued operations for all periods
indicated above.
(5) For the year ended December 31, 1992, net loss includes extraordinary losses
of $6.25 per share related to premiums paid to retire certain indebtedness
and to charge-off the related unamortized deferred financing costs and
losses of $0.72 per share for the cumulative effect of a change in
accounting principle related to implementation of Statement of Financial
Accounting Standards No. 106. For the year ended December 31, 1993, net loss
includes extraordinary losses of $0.62 per share related to the repurchase
of Flagstar's 10% Convertible Junior Subordinated Debentures Due 2014 (the
"10% Debentures") and to the charge-off of unamortized deferred financing
costs related to a prepayment of Flagstar's senior term loan; net loss for
1993 also includes a charge of $0.29 per share related to a change of
accounting method pursuant to Staff Accounting Bulletin No. 92.
(6) Flagstar's bank credit agreement prohibits, and its public debt indentures
significantly limit, distribution to FCI of funds that might otherwise be
used by it to pay Common Stock dividends. See Note 4 to the accompanying
Consolidated Financial Statements appearing elsewhere herein.
(7) The ratio of earnings to fixed charges has been calculated by dividing
pre-tax earnings by fixed charges. Earnings, as used to compute the ratio,
equal the sum of income before income taxes and fixed charges excluding
capitalized interest. Fixed charges are the total interest expenses
including capitalized interest, amortization of debt expenses and a rental
factor that is representative of an interest factor (estimated to be one
third) on operating leases.
13
<PAGE>
(8) A negative working capital position is not unusual for a restaurant
operating company. The negative working capital amount at December 31, 1989
is principally a result of classifying a portion of the Company's
acquisition financing as a current liability. The reduction in the working
capital deficit at December 31, 1990 is due principally to the refinancing
of that acquisition debt to long-term debt during 1990. The increase at
December 31, 1991 is primarily attributable to an increase in current
maturities of long-term debt. At December 31, 1992, the decrease in the
working capital deficiency from December 31, 1991 is due primarily to
decreased current maturities of the Company's bank debt as a result of the
Recapitalization. The increase in the working capital deficiency from
December 31, 1992 to December 31, 1993 is attributable primarily to an
increase in restructuring and other liabilities which was partially offset
by an increase in receivables and inventories from the acquisition of
contract food service operations during 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Item 6.
Selected Financial Data and the Consolidated Financial Statements and other more
detailed financial information appearing elsewhere herein.
1993 COMPARED TO 1992
Operating revenues for 1993 increased by approximately $249.9 million
(6.7%) as compared with 1992. This increase was the result of a $155.9 million
(6.4%) increase in revenues from restaurant operations and a $94.0 million
(7.4%) increase in revenues from Canteen's contract food service operations.
Canteen's concession and recreation revenues increased by $35.0 million (12.2%)
and its food and vending revenues increased by $59.0 million (6.0%) as compared
with 1992, primarily as a result of regional acquisitions. Food and vending
revenues from Canteen's existing customer base continue to be adversely impacted
by reduced employment levels at Canteen's business and industrial accounts.
Denny's revenues increased $80.8 million (5.6%) principally as a result of the
following: an 11-unit increase in the number of Company-owned restaurants, the
addition of 49 net new franchised units, and favorable outside sales at the
Company's distribution and food processing operations. Revenues at Denny's,
however, were adversely affected by severe weather conditions in the first
quarter, which forced the temporary closing of many of its restaurants, by the
delay in implementation of certain promotional programs, and, management
believes, by the negative publicity relating to the litigation described above
in Item 3. Legal Proceedings. As a result of these factors, Denny's increase in
average unit sales of 0.1% included a decrease in customer traffic of 4.1% while
the average check increased 4.4%. Hardee's accounted for a significant portion
of the increase in restaurant operating revenues for the year with a $75.0
million (12.4%) increase in 1993 as compared with 1992, due to a 6.0% increase
in average unit sales and a 36-unit increase in the number of restaurants. The
increase in average unit sales resulted from an 7.2% increase in the average
check offset, in part, by a decrease of 1.1% in customer traffic. The increases
in average unit sales and average check at Hardee's are primarily attributable
to the fresh fried chicken product and the continued development of Hardee's
"Frisco" product line. Quincy's revenues decreased by $11.1 million (3.8%) in
1993 as compared with 1992, primarily due to a 2.5% decrease in average unit
sales combined with a 4-unit decline in the number of units. The decrease in
average unit sales resulted from a decrease in customer traffic of 7.5% which
was offset, in part, by a 5.3% increase in average check. The significant
decrease in traffic at Quincy's as compared with 1992 reflects the impact of a
number of programs that were in place in early 1992 which increased customer
traffic in 1992, but which proved to be more costly than anticipated and were
subsequently refined or discontinued, resulting in the comparative decline in
1993 traffic. Revenues of El Pollo Loco, which account for only 4.2% of total
restaurant operating revenues, increased by $11.2 million (11.5%) in 1993 as
compared to 1992 as a result of a full year's impact in 1993 of 11 franchised
units which were acquired by the Company in the fourth quarter of 1992 and a
1.8% increase in average unit sales.
The Company's operating expenses before considering the effects of the
write-off of goodwill and certain other intangible assets and the provision for
restructuring charges, discussed below, increased by $290.3 million (8.4%) in
1993 as compared with 1992. This increase was primarily attributable to an
increase of $190.3 million (8.5%) in operating expenses before the effects of
the write-off of goodwill and certain other intangible assets and the provision
for restructuring charges relating to the Company's restaurant operations, and a
$98.5 million (8.0%) increase in the operating expenses before the effects of
the write-off of goodwill and certain other intangible assets and the provision
for restructuring charges relating to Canteen's contract food service
operations. Canteen's increased expenses were primarily a result of the
corresponding increase in operating revenues described above. Of the total
increase in operating expenses relating to restaurant operations, a significant
portion ($118.7 million) is attributable to Denny's. The significant increase in
operating expenses before the effects of the write-off of goodwill and certain
other intangible assets and the provision for restructuring charges at Denny's
is due primarily to an increase in product costs of $84.8 million and an
increase in payroll and
14
<PAGE>
benefit expense of $30.0 million. These increases resulted from higher commodity
costs, additional labor associated with a Denny's breakfast promotion (which was
discontinued in the second quarter) and an initiative to improve Denny's service
capabilities, one time charges of $8.3 million related to efforts to address
claims of discrimination, $1.1 million for the write-off of an international
joint venture, and an increase in the number of Denny's units. Management
expects the discrimination claims at Denny's to have an ongoing cost impact on
the Company at least until resolution of the matters described above in Item 3.
Legal Proceedings. The increase in operating expenses before the effects of the
write-off of goodwill and certain other intangible assets and the provision for
restructuring charges at Hardee's of $66.4 million is mainly attributable to
increased revenues and is comprised principally of an increase in payroll and
benefits expenses of $21.0 million and an increase in product costs of $29.9
million. Conversely, the decrease in operating expenses before the effects of
the write-off of goodwill and certain intangible assets and the provision for
restructuring charges at Quincy's of $8.9 million is attributable to the
decrease in revenues. Quincy's experienced decreases in payroll and benefits
expense of $3.9 million and in product costs of $3.8 million. Corporate and
other expenses before the effects of the write-off of goodwill and certain
intangible assets and the provision for restructuring charges increased by $1.5
million in 1993 as compared with 1992, primarily due to an increase in payroll
and benefits expense of $1.9 million.
The write-off of goodwill and certain other intangible assets, primarily
tradenames and franchise agreements, represent noncash charges of $1,267.7
million and $207.1 million, respectively. Since the acquisition of Flagstar in
1989, the Company has not achieved the revenue and earnings projections that
were prepared and utilized at the time of the acquisition. In assessing the
recoverability of goodwill and other intangible assets in prior years, the
Company developed projections of future operations which indicated the Company
would become profitable within several years and fully recover the carrying
value of its goodwill and other intangible assets. Actual results, however, have
fallen short of these projections, primarily due to increased competition,
intensive pressure on pricing due to discounting, declining customer traffic,
adverse economic conditions, and relatively limited capital resources to respond
to these changes. During the fourth quarter of 1993, management determined that
projections of future operating results, based on the assumption that historical
operating trends derived from the last four years would continue (rather than
projections derived from those utilized in 1989 or projections based on
assumptions that the restructuring plan described below will be successful), did
not support the future amortization of the remaining goodwill balance and
certain other intangible assets at December 31, 1993. See Notes 1 and 2 to the
Consolidated Financial Statements for a description of the methodology employed
to assess the recoverability of the Company's goodwill and other intangible
assets.
Effective in the fourth quarter of 1993, the Company approved a
restructuring plan that includes the sale or closure of restaurants, a reduction
in personnel, and a reorganization of certain management structures. The
provision for restructuring charges is the result of disappointing operating
results and a comprehensive financial and operational review initiated in 1993
due to a re-engineering study that evaluated the Company's major business
processes. The restructuring charge of $192 million includes primarily a
non-cash charge of $156 million to write-down certain assets and incremental
cash charges of $36 million for severance, relocation and other costs. See Note
3 to the Consolidated Financial Statements for further details.
The write-down of assets under the restructuring plan represents
predominantly non-cash adjustments made to reduce the carrying value of
approximately 240 of the Company's 1,376 Denny's, Quincy's, and El Pollo Loco
restaurants. Approximately 105 Denny's and 45 El Pollo Loco restaurants will be
sold to franchisees or closed over a twelve month period and have been written
down to net realizable value. The Quincy's concept is over-penetrated in a
number of its markets; thus, most of the 90 Quincy's units identified in the
restructuring plan will be converted to another concept with some units closed.
As a result of the conversion to another concept, the estimated amount of the
units' carrying value with no future benefit has been written off. The
write-down of assets also includes a charge of $22 million to establish a
reserve for operating leases primarily related to restaurant units which will be
sold to franchisees or closed. The 240 restaurant units identified in the
restructuring plan had aggregate operating revenues during 1993 of approximately
$227 million and a negative operating cash flow of approximately $2.4 million.
Such units had a net remaining carrying value after the write-down of
approximately $43 million.
The restructuring plan will consolidate certain Company operations and
eliminate overhead positions in the field and in its corporate marketing,
accounting, and administrative functions. Also, the Company's field management
structure will be reorganized to eliminate a layer of management. The
restructuring charge includes a provision of approximately $25 million for the
related severance, relocation, and office closure costs. The Company's
restructuring plan also includes the decision to fundamentally change the
competitive positioning of Denny's, El Pollo Loco, and Quincy's. The Company
anticipates that the restructuring plan will result in reduced general and
administrative costs of approximately $10 million annually.
15
<PAGE>
Interest and debt expense decreased by $37.7 million in 1993 as compared
with 1992, primarily due to a reduction in the Company's weighted average
borrowing rate following the Recapitalization, the principal elements of which
were consummated in the fourth quarter of 1992. The decrease in interest and
debt expense includes a net decrease of $68.3 million in non-cash charges
related to the accretion of original issue discount on the Company's 17% Senior
Subordinated Discount Debentures Due 2001 which were retired in the fourth
quarter of 1992 as part of the Recapitalization. Non-cash interest expense
related to the accretion of insurance liabilities also decreased by
approximately $7.0 million in 1993 as a result of a change in the method of
determining the discount rate applied to insurance liabilities retroactive to
January 1, 1993, as discussed below. These decreases in non-cash interest
expense were offset, in part, by an increase in cash interest of $38.8 million
from the refinance debt which was issued as part of the Recapitalization.
The Company's accounting change pursuant to Staff Accounting Bulletin No.
92 resulted in a charge of $12.0 million, net of income tax benefits, for the
cumulative effect of the change in accounting principle as of January 1, 1993.
The impact of this change on the Company's 1993 operating results was to
increase operating expenses and decrease interest expense by approximately $7.0
million, respectively.
For the year ended December 31, 1993, the Company recognized extraordinary
losses totalling $26.4 million, net of income tax benefits of $0.2 million. The
extraordinary losses resulted from the write-off of $26.5 million of unamortized
deferred financing costs associated with the prepayment in September 1993 of
$387.5 million of term facility indebtedness and a charge of $0.1 million in
March 1993 related to the repurchase of $741,000 in principal amount of the 10%
Debentures. During the year ended December 31, 1992, the Company recognized
extraordinary losses totalling $155.4 million, net of income tax benefits of
$85.1 million from (i) premiums paid to retire certain indebtedness in
connection with the Recapitalization and the write-off of related unamortized
deferred financing costs, resulting in a charge of $144.8 million, net of income
tax benefits of $83.6 million, (ii) the write-off of unamortized deferred
financing costs associated with the prepayment of a portion of the Company's
indebtedness under its prior credit agreement from the proceeds of the offer and
sale (the "Preferred Stock Offering") in July 1992 of FCI's $2.25 Series A
Cumulative Convertible Exchangeable Preferred Stock, $.10 par value per share
(the "Preferred Stock"), resulting in a charge of $8.8 million, net of income
tax benefits of $1.3 million, and (iii) the defeasance of $7.6 million of
mortgage notes payable resulting in a charge of $1.8 million, net of income tax
benefits of $0.2 million.
1992 COMPARED TO 1991
Operating revenues for 1992 increased by approximately $102.3 million
(2.8%) as compared with 1991. This increase was the result of a $104.3 million
(4.5%) increase in revenues from restaurant operations that was partially offset
by a $2.0 million (0.2%) decrease in revenues from Canteen's contract food
service operations. Canteen's concession and recreation revenues increased by
$22.4 million or 8.5% over 1991. However, Canteen's food and vending revenues
decreased by $24.4 million or 2.4% as compared with 1991 as the food and vending
segment continued to be adversely impacted by reduced employment levels,
particularly in the western and northeastern sections of the United States.
Denny's accounted for $20.0 million of the $104.3 million increase in revenues
from restaurant operations. The increase in revenues of Denny's was primarily
attributable to a 17-unit increase in the number of Company-owned restaurants.
Average unit sales decreased 0.1% as a result of a 4.2% decrease in customer
traffic, offset by a 4.3% increase in the average check. The decrease in traffic
during 1992 resulted from intense competition and discounting in the midscale
market segment, limited television exposure during the second half of 1992, and
the continuing weakness of the west coast economy. The increase in the average
check at Denny's primarily reflects a shift in consumer preferences to
higher-priced menu items. Denny's also added 52 new franchise units during the
year. Hardee's accounted for $81.2 million of the increase in restaurant
operating revenues, primarily due to an 11.5% increase in average unit sales and
a 28-unit increase in the number of restaurants. The increase in average unit
sales resulted from a 5.9% increase in the average check at the Company's
Hardee's restaurants combined with an increase of 5.3% in customer traffic.
These increases are believed to be attributable, in part, to the introduction in
the Company's Hardee's restaurants of fresh fried chicken as a new menu item in
300 units and the introduction in July 1992 of the "Frisco Burger" sandwich in
all units. Quincy's contributed $6.6 million to the increase in restaurant
operating revenues. The increase at Quincy's reflects a 1.1% increase in average
unit sales, primarily due to a 2.6% increase in customer traffic (principally
for breakfast service), which was offset in part by a 1.5% decrease in the
average check. Quincy's results also reflect a number of programs which were
introduced in the first quarter and were designed to increase customer traffic.
Such programs, which proved to be more costly than originally anticipated, were
refined or eliminated in the second quarter. Revenues of El Pollo Loco, which
accounted for only 4.0% of total restaurant operating revenues, decreased by
$3.5 million as a result of a decrease in the number of Company-owned
restaurants for the first three quarters of 1992 as compared to the same period
in 1991.
16
<PAGE>
The Company's overall operating expenses increased by $79.9 million in 1992
as compared with 1991. This increase was primarily attributable to an increase
of $82.3 million (3.8%) in operating expenses of the restaurant operations,
partially offset by a $7.0 million (0.6%) decrease in operating expenses of
Canteen's contract food service operations. The increases in the operating
expenses of the restaurant operations reflected the increased revenues and
consisted primarily of increased payroll and benefit expenses at Denny's ($7.3
million), Hardee's ($22.6 million) and Quincy's ($0.8 million). Aggressive
product cost management and favorable commodity prices reduced the effects of
product costs which increased at Hardee's ($22.4 million) and Quincy's ($7.9
million), and decreased at Denny's ($10.6 million). The product cost increases
at Quincy's were due in part to the programs discussed in the preceding
paragraph. The decrease in Canteen's operating expenses was due principally to a
$8.5 million decline in product costs. Canteen's operating expenses were also
reduced in the first quarter by approximately $2.6 million of unusual credits
resulting from settlements of various insurance matters. Corporate and other
expenses increased by $4.6 million, primarily due to a full year's impact in
1992 of certain support function expenses that, in 1991, were reflected in the
restaurants' and Canteen's operating expenses.
Interest and debt expense decreased by $4.9 million in 1992 as compared
with 1991, due primarily to a net decrease in cash interest of $13.5 million in
1992 due to lower interest rates on outstanding variable rate indebtedness,
principal payments made during the year (including prepayment of a portion of
the Company's term loan under its prior credit agreement with proceeds of the
Preferred Stock Offering) and the issuance of the Preferred Stock. This decrease
was offset, in part, by an increase of $8.5 million in non-cash charges
principally related to the accretion of discounts recorded on certain
self-insurance liabilities.
For the year, the Company recognized extraordinary losses totalling $155.4
million, net of income tax benefits of $85.1 million. The extraordinary losses
resulted primarily from premiums paid to retire certain indebtedness in
connection with the Recapitalization and the write-off of related unamortized
deferred financing costs, resulting in a charge of $144.8 million, net of income
tax benefits of $83.6 million, and from the write-off of unamortized deferred
financing costs associated with the prepayment of a portion of the Company's
term loan under its prior credit agreement from the proceeds of the Preferred
Stock Offering, resulting in a charge of $8.8 million, net of income tax
benefits of $1.3 million. In addition, in May 1992 the Company defeased $7.6
million of mortgage notes payable resulting in a charge of $1.8 million, net of
income tax benefits of $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has met its liquidity needs and capital
requirements with internally generated funds and external borrowings. The
Company expects to continue to rely on internally generated funds, supplemented
by available working capital advances under its Amended and Restated Credit
Agreement, dated as of October 26, 1992, among Flagstar and TWS Funding, Inc.,
as borrowers, certain lenders and co-agents named therein, and Citibank, N.A.,
as managing agent (as amended, from time to time, the "Restated Credit
Agreement"), and other external borrowings, as its primary sources of liquidity
and believes that funds from these sources will be sufficient for the next
twelve months to meet the Company's working capital, debt service and capital
expenditure requirements.
Although the Company reported net losses in 1992 and 1993, those losses
have been attributable in major part to non-cash charges, consisting principally
of the write-off of goodwill and certain intangible assets, depreciation of
tangible assets, amortization of intangible assets and goodwill, accretion of
original issue discount, non-cash charges for extraordinary items related to
refinancings and defeasance of indebtedness, and non-cash charges related to the
cumulative effect
17
<PAGE>
of changes in accounting principles. The following table sets forth, for each of
the years indicated, a calculation of the Company's cash from operations
available for debt repayment and capital expenditures:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992 1993
<S> <C> <C>
(IN MILLIONS)
Net loss................................................................................... $(225.0) $(1,686.7)
Write-off of goodwill and certain intangible assets........................................ -- 1,474.8
Provision for restructuring charges........................................................ -- 192.0
Non-cash charges........................................................................... 307.6 263.6
Deferred income tax benefits............................................................... (20.8) (85.4)
Extraordinary items, net................................................................... 155.4 26.4
Cumulative effect of changes in accounting principles, net................................. 17.8 12.0
Changes in certain working capital items................................................... (18.6) 1.4
Increase in other assets and increase (decrease) in other liabilities, net................. 6.6 (27.1)
Cash from operations available for debt repayment and capital expenditures................. $ 223.0 $ 171.0
</TABLE>
The provision for restructuring charges of $192.0 million recorded during
1993 includes approximately $36.0 million in incremental cash charges. Such cash
charges, less approximately $6.5 million expended in 1993, are expected to
require funding predominantly over a period of approximately twelve months.
Included in the $156 million of primarily non-cash charges is a reserve of $22
million for the present value of operating leases, net of estimated sublease
rentals, related to restaurant units that will be sold to franchisees or closed
and offices to be closed. This liability will be liquidated over the remaining
terms of the operating leases. The Company plans to fund the cash portion of the
restructuring through the sale of certain Denny's and El Pollo Loco restaurant
units to franchisees, increased cash flows from operations as a result of
reduced general and administrative expenses and increased royalties on newly
franchised restaurants, and borrowings under the Restated Credit Agreement.
During 1993, the Company sold in a public offering (the "1993 Offering")
$275 million aggregate principal amount of 10 3/4% Senior Notes Due 2001 (the
"10 3/4% Notes") and $125 million aggregate principal amount of 11 3/8% Senior
Subordinated Debentures Due 2003 (the "11 3/8% Debentures"). Proceeds of the
1993 Offering were used to reduce the term facility under the Restated Credit
Agreement. Although the interest rates payable on the 10 3/4% Notes and 11 3/8%
Debentures are higher than the rate paid by the Company under the term facility
partially refinanced thereby, the 1993 Offering and the related amendment to the
Restated Credit Agreement served to extend the scheduled maturities of the
Company's long-term indebtedness and thereby provide the Company with additional
financial flexibility.
The Restated Credit Agreement includes a working capital and letter of
credit facility of up to $350.0 million with a working capital sublimit of $200
million and a letter of credit sublimit of $245 million. The amendment to the
Restated Credit Agreement consummated in conjunction with the 1993 Offering
included, among other things, a modification to the former requirement that
working capital advances under the credit facility be repaid in full and not
reborrowed for at least 30 consecutive days during any 13-month period but at
least once during each year to provide that working capital advances under the
credit facility be paid down to a maximum borrowing thereunder of $100 million
in 1993, reducing to $50 million in 1998, for such 30 day period in each year.
Such amendment also made less restrictive certain financial covenants under the
Restated Credit Agreement. An additional amendment to the Restated Credit
Agreement was consummated in 1993 for the Company to use up to $50 million of
net cash proceeds from the disposition of Denny's and El Pollo Loco restaurant
units to acquire new Denny's restaurant units and refurbish other existing units
and to exclude from limitations on capital expenditures (as defined) and
investments (as defined) up to $25.6 million of cash or debt assumed in the
purchase of certain franchisee units. For additional information see Item 13.
Certain Relationships and Related Transactions -- Description of Indebtedness.
The Restated Credit Agreement and the indentures governing the Company's
outstanding public debt contain negative covenants that restrict, among other
things, the Company's ability to pay dividends, incur additional indebtedness,
further encumber its assets and purchase or sell assets. In addition, the
Restated Credit Agreement includes provisions for the maintenance of a minimum
level of interest coverage, limitations on ratios of indebtedness to earnings
before interest, taxes, depreciation and amortization (EBITDA) and limitations
on annual capital expenditures.
18
<PAGE>
At December 31, 1993 scheduled debt maturities of long-term debt for the
years 1994 through 1998 are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
(IN MILLIONS)
1994.................................................................................... $ 41.7
1995.................................................................................... 42.5
1996.................................................................................... 55.3
1997.................................................................................... 96.7
1998.................................................................................... 119.6
</TABLE>
In addition to scheduled maturities of principal, approximately $265.0
million of cash will be required in 1994 to meet interest payments on long-term
debt (including interest on variable rate term indebtedness under the Restated
Credit Agreement of approximately $11.0 million, assuming an annual interest
rate of 6.3%) and dividends on the Preferred Stock.
The Company's principal capital requirements are those associated with
opening new restaurants and expanding its contract food service business, as
well as those associated with remodeling and maintaining its existing
restaurants and facilities. During 1993, total capital expenditures were
approximately $225.5 million, of which approximately $83.0 million was used to
open new restaurants, $22.0 million was used for new products equipment, $61.2
million was applied to expand and maintain the Company's contract food service
business, and $59.3 million was expended to upgrade and maintain existing
facilities. Of these expenditures, approximately $77.1 million were financed
through capital leases and secured borrowings. Capital expenditures during 1994
are expected to total approximately $185 million, of which approximately $60
million is expected to be financed externally.
The Company is able to operate with a substantial working capital
deficiency because (i) restaurant operations and most other food service
operations are conducted primarily on a cash (and cash equivalent) basis with a
low level of accounts receivable, (ii) rapid turnover allows a limited
investment in inventories, and (iii) accounts payable for food, beverages and
supplies usually become due after the receipt of cash from the related sales. At
December 31, 1993 the Company's working capital deficiency was $304.6 million as
compared with $284.1 million at the end of 1992. Such increase is attributable
primarily to an increase in restructuring and other liabilities which was
partially offset by an increase in receivables and inventories from the
acquisition of contract food service operations during 1993.
During November 1992, the Financial Accounting Standards Board issued
Statement No. 112 "Employers' Accounting for Postemployment Benefits" which
requires that benefits provided to former or inactive employees prior to
retirement be recognized as an obligation when earned, subject to certain
conditions, rather than when paid. The Company does not expect Statement No. 112
to have a material impact on the Company's operations and will implement this
statement during the first quarter of 1994.
On April 11, 1994, Standard & Poor's Corporation downgraded the
long-term credit ratings on Flagstar's outstanding senior debt securities
from B+ to B and on its subordinated debt securities and FCI's
Preferred Stock from B- to CCC+. Moody's Investors' Service, Inc. has also
indicated that it is reviewing the ratings of Flagstar's debt securities for
a possible downgrade. As a result of this action, certain payments by the
Company relating to a subsidiary's mortgage financing will become due and
payable on a monthly, rather than semi-annual, basis. See Item 13. Certain
Relationships and Related Transactions - Description of Indebtedness -
Mortgage Financings. Although the Company has not yet had an opportunity
to evaluate the effect of such downgrade, management does not currently
anticipate a significant impact on the Company's liquidity or ongoing
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules which
appears on page F-1 herein.
FORM 11-K INFORMATION
FCI, pursuant to Rule 15d-21 promulgated under the Securities Exchange Act
of 1934, as applicable, will file as an amendment to this Annual Report on Form
10-K the information, financial statements and exhibits required by Form 11-K
with respect to the Flagstar Thrift Plan and the Denny's, Inc. Profit Sharing
Retirement Plan.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to the directors
and executive officers of FCI. Each director of FCI is also a director of
Flagstar.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
<S> <C> <C>
Michael Chu......................... 45 Director of FCI and Flagstar; Director of Latin American Operations, ACCION
International (1993-present); Executive of KKR and a Limited Partner of KKR
Associates, the sole partner of TW Associates and KKR Partners II (1989-1993);
Director of World Color Press, Inc., Commercial Printing Holding Co., FINANSOL
Compania de Financiamiento Comercil and Banco Solidario S.A.
Vera King Farris.................... 53 Director of FCI and Flagstar; President of The Richard Stockton College of New
Jersey (1983-present); Director of Elizabethtown Gas Corporation.
Hamilton E. James................... 43 Director of FCI and Flagstar; Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation (investment banking) (1987-present); Senior Vice President
and Principal of Donaldson, Lufkin & Jenrette Securities Corporation (1982-1987);
Director of Price/Costco Inc. and County Seat Stores, Inc.
Henry R. Kravis (a)................. 50 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of AutoZone, Inc., Duracell International Inc., IDEX Corporation, K-III
Communications Corporation, Owens-Illinois, Inc., Owens-Illinois Group, Inc., RJR
Nabisco Holdings Corp., RJR Nabisco, Inc., Safeway Inc., The Stop & Shop
Companies, Inc., Union Texas Petroleum Holdings, Inc., Walter Industries, Inc.
and American Re Corporation.
Augustus K. Oliver.................. 44 Director of FCI and Flagstar; General Partner of Gollust, Tierney and Oliver
(investment banking) (1985-present); Director of Gollust, Tierney and Oliver
International Ltd. (administrative and management services) (1988-present);
Managing Director of Gollust, Tierney and Oliver, Inc. (investment banking)
(1984-present); Partner of Skadden, Arps, Slate, Meagher & Flom (law firm)
(1983-1984).
Paul E. Raether..................... 47 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Duracell International, Inc., Fred Meyer, Inc., IDEX Corporation, RJR Nabisco
Holdings Corp., RJR Nabisco, Inc., The Stop & Shop Companies, Inc. and Walter
Industries, Inc.
Jerome J. Richardson................ 57 Chairman of FCI and Flagstar (1992-present); Chief Executive Officer and Director
of FCI (1989-present); President of FCI (1989-1992); Chief Executive Officer of
Flagstar (1989-present); Director of Flagstar (1980-present); President of
Flagstar (1987-1992); Chairman of Denny's (1989-present); President and Chief
Executive Officer of Canteen (1989-present); Chairman of Flagstar Systems, Inc.
(1990-present); President and Chief Executive Officer of Flagstar Systems, Inc.
(1989-present); President and Chief Executive Officer of Denny's (1988); Senior
Vice President of Flagstar (1986-1987); President of Spartan Food Systems,
division of Flagstar (1986-1989); President of Flagstar Systems, Inc.
(1962-1986); Director of Isotechnologies, Inc., NCAA Foundation and Sonat Inc.;
Member of the Board of Visitors, Duke University Medical Center.
Clifton S. Robbins.................. 36 Director of FCI and Flagstar; Executive of KKR and a Limited Partner of KKR
Associates; Director of IDEX Corporation, RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and The Stop & Shop Companies, Inc.
George R. Roberts (a)............... 50 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of AutoZone, Inc., Duracell International Inc., IDEX Corporation, K-III
Communications Corporation, Owens-Illinois, Inc., Owens-Illinois Group, Inc., Red
Lion Properties, Inc., RJR Nabisco, Inc., RJR Nabisco Holdings Corp., Safeway
Inc., The Stop & Shop Companies, Inc., Union Texas Petroleum Holdings, Inc.,
Walter Industries, Inc. and American Re Corporation.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
<S> <C> <C>
L. Edwin Smart...................... 70 Director of FCI and Flagstar; Counsel, Hughes, Hubbard & Reed (law firm which
performed services for the Company in 1993) (1989-present); Chairman of the Board
and Chief Executive Officer of Flagstar (1986-1987); Chairman of the Board and
Chief Executive Officer of Transworld (1978-1986); Chairman of the Board of TWA
(1977-1985); Chief Executive Officer of TWA (1977-1979); Vice Chairman of TWA
(1976-1977); Senior Vice President of TWA (1967-1975); Director of The
Continental Corporation and Sonat Inc.
Michael T. Tokarz................... 44 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Homes Holdings Corporation, IDEX Corporation, K-III Communications
Corporation, RJR Nabisco, Inc., RJR Nabisco Holdings Corp., Safeway Inc. and
Walter Industries, Inc.
A. Ray Biggs........................ 52 Vice President and Chief Financial Officer of FCI and Senior Vice President and
Chief Financial Officer of Flagstar (1992-present); Partner, Deloitte & Touche
(accounting firm which served as independent auditors for the Company in 1993)
(1978-1992).
George E. Moseley................... 54 Vice President and Secretary of FCI and Flagstar (1991-present); Associate
General Counsel of FCI and Flagstar (1990-present); General Counsel of Flagstar
Systems, Inc. (1990-present); Vice President, Secretary and General Counsel of
Reeves Brothers, Inc. (manufacturing concern) (1977-1989).
Robert L. Wynn, III................. 52 Vice President and General Counsel of FCI (1992-present); Senior Vice President
and General Counsel of Flagstar (1992-present); General Counsel of Denny's
(1991-present); Partner, Holcombe, Bomar, Wynn, Cothran and Gunn (law firm which
performed services for the Company in 1993) (1969-1990).
</TABLE>
(a) Messrs. Kravis and Roberts are first cousins.
In connection with the Recapitalization, FCI and Flagstar agreed that their
respective Boards of Directors would be expanded to eleven members and that a
majority of each such board will consist of persons designated by affiliates of
KKR. For additional information concerning agreements regarding the composition
of the Board of Directors, see Item 12. Security Ownership of Certain Beneficial
Owners and Management -- The Stockholder's Agreement.
EXECUTIVE OFFICERS OF FLAGSTAR
The following table sets forth information with respect to the executive
officers of Flagstar (other than as identified above).
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
<S> <C> <C>
H. Stephen McManus (a).............. 51 Executive Vice President, Restaurant Operations of Flagstar (1991-present);
Senior Vice President of Flagstar (1989-1991); Chief Operating Officer of
Hardee's (1990-1991); Senior Vice President of Flagstar Systems, Inc. (1990-
1991); Vice President of Operations of Spartan Food Systems, division of Flagstar
(1986-1989); Vice President of Operations of Flagstar Systems, Inc. (1984-1986).
Gregory M. Buckley.................. 40 Senior Vice President of Flagstar and Chief Operating Officer of Quincy's
(1993-present); Vice President, Central Division of Pizza Hut (1990-1993);
President, Southeast Division of Progressive Corp. (1986-1990).
Jerry A. Houck...................... 51 Senior Vice President, Construction and Real Estate of Flagstar (1990-present);
Vice President of Construction and Real Estate of Flagstar Systems, Inc.
(1988-1990); Vice President of Construction of Flagstar Systems, Inc.
(1987-1988); Director of New Construction for Flagstar Systems, Inc. (1976-1987).
James R. Kibler..................... 39 Senior Vice President of Flagstar and Chief Operating Officer of Hardee's
(1991-present); Senior Vice President of Flagstar Systems, Inc. (1991-present);
Vice President of Operations -- Denny's West Coast (1989-1991); Division Leader
for Hardee's (1989); Region Leader for Hardee's (1979-1989).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
<S> <C> <C>
Samuel H. Maw (a)................... 60 Senior Vice President, Product Development and Distribution of Flagstar
(1990-present); Chief Operating Officer of Canteen Corporation (1993-present);
Senior Vice President of Flagstar (1989); President and Chief Executive Officer
of Denny's (1988-1990); Senior Vice President of Spartan Food Systems, division
of Flagstar (1987-1988); Vice President of Research and Development of Flagstar
Systems, Inc. (1974-1986); Director of Isotechnologies, Inc.
Edna K. Morris...................... 42 Senior Vice President, Human Resources of Flagstar (1993-present); Vice
President, Education and Development of Flagstar (1992-1993); Senior Vice
President/Human Resources of Hardee's Food Systems, Inc. (1987-1992); Director of
Employee Relations of Hardee's Food Systems, Inc. (1987); Personnel Manager,
Consolidated Diesel Company, a joint venture between J. I. Case and Cummins
Engine Company (1981-1987); Personnel Manager, Manufacturing of Hardee's Food
Systems, Inc. (1980-1981).
Raymond J. Perry.................... 52 Senior Vice President of Flagstar and Chief Operating Officer of El Pollo Loco
(1993-present); President of Kelly's Coffee & Fudge Factory (1991-1993);
Executive Vice President of Carl's Jr. Restaurants (1989-1991); Group Vice
President of Carl's Jr. Restaurants (1988-1989); Vice President of Operations of
Carl's Jr. Restaurants (1986-1988).
C. Ronald Petty..................... 49 Senior Vice President of Flagstar and Chief Operating Officer of Denny's
(1993-present); Independent Consultant (1992-1993); President and Chief Executive
Officer of Miami Subs Corporation (1990-1992); President and Chief Operating
Officer of Burger King Corporation, US Division (1988-1990); President,
International Division of Burger King Corporation (1986-1988).
C. Burt Duren....................... 35 Vice President, Tax of Flagstar (1993-present); Treasurer of Flagstar (January
1994-present); Director of Tax of Flagstar (1989-1993); Senior Tax Manager,
Deloitte & Touche (1988-1989).
Norman J. Hill...................... 51 Vice President, Field Human Resources of Flagstar (1993-present); Vice President,
Human Resources of Perkins Family Restaurants, L.P. (1986-1993).
Thomas R. Holt...................... 37 Vice President, Information Services of Flagstar (1993-present); Director,
Information Services of Flagstar (1991-1993); Director, Management Information
Services of Flagstar Systems, Inc. (1988-1990); Manager, Information Services of
Carpet and Rug Division of Fieldcrest Cannon (1987-1988).
James A. Marshall................... 44 Vice President and Associate General Counsel of Flagstar (1992-present); Director
of Asset Management of Hardee's Food Systems, Inc. (1990-1992); Assistant General
Counsel and Assistant Secretary of Hardee's Food Systems, Inc. (1985-1990).
Coleman J. Sullivan................. 44 Vice President, Communications of Flagstar (1990-present); Vice President of
Brown Boxenbaum, Inc. (public relations firm) (1986-1990); Director, Financial
Relations, Transworld (1984-1986).
Stephen W. Wood..................... 35 Vice President, Compensation, Benefits and Employee Information Systems of
Flagstar (1993-present); Senior Director, Compensation, Benefits and Employee
Information Systems of Flagstar (1993); Director, Benefits and Executive
Compensation of Hardee's Food Systems, Inc. (1991-1993); Consultant of Hewitt
Associates (benefit consultants that performed services for the Company in 1993)
(1990); McGuire, Woods, Battle & Boothe (law firm) (1984-1990).
Mark E. Young....................... 36 Vice President and Controller of Flagstar (January 1994-present); Special
Projects Manager, Finance of Flagstar (1993-January 1994); Vice President,
Finance and Treasurer of BET USA Inc. (contract services) (1988-1992); Senior
Manager, Deloitte & Touche (accounting firm which served as independent auditors
for the Company in 1993) (1986-1988).
</TABLE>
(a) Messrs. Maw and McManus are brothers-in-law.
See Item 12. Security Ownership of Certain Beneficial Owners and Management
for certain additional information concerning directors, executive officers and
certain beneficial owners of the Company.
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS
No executive officer of FCI is compensated directly by FCI in connection
with services provided to the Company. All such executive compensation is paid
by Flagstar. Set forth below is information for 1993, 1992 and 1991 with respect
to compensation for services to the Company of Jerome J. Richardson, the Chief
Executive Officer of the Company, and each of the five most highly compensated
executive officers (other than the Chief Executive Officer) of the Company
during 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION ALL
AWARDS OTHER
NAME AND ANNUAL COMPENSATION (1) SECURITIES UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) OPTIONS (#)(3) ($)(4)
<S> <C> <C> <C> <C> <C>
Jerome J. Richardson 1993 $ 824,355 -- -- $ 13,652
Chief Executive Officer 1992 $ 776,804 $750,000 600,000 $ 15,286
of Flagstar 1991 $ 641,663 $500,000 -- $ 16,739
A. Ray Biggs 1993 $ 198,132 -- 60,000 --
Senior Vice President 1992 $ 166,468 $104,500 6,000(5) --
and Chief Financial 1991 -- -- -- --
Officer of Flagstar
David F. Hurwitt 1993 $ 230,664 -- 35,000(6) --
Formerly Senior Vice 1992 $ 179,347 $103,125 7,200(5) --
President, Marketing 1991 -- -- -- --
of Flagstar
Samuel H. Maw 1993 $ 280,861 -- 80,000 --
Senior Vice President, 1992 $ 273,024 $124,888 -- --
Product Development 1991 $ 245,361 $ 66,300 -- --
and Distribution of Flagstar and
Chief Operating Officer of Canteen
Corporation
H. Stephen McManus 1993 $ 238,495 -- 80,000 --
Executive Vice President, 1992 $ 215,271 $104,545 -- --
Restaurant Operations 1991 $ 173,687 $ 57,400 -- --
of Flagstar
Alan R. Plassche 1993 $ 201,773 -- (6) --
Formerly Senior Vice 1992 $ 124,705 $ 67,035 -- --
President of Flagstar and 1991 -- -- -- --
Chief Operating Officer
of Canteen Corporation
</TABLE>
(1) The amounts shown for each named executive officer exclude perquisites and
other personal benefits that did not exceed, in the aggregate, the lesser of
either $50,000 or 10% of the total of annual salary and bonus reported for
the named executive officer for any year included in this table.
(2) The amounts shown for 1993 include accruals of $62,082, $26,823 and $9,027
for Messrs. Richardson, Maw and McManus, respectively, under a supplemental
executive retirement plan. The amounts shown for 1992 include accruals of
$58,053, $30,119 and $11,920 for Messrs. Richardson, Maw and McManus,
respectively, under the same plan, while the amounts shown for 1991 include
accruals of $34,421, $25,220 and $5,966 for Messrs. Richardson, Maw and
McManus, respectively.
(3) For additional information concerning the grant of options in 1993, see Item
11. Executive Compensation -- Stock Options below. Options to purchase
Common Stock were granted to Mr. Richardson on December 15, 1992 pursuant to
the 1989 Non-Qualified Stock Option Plan of FCI, as adopted December 1, 1989
and thereafter amended (the "1989 Option Plan"), and his employment
agreement dated as of August 11, 1992, upon the termination of his prior
option to purchase 160,000 shares of Common Stock. Such options become
exercisable at the rate of 20% per year
23
<PAGE>
beginning on November 16, 1993, conditioned upon his continued employment
with the Company. Pursuant to Mr. Richardson's employment agreement, all
shares of Common Stock that Mr. Richardson acquires upon any exercise of
such options shall be subject to the Richardson Shareholder Agreement (as
defined herein). See Item 11. Executive Compensation -- Employment
Agreements -- Richardson Employment Agreement and Item 12. Security
Ownership of Certain Beneficial Owners and Management -- Richardson
Shareholder Agreement for additional information.
(4) The amounts shown for Mr. Richardson are all split-dollar insurance premium
payments paid by the Company for the years indicated.
(5) Options granted in 1992 to Messrs. Biggs and Hurwitt were canceled in 1993
in connection with the issuance of new options having a lower exercise
price. For additional information, see Item 11. Executive
Compensation -- Stock Options.
(6) All options granted to Mr. Hurwitt in 1993 were terminated upon termination
of his employment with the Company as of March 31, 1994. Mr. Plassche
received options to purchase 80,000 shares of Common Stock in 1993. Such
options were terminated, however, upon termination of his employment with
the Company as of November 15, 1993.
STOCK OPTIONS
Set forth below is information with respect to individual grants of stock
options made during 1993 to Messrs. Biggs, Hurwitt, Maw, McManus and Plassche.
No stock options were granted in 1993 to Mr. Richardson.
OPTION GRANTS IN 1993
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
NUMBER OF % OF REALIZABLE VALUE
SECURITIES TOTAL AT ASSUMED ANNUAL
UNDERLYING OPTIONS EXERCISE RATES OF STOCK
OPTIONS GRANTED TO OR BASE PRICE APPRECIATION
GRANTED EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM
NAME (#)(1) 1993 ($/SH) DATE 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
A. Ray Biggs 60,000 2.4% $11.25 06-29-03 $425,250 $1,073,250
David F. Hurwitt 35,000 1.4% $11.25 06-29-03 $248,063 $ 626,063
Samuel H. Maw 80,000 3.2% $11.25 06-29-03 $567,000 $1,431,000
H. Stephen McManus 80,000 3.2% $11.25 06-29-03 $567,000 $1,431,000
Alan R. Plassche 80,000 3.2% $11.25 06-29-03 $567,000 $1,431,000
</TABLE>
(1) Such options were granted on June 29, 1993 pursuant to the 1989 Option Plan.
The exercise price for such options was established at the market price for
the Common Stock at the date of grant. Such grant was effected in
conjunction with, in the case of Messrs. Biggs, Hurwitt, Maw and McManus,
the termination of prior options to purchase 6,000, 7,200, 8,400 and 7,200
shares, respectively. Such options are exercisable at the rate of 40% as of
June 29, 1995 and 20% per year thereafter, conditioned upon continued
employment with the Company. Under the 1989 Option Plan, the exercise price
of shares of Common Stock purchased upon the exercise of an option may be
paid in cash or by surrender of other shares of Common Stock having a fair
market value on the date of exercise equal to such exercise price, or in a
combination of cash and such shares. Upon termination of employment of a
holder, all of such holder's options not then exercisable expire and
terminate, but all of such holder's exercisable options remain exercisable
for one year; PROVIDED that, if such termination is voluntary or without
cause, such holder's exercisable options generally remain exercisable for
sixty days, and PROVIDED FURTHER that if such termination is for cause, such
exercisable options shall expire and terminate as of the date of
termination. Mr. Hurwitt's and Mr. Plassche's options were later terminated
in connection with the termination of their employment with the Company.
24
<PAGE>
The following table sets forth information with respect to the 1993
year-end values of unexercised options, all of which were granted by the Company
pursuant to the 1989 Option Plan, held by Jerome J. Richardson, the Chief
Executive Officer of the Company, and each of the other persons named in the
Summary Compensation Table above:
AGGREGATED OPTION EXERCISES IN 1993 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
YEAR-END (#) YEAR-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
<S> <C> <C>
Jerome J. Richardson....................................................................... 120,000/480,000 -- / --
A. Ray Biggs............................................................................... -- /60,000 -- / --
David F. Hurwitt........................................................................... -- /35,000 -- / --
Samuel H. Maw.............................................................................. -- /80,000 -- / --
H. Stephen McManus......................................................................... -- /80,000 -- / --
Alan R. Plassche........................................................................... -- / -- -- / --
</TABLE>
No options held by the foregoing officers were exercised in 1993.
RETIREMENT PLANS
Separate retirement plans are maintained by Flagstar subsidiaries, Canteen
Corporation and Flagstar Systems, Inc. Each plan is described below.
The following table shows the estimated annual benefits for a single life
annuity that could be payable under the Canteen Retirement Plan (as defined) and
Flagstar Retirement Plan (as defined), each as amended, upon a person's normal
retirement at age 65 if that person were in one of the following classifications
of assumed compensation and years of credited service:
<TABLE>
<CAPTION>
AVERAGE ANNUAL YEARS OF SERVICE
REMUNERATION OVER A FIVE-YEAR PERIOD 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 200,000.................................................. $ 43,410 $ 57,881 $ 72,351 $ 86,821 $100,000
250,000................................................. 54,660 72,881 91,101 109,321 125,000
300,000................................................. 65,910 87,881 109,851 131,821 150,000
350,000................................................. 77,160 102,881 128,601 154,321 175,000
400,000................................................. 88,410 117,881 147,351 176,821 200,000
500,000................................................. 110,910 147,881 184,851 221,821 250,000
600,000................................................. 133,410 177,881 222,351 266,821 300,000
700,000................................................. 155,910 207,881 259,851 311,821 350,000
800,000................................................. 178,410 237,881 297,351 356,821 400,000
900,000................................................. 200,910 267,881 334,851 401,821 450,000
1,000,000................................................. 223,410 297,881 372,351 446,821 500,000
1,200,000................................................. 268,410 357,881 447,351 536,821 600,000
1,400,000................................................. 313,410 417,881 522,351 626,821 700,000
1,600,000................................................. 358,410 477,881 597,351 716,821 800,000
</TABLE>
The Canteen Corporation Retirement Plan for Salaried Employees (the
"Canteen Retirement Plan") is noncontributory and covers salaried employees of
the Company's Canteen operations (and its predecessors) and certain of Canteen's
subsidiaries other than "highly compensated employees" as defined in the
Internal Revenue Code of 1986, as amended (the "Code"). Highly compensated
employees were excluded from future service accruals effective January 1, 1989.
A participant's annual benefit under the Canteen Retirement Plan at normal
retirement age is calculated by multiplying the number of years of participation
in the Canteen Retirement Plan (not to exceed 35 years) by the sum of one
percent of the average Compensation (as defined below) paid during 60
consecutive calendar months chosen to produce the highest average ("Average
Compensation" for purposes of this paragraph) plus an additional one-half of one
percent of the Average Compensation in excess of the average Social Security
wage base. Benefits payable cannot exceed 50% of
25
<PAGE>
Average Compensation. Plan benefits are normally in the form of a life annuity
or, if the retiree is married, a joint and survivor annuity. An employee becomes
a participant as of any January 1 following the later of the date of employment
or the attainment of age twenty and one-half. "Compensation" for purposes of
this paragraph consists of all remuneration paid by the employer to the employee
for services rendered as reported or reportable on Form W-2 for federal income
tax withholding purposes (including the amount of any 1992 year-end bonus paid
in 1993), excluding severance pay, pay during layoff, relocation allowance, cost
of living differentials, special overseas premiums, compensation resulting from
participation in, or cancellation of, stock option plans, contributions by the
employer to the Canteen Retirement Plan or any other benefit plan and imputed
income resulting from the use of the corporate aircraft or company cars. Except
for limited purposes described in the plan, Compensation also shall include any
deferred compensation under a Section 401(k) plan maintained by the employer and
salary reduction amounts under a Section 125 plan maintained by the employer.
The funding of the Canteen Retirement Plan is based upon actuarial
determinations.
Ancillary to the Canteen Retirement Plan is a nonqualified plan for key
executive employees to provide future service benefits and benefits in excess of
the annual maximum benefits limit under the Code to highly compensated
employees. "Compensation" and "Average Compensation" are defined in this
ancillary plan the same way they are defined in the Canteen Retirement Plan. The
supplemental executive retirement plan provides additional benefits to certain
key executives. Benefits payable under the ancillary plan are included in the
table above.
The Flagstar Pension Plan (the "Flagstar Retirement Plan"), which is
noncontributory, generally covers all employees of Flagstar and its subsidiaries
(other than its Canteen and Denny's subsidiaries) who have attained the age of
21 and who have completed twelve consecutive months of service. There are two
entry dates per year for new employees, January 1 and July 1. As a result of a
plan amendment effective January 1, 1989, a participant's annual retirement
benefit under the Flagstar Retirement Plan at normal retirement age is
calculated by multiplying the number of years of participation in the Flagstar
Retirement Plan (not to exceed 35 years) by the sum of one percent of the
average Compensation (as defined below) paid during 60 consecutive calendar
months chosen to produce the highest average ("Average Compensation" for the
purposes of this paragraph) plus an additional one-half of one percent of the
Average Compensation in excess of the average Social Security wage base.
Benefits payable cannot exceed 50% of the Average Compensation. Plan benefits
are normally in the form of a life annuity or, if the retiree is married, a
joint and survivor annuity. "Compensation" for the purposes of this paragraph
consists of all remuneration paid by the employer to the employee for services
rendered as reported or reportable on Form W-2 for federal income tax
withholding purposes (including the amount of any 1992 year-end bonus paid in
1993), excluding severance pay, pay during layoff, relocation allowance, cost of
living differentials, special overseas premiums, compensation resulting from
participation in, or cancellation of, stock option plans, contributions by the
employer to the Flagstar Retirement Plan or any other benefit plan and imputed
income resulting from the use of the corporate aircraft or company cars. Except
for limited purposes described in the plan, Compensation also shall include any
deferred compensation under a Section 401(k) plan maintained by the employer and
salary reduction amounts under a Section 125 plan maintained by the employer.
The funding of the Flagstar Retirement Plan is based on actuarial
determinations.
Ancillary to the Flagstar Retirement Plan is a nonqualified plan for key
executive employees to provide future service benefits and benefits in excess of
the annual maximum benefits limit under the Code to certain key employees.
"Compensation" and "Average Compensation" are defined in this ancillary plan the
same way they are defined in the Flagstar Retirement Plan. A supplemental
executive retirement plan provides additional benefits to certain key
executives. Benefits payable under the ancillary plan are included in the table
above.
The annual limit for both qualified plans for 1993 was $115,641, except
that, for those plan participants whose accrued benefits exceeded $90,000 prior
to January 1, 1983, the annual limit is equal to the 1982 accrued benefit. All
benefits under the nonqualified plans are paid out of the general funds of the
employer.
Except for the addition of 1992 bonuses paid in 1993, the Compensation
included under the Canteen and Flagstar Retirement Plans (including the
ancillary nonqualified plans) generally corresponds with the annual compensation
of the named executive officers in the Summary Compensation Table above.
Includable Compensation for 1993 for Messrs. Richardson, Biggs and Hurwitt was
$1,016,323, $220,199 and $286,721, respectively.
As of December 31, 1993, the estimated credited years of service under the
Flagstar Retirement Plan for Messrs. Richardson, Biggs, Hurwitt, Maw and McManus
at normal retirement age was 40, 14, 11, 29 and 36, respectively.
26
<PAGE>
The early retirement provisions of the Canteen and Flagstar Retirement
Plans were amended effective January 1, 1989 to provide an improved benefit for
long service employees. Employees with age and service equalling or exceeding 85
and who are within five years of the Social Security normal retirement age will
receive no reduction of accrued benefits. Employees who are at least 55 years of
age with 15 years of service will receive a reduction of three percent in
accrued benefits for the first five years prior to normal retirement date and
six percent for the next five years. Accrued benefits for employees retiring
with less than 15 years of service will be actuarially reduced beginning at age
55. Vesting of retirement benefits was also changed to comply with the law from
ten-year cliff vesting at Canteen and 12-year graduating vesting at Flagstar to
five-year cliff vesting for both plans.
FLAGSTAR THRIFT PLAN
The Flagstar Thrift Plan (the "Thrift Plan") is designed to encourage and
facilitate systematic savings by eligible employees. The Thrift Plan is
available to salaried employees who are not governed by a collective bargaining
agreement and who are employed by Flagstar or any subsidiary that adopts the
Thrift Plan with the consent of the Board of Directors. Participation in the
Thrift Plan is voluntary. The Thrift Plan may be amended by the Board of
Directors from time to time, but such amendments may not diminish the securities
or cash in the account of a participant.
A participant in the Thrift Plan generally may choose either of two options
for contributions: an after-tax option or a pre-tax option. An employee may not
make both after-tax and pre-tax contributions in the same month.
A salaried employee is eligible to participate in the Thrift Plan if the
employee (i) has attained 21 years of age, (ii) has completed one year of
service (as defined) and (iii) is not subject to a collective bargaining
agreement. Under the after-tax option, each participant specifies a percentage
of compensation (as defined in the Thrift Plan) to be contributed to the Thrift
Plan, which contribution is made by payroll deduction. No participant may
contribute more than 10% of annual compensation. Flagstar contributes a matching
amount equivalent to 25% of the participant's monthly contribution, subject to
certain statutory limits. Contributions of the participants and Flagstar are
invested in investment vehicles designated by the plan administrator. A
participant is able to withdraw certain eligible contributions once per calendar
year or at early retirement age, upon normal retirement, upon termination of
employment, upon disability or at death.
Under the pre-tax option, an eligible employee may make a contribution to
the Thrift Plan on a pre-tax basis, pursuant to Section 401(k) of the Code, by
deferring up to 10% of such employee's compensation (as defined in the Thrift
Plan) but not more than $8,994 (for 1993, the amount being indexed annually) per
year, which is then contributed by Flagstar to the Thrift Plan. Flagstar
currently matches 25% of the employee pre-tax contribution up to 6% of the
employee's compensation (as defined in the Thrift Plan) plus 75% of the first
$500 of employee pre-tax contributions. Contributions are invested in investment
vehicles designated by the plan administrator. Flagstar's matching contributions
are invested pursuant to participants' investment directions for their pre-tax
and after-tax contributions. A participant is able to withdraw pre-tax matching
contributions (and earnings thereon) once per quarter, provided such
contributions were made prior to January 1, 1988. A participant may withdraw his
own pre-tax contributions (including earnings thereon through December 31, 1988)
upon the showing of an immediate and substantial financial hardship as defined
in the plan. Upon the attainment of age 59 1/2, as well as upon the occurrence
of retirement, death, disability or termination of service, a participant
generally may withdraw all contributions and earnings thereon. Flagstar's
contributions vest upon contribution.
Effective June 14, 1990, Common Stock again became an optional investment
vehicle under the Thrift Plan. Participants may direct the investment of up to
25% of their own contributions and the matching contributions in Common Stock.
Participants also may transfer amounts from other investment vehicles into
Common Stock. In no event, however, may a participant transfer amounts into
Common Stock that would result in the ownership of Common Stock exceeding 25% of
the participant's total interest in the Thrift Plan.
On October 26, 1988, the Board of Directors approved certain amendments to
the Thrift Plan. These amendments were necessitated by changes in the federal
tax laws and became effective on January 1, 1989. As a result of the amendments,
highly compensated employees, as defined by the Code and the regulations
thereunder and including the executive officers of Flagstar, are no longer
eligible to make pre-tax or after-tax contributions to the Thrift Plan. In lieu
of this benefit, such employees received certain salary increases.
Under the Thrift Plan, shares of the Common Stock attributable to
participating employees' contributions and contributions by Flagstar will be
voted by the plan trustee in accordance with the employee's instructions and,
absent such instructions, in the trustee's discretion.
27
<PAGE>
EMPLOYMENT AGREEMENTS
RICHARDSON EMPLOYMENT AGREEMENT
Concurrently with the execution of a Stock and Warrant Purchase Agreement
dated August 11, 1992 by and between TW Associates and FCI (the "Purchase
Agreement"), Mr. Richardson and Flagstar entered into an employment agreement
(the "Employment Agreement"), which took effect on November 16, 1992, and which
provides that Flagstar will employ Mr. Richardson as Chief Executive Officer and
Chairman of the Board of Flagstar until November 16, 1997 or his earlier death
or termination of employment by reason of permanent disability, voluntary
termination of employment or involuntary termination for cause (as defined). The
Employment Agreement prohibits Mr. Richardson from soliciting employees of
Flagstar or its affiliates and from engaging in certain competitive activities
generally during his term of employment and for a period of three years after
termination of employment. The Employment Agreement further prohibits Mr.
Richardson from using or disclosing certain "confidential" or "proprietary"
information for purposes other than carrying out his duties with the Company.
Under the Employment Agreement, Mr. Richardson is entitled to receive (i)
an annual base salary at the rate of $750,000 per year from November 16, 1992
through December 31, 1993 and at a rate determined by the Compensation and Stock
Option Committee of Flagstar's Board of Directors annually thereafter, (ii) an
annual performance bonus targeted to equal his base salary if Flagstar and Mr.
Richardson achieve budgeted financial and other performance targets, to be
established annually by the Compensation and Stock Option Committee, and (iii)
subject to the termination of the ten-year option that Mr. Richardson received
from FCI in 1989 to purchase 160,000 shares of Common Stock at $20.00 per share
(the "Prior Option") (and provided that he continues to be employed by the
Company unless his employment is terminated as a result of a "Termination
Without Cause" (as defined therein)), the grant of a new option or options to
purchase 600,000 shares of Common Stock, to be exercisable at the rate of 20%
per year beginning on November 16, 1993 and subject to exercise prices of $15.00
per share for 100,000 shares and $17.50 per share for 500,000 shares. In
December 1992, Mr. Richardson terminated his Prior Option and was granted such
options to purchase 600,000 shares of Common Stock. The Employment Agreement
also entitles Mr. Richardson to participate in all of the Company's benefit
plans. As a condition to Mr. Richardson entering into the Employment Agreement
which extends his term of employment with Flagstar for an additional three
years, FCI advanced funds (the "Richardson Loan") to refinance approximately
$13,900,000 outstanding principal and certain interest due on a 1989 loan from
NationsBank of North Carolina, N.A. to Mr. Richardson. Mr. Richardson used the
proceeds of the 1989 loan to finance his purchase of approximately 800,000
shares of Common Stock. For additional information concerning the Richardson
Loan, see Item 13. Certain Relationships and Related Transactions.
In the event of Mr. Richardson's termination of employment during the term
of the Employment Agreement, Flagstar is required to make payments as follows
based upon the cause of termination of employment: (i) if by reason of death,
Mr. Richardson's surviving spouse is entitled to be paid an amount equal to Mr.
Richardson's base salary for a one-year period after his death; (ii) if by
reason of permanent disability, Mr. Richardson is entitled to be paid one-half
of his base salary and annual bonus for a period of two years after termination
of employment; and (iii) if by Flagstar other than for "cause," or by Mr.
Richardson following a material breach by Flagstar of a material provision of
the Employment Agreement (each, a "Termination Without Cause"), Mr. Richardson
is entitled to be paid immediately upon such termination a lump sum amount equal
to his base salary and bonuses (deemed to be $1,500,000, in the aggregate, per
year) and his other benefits for the remaining term of the agreement.
OTHER EMPLOYMENT AGREEMENTS
Mr. Biggs has in effect a three (3) year employment agreement with Flagstar
to serve at the direction of the Chief Executive Officer of Flagstar, subject to
earlier termination upon his death or termination of employment by reason of
permanent disability, voluntary termination of employment or involuntary
termination for cause (as defined). The agreement prohibits Mr. Biggs from
soliciting employees of Flagstar or its affiliates and from engaging in certain
competitive activities generally during the term of his employment and for a
period of one year after termination of employment. The agreement further
prohibits Mr. Biggs from using or disclosing certain "confidential" or
"proprietary" information for purposes other than carrying out his duties with
the Company.
Under the agreement, Mr. Biggs is entitled to receive (i) an annual base
salary at the rate of $190,000 per year (subject to increase in the Company's
discretion based on annual reviews and annual cost of living adjustments) and
(ii) an
28
<PAGE>
annual cash bonus determined under the terms of the Company's senior management
incentive compensation plan provided certain performance targets are met. The
agreement also entitles Mr. Biggs to participate in all of the Company's benefit
plans.
In the event of Mr. Biggs' termination of employment during the term of his
employment agreement, Flagstar is required to make payments as follows based
upon the cause of termination of employment: (i) if by reason of death, Mr.
Biggs' surviving spouse is entitled to be paid an amount equal to Mr. Biggs'
base salary for a one-year period after his death, together with accrued but
unpaid bonuses then owing to Mr. Biggs; (ii) if by reason of permanent
disability, Mr. Biggs is entitled to be paid one-half of his base salary for a
period of two years after termination of employment, together with accrued but
unpaid bonuses then owing to Mr. Biggs; and (iii) if by Flagstar other than for
"cause," Mr. Biggs is entitled to be paid immediately upon such termination a
lump sum amount equal to his base salary and bonuses and his other benefits for
the remaining term of the agreement.
Prior to the March 31, 1994 termination of his employment, Mr. Hurwitt was
party to an employment agreement having terms and conditions providing his base
salary (subject to annual increases in the Company's discretion and certain cost
of living adjustments), a potential annual bonus under the Company's senior
management incentive plan, and termination and restrictive covenant provisions
similar to those for Mr. Biggs. In connection with the termination of Mr.
Hurwitt's employment with the Company, Mr. Hurwitt received an amount equal to
one year's base salary (consistent with his employment agreement) and an
additional severance benefit (consistent with the Company's severance policy).
See the Summary Compensation Table above.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Raether, Robbins and Tokarz served on the Company's Compensation
and Stock Option Committee during 1993. Mr. Smart served on the former
Compensation Committee until September 1993. Mr. Smart formerly served as an
officer of Flagstar. He is currently counsel to Hughes, Hubbard & Reed, a law
firm which performed services for the Company in 1993. Messrs. Tokarz and
Robbins serve as officers of certain subsidiaries of the Company. Messrs.
Raether and Tokarz are general partners and Mr. Robbins is an executive of KKR.
In 1993, KKR received an annual financial advisory fee of $1,250,000.
Pursuant to the Purchase Agreement, Associates has agreed that it will not,
directly or indirectly, sell, assign, pledge, hypothecate or otherwise transfer
any of the shares of Common Stock acquired under the Purchase Agreement or the
Common Stock issuable upon exercise of the Warrants (as defined herein) prior to
December 31, 1994 (or such later date as is specified in the Purchase Agreement)
except (i) in connection with a sale of or acceptance of an offer to purchase
90% or more of the outstanding shares of Common Stock, (ii) in connection with a
merger or other similar extraordinary corporate transaction which results in a
change of control of FCI and involves an entity which immediately prior thereto
is not an affiliate of TW Associates or KKR Partners II, any partner thereof or
FCI, or (iii) to certain affiliates of Associates or any partner thereof.
The Purchase Agreement further provides that, until November 16, 1995, FCI
shall maintain in full force and effect its existing directors' and officers'
liability insurance policy with respect to events occurring prior to November
16, 1992 (or, if such insurance is not available at a reasonable cost, as much
such insurance as is available to it at a reasonable cost). FCI and its
subsidiaries will maintain in effect the provisions in their respective charters
and bylaws which provide for indemnification of FCI's and its subsidiaries'
officers and directors with respect to events occurring prior to November 16,
1992. Associates also agreed not to engage in a Rule 13e-3 Transaction (as
defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended)
prior to March 31, 1995 without the approval of a majority of the disinterested
directors of FCI and a fairness opinion from an investment banking firm selected
by such directors.
Pursuant to the Purchase Agreement, FCI has agreed to indemnify and hold
harmless Associates and its affiliates, directors, officers, advisors, agents
and employees to the fullest extent lawful, from and against any and all losses,
damages, claims, liabilities and actions arising out of or in connection with
the Recapitalization and all expenses of investigating, preparing or defending
any such claim or action (including reasonable legal fees and expenses);
PROVIDED, however, that nothing contained in such indemnification provision is
to be construed as a guarantee by FCI with respect to the value of the shares of
Common Stock acquired under the Purchase Agreement or indemnification of
Associates against any diminution in value thereof which may occur; and
PROVIDED, FURTHER, that no indemnified party will be entitled to indemnification
by FCI with respect to any of the foregoing arising solely from the bad faith or
gross negligence (as finally determined by a court of competent jurisdiction) of
such indemnified party or any of the affiliates, directors, officers, agents or
employees of such indemnified party.
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<PAGE>
See Item 12. Security Ownership of Certain Beneficial Owners and Management
for additional information concerning other agreements among Associates,
Gollust, Tierney & Oliver ("GTO"), DLJ Capital Corporation ("DLJ Capital"), Mr.
Richardson and FCI.
COMPENSATION OF DIRECTORS
Directors of the Company other than Mr. Richardson are entitled to an
annual retainer of $40,000. Directors are also reimbursed for expenses incurred
in attending meetings of the Board of Directors and its committees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1994, the beneficial
ownership of the Common Stock by each stockholder known by the Company to own
more than 5% of the outstanding shares, by each director of FCI, by each officer
of the Company included in the Summary Compensation Table in Item 11. Executive
Compensation above, and by all directors and executive officers of FCI and
Flagstar as a group. Except as otherwise noted, the persons named in the table
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them. The number of shares and options indicated herein
(including shares issuable upon the exercise of stock options), as well as
corresponding option exercise and market prices, have been adjusted to give
effect to the five-for-one reverse stock split of the Common Stock effected by
FCI as of June 16, 1993.
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND NATURE OF OF COMMON
BENEFICIAL OWNER BENEFICIAL OWNERSHIP STOCK
<S> <C> <C>
KKR Associates
(and related entities)
9 West 57th Street
New York, NY 10019 (1)........................................................... 19,999,999(2) 47.20%
Gollust, Tierney and Oliver
(and related entities)
500 Park Avenue
New York, NY 10022 (3)........................................................... 11,251,052 26.55%
DLJ Capital Corporation
(and related entities)
140 Broadway
New York, NY 10005............................................................... 3,041,562 7.18%
Michael Chu........................................................................ -- --
Vera King Farris................................................................... 100 *
Hamilton E. James.................................................................. 34,187(4) *
Henry R. Kravis (1)................................................................ -- --
Augustus K. Oliver (3)............................................................. -- --
Paul E. Raether (1)................................................................ -- --
Jerome J. Richardson............................................................... 938,164(5)(6) 2.21%
Clifton S. Robbins................................................................. -- --
George R. Roberts (1).............................................................. -- --
L. Edwin Smart..................................................................... 12,066(4)(7) *
Michael T. Tokarz (1).............................................................. -- --
A. Ray Biggs....................................................................... -- --
David F. Hurwitt................................................................... 60 *
Samuel H. Maw...................................................................... 22,092(5) *
H. Stephen McManus................................................................. 17,661(5) *
Alan R. Plassche................................................................... -- --
All directors and executive officers as a group (29 persons)....................... 1,059,908(5)(8) 2.50%
</TABLE>
* Less than one percent.
30
<PAGE>
(1) Shares shown as owned by KKR Associates are owned of record by TW Associates
(19,913,333 shares) and KKR Partners II (86,666 shares). KKR Associates is
the sole general partner and possesses sole voting and investment power as
to each of TW Associates and KKR Partners II. Messrs. Kravis, Raether,
Roberts and Tokarz (directors of FCI and Flagstar) and Messrs. Robert J.
MacDonnell, Michael W. Michelson and Saul A. Fox, as the general partners of
KKR Associates, may be deemed to share beneficial ownership of the shares
shown as beneficially owned by KKR Associates. Such persons disclaim
beneficial ownership of such shares.
(2) Excludes 15,000,000 shares of Common Stock underlying warrants (the
"Warrants"), which become exercisable in 1995, acquired by TW Associates
(14,935,000 shares) and KKR Partners II (65,000 shares) under the Purchase
Agreement. The Warrants were issued pursuant to the Warrant Agreement dated
November 16, 1992 by and between FCI and Associates (the "Warrant
Agreement"). Each Warrant entitles the holder thereof to purchase one fully
paid and nonassessable share of Common Stock at an initial exercise price
(the "Exercise Price") of $17.50, subject to adjustment from time to time
upon the occurrence of certain events. Any or all of the Warrants may be
exercised at any time after December 31, 1994 (or the date to which such
date may be extended in accordance with certain provisions of the
Stockholders' Agreement (as defined herein) or March 31, 1995 if GTO has
complied with its obligations thereunder to sell specified amounts of its
Common Stock) (the "Warrant Effectiveness Date") and until November 16,
2000. Notwithstanding the foregoing, in the event (a) a sale of or
acceptance of an offer to purchase 90% or more of the outstanding shares of
Common Stock, or (b) a merger or other similar extraordinary corporate
transaction involving an entity which immediately prior thereto is not an
affiliate of Associates or any partner thereof or of FCI which modifies the
outstanding Common Stock and which results in a change of control of FCI
occurs on or prior to the Warrant Effectiveness Date, each Warrant will
become exercisable immediately prior to such sale or acceptance or
consummation of such transaction.
(3) The Saurer Group Investments Ltd., North Atlantic Continental Capital Ltd.
and The Common Fund (who are parties to certain investment management
arrangements with GTO) own, respectively, 403,014, 301,358 and 1,872,540 of
the shares listed. GTO disclaims beneficial ownership of such shares. GTO
and related entities own the balance of the shares listed. Mr. Oliver is a
general partner of GTO and as such may be deemed to share beneficial
ownership of the shares owned by GTO. Mr. Oliver disclaims beneficial
ownership of such shares.
(4) Excludes shares underlying options that are not currently exercisable, but
includes 7,500 shares that each of Messrs. James and Smart has a right to
acquire upon the exercise of currently exercisable options granted by the
Company in 1990. Mr. James also has a limited investment in GTO or related
entities, or both. Shares listed for Mr. James exclude shares held by DLJ
Capital.
(5) Includes shares held by the trustee of the Thrift Plan as of January 31,
1994 for the individual accounts of employee participants. Under the Thrift
Plan, shares attributable to participating employees' contributions and
Company contributions are voted by the trustee in accordance with the
employees' instructions, while shares as to which no instructions are
received are voted by the trustee in its discretion. Of shares held in the
Thrift Plan for the accounts of directors and executive officers of FCI and
Flagstar, approximately 3,364, 222 and 1,596 are credited to the accounts of
Messrs. Richardson, Maw and McManus, respectively, and 6,808 are credited to
the accounts of all directors and executive officers as a group.
(6) Includes 120,000 shares that Mr. Richardson has the right to acquire upon
the exercise of currently exercisable options under the 1989 Option Plan.
(7) Includes 4,166 shares that Mr. Smart has the right to acquire upon
conversion of the 10% Debentures.
(8) Excludes shares owned by KKR Associates through TW Associates and KKR
Partners II, as set forth above. Messrs. Kravis, Raether, Roberts and Tokarz
are general partners of KKR Associates, the sole general partner of TW
Associates and KKR Partners II. They also are directors of FCI and Flagstar.
Each of Messrs. Kravis, Raether, Roberts and Tokarz disclaims beneficial
ownership of those shares listed above as owned by KKR Associates. Also
excludes shares held by GTO and related entities, as set forth above. Mr.
Oliver is a general partner of GTO and also is a director of FCI and
Flagstar. Mr. Oliver disclaims beneficial ownership of those shares listed
above as owned by GTO and related entities.
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<PAGE>
THE STOCKHOLDERS' AGREEMENT. Concurrently with the execution of the
Purchase Agreement, GTO and certain of its affiliates (collectively, the "GTO
Group"), DLJ Capital, Mr. Richardson, TW Associates (the "Stockholder Parties")
and FCI entered into an agreement (the "Stockholders' Agreement") pursuant to
which the Stockholder Parties have agreed not to transfer or sell shares of
Common Stock held by them prior to December 31, 1994 (or, in certain
circumstances, March 31, 1995), except in connection with the sale of 90% or
more of the outstanding Common Stock and except for transfers in connection with
extraordinary corporate transactions, transfers in certain cases to certain
affiliates of GTO or Associates and sales to the public by GTO commencing on or
after June 30, 1993. The GTO Group has agreed not to purchase any additional
Common Stock.
Pursuant to the Stockholders' Agreement, each of the Stockholder Parties
has agreed to nominate and vote all shares of Common Stock owned by it to elect
as directors (a) six persons designated by Associates, (b) Mr. Richardson (for
so long as Mr. Richardson remains Chief Executive Officer of FCI), (c) one
representative designated by each of the GTO Group and DLJ Capital (for so long
as the GTO Group and DLJ Capital, respectively, continue to own at least 2% of
the outstanding shares of Common Stock on a fully-diluted basis) and (d) two
independent directors. The Stockholder Parties have further agreed to increase
by two the number of directors constituting the entire Board of Directors of FCI
and to nominate (if requested) and vote to elect as directors two additional
persons to be designated by Associates if at any time the holders of the
Preferred Stock, voting together as a class with all other classes or series of
preferred stock ranking junior to or on a parity with the Preferred Stock, are
entitled to elect two additional directors; PROVIDED that the two Associates'
designees so elected shall resign and the size of the FCI Board of Directors
shall be reduced accordingly at such time as the directors elected by preferred
stockholders shall resign or their term shall end.
Under the Stockholders' Agreement, the GTO Group is granted the right to
make two written requests to FCI for registration of shares of Common Stock
owned by the GTO Group under the Securities Act of 1933, as amended (the
"Securities Act"), exercisable on or after June 30, 1993, and is obligated, if
the trading price of the Common Stock exceeds $20.00 per share for fifteen
consecutive trading days and a registration statement of FCI under the
Securities Act is effective for specified periods, to dispose of up to 50% of
its shares of Common Stock prior to September 30, 1994. FCI may, but is not
obligated to, file and maintain an effective shelf registration (the "Shelf
Registration") with respect to the shares of Common Stock to be disposed of by
the GTO Group. At any time after December 31, 1994 (or, in certain
circumstances, March 31, 1995), (i) DLJ Capital may make two written requests to
FCI for registration under the Securities Act of all or any part of the shares
of Common Stock owned by DLJ Capital, and (ii) the holders of a majority of all
shares of Common Stock and Warrants issued to Associates and all shares of
Common Stock issued or issuable to Associates upon exercise of any Warrant (the
"Associates Registrable Securities") may make five written requests to FCI for
registration of all or part of such securities under the Securities Act. In
addition, the GTO Group, DLJ Capital and Associates have customary "piggyback"
registration rights to include their securities, subject to certain limitations,
in any other registration statement filed by FCI (other than the Shelf
Registration and certain demand registrations by the GTO Group), pursuant to any
of the foregoing requests or otherwise under the Securities Act. If Associates
exercises its demand or "piggyback" registration rights and Mr. Richardson is
then employed by the Company, then Mr. Richardson has the right to have included
in any registration statement relating to the exercise of such rights by
Associates the same percentage of his Common Stock as the fully-diluted
percentage of Associates Registrable Securities registered thereunder. If at any
time Mr. Richardson shall have the right to participate in a "piggyback"
registration and Mr. Richardson elects not to exercise such "piggyback"
registration right, he may make one written request to FCI for registration
under the Securities Act of up to the number of shares of Common Stock that he
had the right to include, but did not so include, in such one or more
registrations pursuant to his "piggyback" registration rights. The Company has
agreed to pay all expenses in connection with the performance of its obligations
to effect demand or "piggyback" registrations under the Securities Act of
securities covered by the registration rights of the Stockholder Parties, and to
indemnify and hold harmless, to the full extent permitted by law, each holder of
such securities against liability under the securities laws.
The Stockholders' Agreement will terminate upon the sale of all shares of
Common Stock now owned or hereafter acquired by the GTO Group, DLJ Capital, Mr.
Richardson or Associates; PROVIDED that, (i) at such time as the GTO Group or
DLJ Capital shall own less than 2% of the outstanding Common Stock on a
fully-diluted basis, the GTO Group or DLJ Capital, as the case may be, shall be
released from its respective obligations and forfeit its respective rights under
the Stockholders' Agreement, and (ii) at such time after December 31, 1994, or
the date to which such date may be extended in accordance with the provisions of
the Stockholders' Agreement, as GTO or a related entity shall cease to have
investment advisory authority over the shares of Common Stock now owned or
hereafter acquired by certain affiliates of GTO, and the GTO Group shall have
complied with the provisions of the Stockholders' Agreement requiring it to
dispose
32
<PAGE>
of certain of its shares of Common Stock under certain circumstances, each such
affiliate will be released from its respective obligations and forfeit its
respective rights under the Stockholders' Agreement.
In any event, the provisions of the Stockholders' Agreement with respect to
voting arrangements and restrictions will terminate no later than ten years from
the date of the Stockholders' Agreement, subject to extension in accordance with
applicable law by the agreement of the remaining parties to the Stockholders'
Agreement.
RICHARDSON SHAREHOLDER AGREEMENT. Shares of Common Stock currently owned by
Mr. Richardson ("Owned Stock") and shares that he would acquire upon exercise of
any stock options granted to him by the Company under the 1989 Option Plan
("Option Stock") are subject to various rights and restrictions contained in a
shareholder agreement (the "Richardson Shareholder Agreement") executed by Mr.
Richardson and FCI concurrently with the execution of the Purchase Agreement.
In general, the Richardson Shareholder Agreement provides that, (i) subject
to Mr. Richardson's registration rights under the Stockholders' Agreement, Mr.
Richardson may not sell or transfer the Owned Stock or Option Stock until after
November 16, 1997, unless Mr. Richardson's employment terminates by reason of
death or permanent disability, or is terminated by Flagstar without "cause" and
FCI elects to require payment of the balance of the principal and accrued
interest on the Richardson Loan (as defined herein) (in which case he may
transfer the Owned Stock), (ii) before November 16, 1997, with respect to any
Owned Stock permitted to be transferred pursuant to clause (i) above, and after
November 16, 1997 with respect to the Option Stock, Mr. Richardson may not
transfer any such Owned Stock or Option Stock without first offering to sell it
to FCI at the price offered by a third party, (iii) upon Mr. Richardson's death
or permanent disability while he is employed by Flagstar or following his
retirement after November 16, 1997, Mr. Richardson and his estate each have a
one-time right, exercisable within six months after death or permanent
disability, to elect to require FCI, except under certain circumstances, to
purchase all or part of Mr. Richardson's Option Stock at its market value and to
cash out the value of his exercisable options based on the excess of such value
over the exercise price, and FCI may elect to require Mr. Richardson and his
estate to sell such stock and cash out such options at such prices, (iv) if Mr.
Richardson's employment is terminated by him voluntarily or by Flagstar with
"cause," then FCI may repurchase 20% (if he voluntarily terminates his
employment between July 26, 1993 and July 26, 1994) or all (if his employment is
terminated for "cause" prior to July 26, 1994), as the case may be, of the Owned
Stock at $20.00 per share and (v) if Mr. Richardson's employment is terminated
for any reason other than his death or permanent disability or his retirement on
or after November 16, 1997, FCI may repurchase all but not less than all of Mr.
Richardson's Option Stock at the lesser of (i) its market value or (ii) the sum
of the exercise price of the options pursuant to which such stock was acquired,
plus a multiple of 20% of any excess of such market value over such exercise
price for each year of his employment after November 16, 1992, and, in the event
of an exercise by FCI of any option to repurchase (described above), FCI shall
cash out his exercisable options at a price equal to the excess of the
applicable repurchase price over the option exercise price; PROVIDED that, if
Mr. Richardson's employment is terminated as a result of a termination without
cause pursuant to the Employment Agreement (as defined herein), the
exercisability of Mr. Richardson's option with respect to 160,000 shares of
Common Stock will be determined on the basis of the vesting schedule applicable
to options granted to Mr. Richardson and in effect prior to December 15, 1992,
and the market value of the shares for the purpose of cashing out the value of
his exercisable options is to be reduced on a per share basis by the difference
between $20.00 and the exercise price of his current options.
The Richardson Shareholder Agreement provides that all shares of Owned
Stock and Option Stock shall be deemed to be "Registrable Securities" under the
Stockholders' Agreement and shall be entitled to registration rights as set
forth herein. For additional information, see Item 11. Executive
Compensation -- Employment Agreements -- Richardson Employment Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Pursuant to the Employment Agreement, the Company advanced funds to Mr.
Richardson during 1992 to refinance approximately $13.9 million of his
outstanding bank indebtedness. Interest and principal on the Richardson Loan is
payable, subject to acceleration upon Mr. Richardson's earlier termination of
employment for any reason, on November 16, 1997, and interest thereon accrues at
the rate prescribed for five-year term loans under Section 7872 of the Code
(5.6% per annum) as of the date the loan by the Company was made. The Richardson
Loan is secured by 812,000 shares of Common Stock and certain other collateral
as is required to comply with margin regulations. See Item 11. Executive
Compensation -- Employment Agreements -- Richardson Employment Agreement.
33
<PAGE>
GTO received fees of $250,000 in 1993 for certain financial advisory
services. Under an existing agreement, GTO will be entitled to an additional
$250,000 for such services in 1994.
DLJ served as an underwriter in connection with the Company's issuance of
certain indebtedness in 1993 in consideration for an underwriting discount of
$4,059,000.
In connection with his employment with the Company, Mr. Buckley, the Chief
Operating Officer of Quincy's, received a non-interest bearing home equity
advance from the Company in the amount of $113,000. Such advance was repaid in
full by Mr. Buckley in 1994.
For information concerning certain transactions in which KKR (and their
affiliates) have an interest, see Item 11. Executive
Compensation -- Compensation and Stock Option Committee Interlocks and Insider
Participation.
DESCRIPTION OF INDEBTEDNESS
The following summary of the principal terms of the indebtedness of the
Company does not purport to be complete and is qualified in its entirety by
reference to the documents governing such indebtedness, including the
definitions of certain terms therein, copies of which have been filed as
exhibits to this Annual Report. Whenever particular provisions of such documents
are referred to herein, such provisions are incorporated herein by reference,
and the statements are qualified in their entirety by such reference.
THE RESTATED CREDIT AGREEMENT
In connection with the Recapitalization, Flagstar entered into the Restated
Credit Agreement, pursuant to which senior debt facilities were established
consisting (after certain adjustments and prepayments subsequent to the closing
of the Recapitalization) of (i) a $171.3 million senior term loan (the "Term
Facility"), and (ii) a $350 million senior revolving credit facility (the
"Revolving Credit Facility" and, together with the Term Facility, the "Bank
Facilities"), with sublimits for working capital advances and standby letters of
credit, and a swing line facility of up to $30 million. The proceeds of the Term
Facility were used principally to refinance comparable facilities under a prior
credit agreement and the balance was used to finance the redemption of certain
debt securities pursuant to the Recapitalization and to pay certain transaction
costs. Proceeds of the Revolving Credit Facility may be used solely to provide
working capital to the Company.
The Restated Credit Agreement provides generally that Flagstar must repay
the Term Facility over six years in increasing quarterly installments (subject
to the effects of a reallocation of a portion of a 1993 prepayment that would
otherwise have been applied to scheduled principal installments that mature
after December 31, 1996 to installments due on or prior to such date) and that
the working capital advances under the Revolving Credit Facility must be paid
down to a maximum amount (ranging from $100 million in 1993 to $50 million in
1998) and not reborrowed for at least 30 consecutive days during any
thirteen-month period but at least once during each fiscal year. Under the
Restated Credit Agreement, Flagstar is required to prepay advances outstanding
under the Term Facility (or, if no advances are outstanding thereunder, to
permanently reduce the Revolving Credit Facility) with the aggregate amount of
Net Cash Proceeds (as defined therein) received from (i) the sale, lease,
transfer or other disposition of assets of the Company (other than dispositions
of assets permitted by the terms of the Restated Credit Agreement and other
dispositions of assets not exceeding $5,000,000 in any fiscal year or $1,000,000
in any transaction or series of related transactions) and (ii) the sale or
issuance by FCI or any of its subsidiaries of any Debt (as defined therein)
(other than Debt permitted by the terms of the Restated Credit Agreement and to
the extent the Net Cash Proceeds are applied to refinance certain existing
Subordinated Debt).
The Restated Credit Agreement contains covenants customarily found in
credit agreements for leveraged financings that restrict, among other things,
(i) liens and security interests other than liens securing the obligations under
the Restated Credit Agreement, certain liens existing as of the date of
effectiveness of the Restated Credit Agreement, certain liens in connection with
the financing of capital expenditures, certain liens arising in the ordinary
course of business, including certain liens in connection with intercompany
transactions and certain other exceptions; (ii) the incurrence of Debt, other
than Debt in respect of the Recapitalization, Debt under the Loan Documents (as
defined therein), the 10 3/4% Notes, the 11 3/8% Debentures, certain capital
lease obligations, certain Debt in existence on the date of the Restated Credit
Agreement, certain Debt in connection with the financing of capital
expenditures, certain Debt in connection with Investments (as defined therein)
in new operations, properties and franchises, certain trade letters of credit,
certain unsecured borrowings in the ordinary course of business, certain
intercompany indebtedness and certain other
34
<PAGE>
exceptions; (iii) lease obligations, other than obligations in existence as of
the effectiveness of the Restated Credit Agreement, certain leases entered into
in the ordinary course of business, certain capital leases, certain intercompany
leases and certain other exceptions; (iv) mergers or consolidations, except for
certain intercompany mergers or consolidations and certain mergers to effect
certain transactions otherwise permitted under the Restated Credit Agreement;
(v) sales of assets, other than certain dispositions of inventory and obsolete
or surplus equipment in the ordinary course of business, certain dispositions in
the ordinary course of business of properties no longer used or useful to the
business of the Company, certain intercompany transactions, certain dispositions
in connection with sale and leaseback transactions and certain exchanges of real
property, fixtures and improvements for other real property, fixtures and
improvements; (vi) investments, other than certain intercompany indebtedness,
certain investments made in connection with joint venture or franchise
arrangements, certain loans to employees, investments in new operations,
properties or franchises subject to certain limitations and certain other
exceptions; (vii) payment of dividends or other distributions with respect to
capital stock of Flagstar, other than dividends from Flagstar to FCI to enable
FCI to repurchase Common Stock and FCI stock options from employees in certain
circumstances, payments to FCI with respect to fees and expenses incurred in the
ordinary course of business by FCI in its capacity as a holding company for
Flagstar, payments under a tax sharing agreement among FCI, Flagstar and its
subsidiaries and certain other exceptions; (viii) sales or dispositions of the
capital stock of subsidiaries other than sales by certain subsidiaries of
Flagstar to Flagstar or certain other subsidiaries and certain other exceptions;
(ix) the conduct by Flagstar or certain of its subsidiaries of business
inconsistent with its status as a holding company or single purpose subsidiary,
as the case may be, or entering into transactions inconsistent with such status;
and (x) the prepayment of Debt, other than certain payments of Debt in existence
on the date of the Restated Credit Agreement, certain payments to retire Debt in
connection with permitted dispositions of assets, certain prepayments of
advances under the Restated Credit Agreement and certain other exceptions.
The Restated Credit Agreement also contains covenants that require Flagstar
and its subsidiaries on a consolidated basis to meet certain financial ratios
and tests described below:
TOTAL DEBT TO EBITDA RATIO. Flagstar and its subsidiaries on a consolidated
basis are required not to permit the ratio of (a) Adjusted Total Debt (as
defined below) outstanding on the last day of any fiscal quarter to (b) EBITDA
(as defined below) for the Rolling Period (as defined below) ending on such day
to be more than a specified ratio, ranging from a ratio of 5.70:1.00 applicable
upon the effectiveness of the Restated Credit Agreement to a ratio of 4.30:1.00
applicable on or after December 31, 1997.
SENIOR DEBT TO EBITDA RATIO. Flagstar and its subsidiaries on a
consolidated basis are required not to permit the ratio of (a) Adjusted Senior
Debt (as defined below) outstanding on the last day of any fiscal quarter to (b)
EBITDA for the Rolling Period ending on such day to be more than a specified
ratio, ranging from a ratio of 3.50:1.00 applicable upon the effectiveness of
the Restated Credit Agreement to a ratio of 2.75:1.00 on or after December 31,
1996.
INTEREST COVERAGE RATIO. Flagstar and its subsidiaries on a consolidated
basis are required not to permit the ratio, determined on the last day of each
fiscal quarter for the Rolling Period then ended, of (a) EBITDA less Cash
Capital Expenditures (as defined below) to (b) Adjusted Cash Interest Expense to
be less than a specified ratio, ranging from a ratio of 1.20:1.00 applicable
upon the effectiveness of the Restated Credit Agreement to a ratio of 1.60:1.00
on or after December 31, 1997.
CAPITAL EXPENDITURES TEST. Flagstar and its subsidiaries are prohibited
from making capital expenditures in excess of $195,000,000, $210,000,000 and
$250,000,000 in the aggregate for the fiscal years ending in December 1992
through 1994, respectively, and $275,000,000 in the aggregate for each of the
fiscal years 1995 through 1998.
"Adjusted Cash Interest Expense" is defined in the Restated Credit
Agreement to mean, for any Rolling Period (as defined below), Cash Interest
Expense (as defined below) for such Rolling Period.
"Adjusted Senior Debt" is defined in the Restated Credit Agreement to mean
Senior Debt (as defined therein) outstanding on the last day of any fiscal
quarter.
"Adjusted Total Debt" is defined in the Restated Credit Agreement to mean
Total Debt (as defined below) outstanding on the last day of any fiscal quarter.
"Capex Financing" is defined in the Restated Credit Agreement to mean, with
respect to any capital expenditure, the incurrence by certain subsidiaries of
Flagstar of any Debt (including capitalized leases) secured by a mortgage or
other lien on the asset that is the subject of such capital expenditure, to the
extent that the Net Cash Proceeds of such Debt do not exceed the amount of such
capital expenditure.
35
<PAGE>
"Cash Capital Expenditures" is defined in the Restated Credit Agreement to
mean, for any period, without duplication, capital expenditures of the Company
for such period, LESS (without duplication) (i) the Net Cash Proceeds of all
Capex Financings during such period and (ii) the aggregate amount of the
principal component of all obligations of the Company in respect of capitalized
leases entered into during such period.
"Cash Interest Expense" is defined in the Restated Credit Agreement to
mean, for any Rolling Period, without duplication, interest expense net of
interest income, whether paid or accrued during such Rolling Period (including
the interest component of capitalized lease obligations) on all Debt, INCLUDING,
without limitation, (a) interest expense in respect of advances under the
Restated Credit Agreement, the 10 7/8% Notes and the Subordinated Debt (as
defined therein), (b) commissions and other fees and charges payable in
connection with letters of credit, (c) the net payment, if any, payable in
connection with all interest rate protection contracts and (d) interest
capitalized during construction, but EXCLUDING, in each case, interest not
payable in cash (including amortization of discount and deferred debt expenses),
all as determined in accordance with generally accepted accounting principles as
in effect on December 31, 1991.
"EBITDA" of any person is defined in the Restated Credit Agreement to mean,
for any period, on a consolidated basis, net income (or net loss) PLUS the sum
of (a) interest expense net of interest income, (b) income tax expense, (c)
depreciation expense, (d) amortization expense, (e) extraordinary or unusual
losses included in net income (net of taxes to the extent not already deducted
in determining such losses) and (f) in the case of the fiscal quarter ending in
December 1992 only, an amount (not to exceed $18,500,000) equal to the aggregate
amount of fees paid in connection with the Recapitalization that are not
otherwise excluded in determining net income (or net loss), LESS extraordinary
or unusual gains included in net income (net of taxes to the extent not already
deducted in determining such gains), in each case determined in accordance with
generally accepted accounting principles as in effect on December 31, 1991.
"Funded Debt" is defined in the Restated Credit Agreement to mean the
principal amount of Debt in respect of advances under the Bank Facilities and
the principal amount of all Debt that should, in accordance with generally
accepted accounting principles as in effect on December 31, 1991, be recorded as
a liability on a balance sheet and matures more than one year from the date of
creation or matures within one year from such date but is renewable or
extendible, at the option of the debtor, to a date more than one year from such
date or arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year from
such date, including, without limitation, all amounts of Funded Debt required to
be paid or prepaid within one year from the date of determination.
"Rolling Period" is defined in the Restated Credit Agreement to mean, for
any fiscal quarter, such quarter and the three preceding fiscal quarters.
"Total Debt" outstanding on any date is defined in the Restated Credit
Agreement to mean the sum, without duplication, of (a) the aggregate principal
amount of all Debt of Flagstar and its subsidiaries, on a consolidated basis,
outstanding on such date to the extent such Debt constitutes indebtedness for
borrowed money, obligations evidenced by notes, bonds, debentures or other
similar instruments, obligations created or arising under any conditional sale
or other title retention agreement with respect to property acquired or
obligations as lessee under leases that have been or should be, in accordance
with generally accepted accounting principles, recorded as capital leases, (b)
the aggregate principal amount of all Debt of Flagstar and its subsidiaries, on
a consolidated basis, outstanding on such date constituting direct or indirect
guarantees of certain Debt of others and (c) the aggregate principal amount of
all Funded Debt of Flagstar and its subsidiaries on a consolidated basis
consisting of obligations, contingent or otherwise, under acceptance, letter of
credit or similar facilities; PROVIDED that advances under the Revolving Credit
Facility shall be included in Total Debt only to the extent of the average
outstanding principal amount thereof outstanding during the 12-month period
ending on the date of determination.
Under the Restated Credit Agreement, an event of default will occur if,
among other things, (i) any person or group of two or more persons acting in
concert (other than KKR, GTO and their respective affiliates) acquires, directly
or indirectly, beneficial ownership of securities of FCI representing, in the
aggregate, more of the votes entitled to be cast by all voting stock of FCI than
the votes entitled to be cast by all voting stock of FCI beneficially owned,
directly or indirectly, by KKR and its affiliates, (ii) any person or group of
two or more persons acting in concert (other than KKR and its affiliates)
acquires by contract or otherwise, or enters into a contract or arrangement that
results in its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of Flagstar
or FCI or (iii) Flagstar shall cease at any time to be a wholly-owned subsidiary
of FCI. If such an event of default were to occur, the lenders under the Related
Credit Agreement would be entitled to exercise a number of remedies, including
acceleration of all amounts owed under the Restated Credit Agreement.
36
<PAGE>
PUBLIC DEBT
As part of the Recapitalization, Flagstar consummated on November 16, 1992
the sale of $300 million aggregate principal amount of 10 7/8% Senior Notes Due
2002 (the "10 7/8% Notes") and issued pursuant to an exchange offer for
previously outstanding debt issues $722.4 million principal amount of 11.25%
Senior Subordinated Debentures Due 2004 (the "11.25% Debentures"). On September
23, 1993, Flagstar consummated the sale of $275 million aggregate principal
amount of the 10 3/4% Notes and $125 million aggregate principal amount of the
11 3/8% Debentures. The 10 7/8% Notes and the 10 3/4% Notes are general
unsecured obligations of Flagstar and rank PARI PASSU in right of payment with
Flagstar's obligations under the Restated Credit Agreement. The 11.25%
Debentures are general unsecured obligations of Flagstar and are subordinate in
right of payment to the obligations of Flagstar under the Restated Credit
Agreement, the 10 7/8% Notes and the 10 3/4% Notes. The 11.25% Debentures rank
PARI PASSU in right of payment with the 11 3/8% Debentures. All such debt is
senior in right of payment to the 10% Debentures.
THE SENIOR NOTES. Interest on the 10 7/8% Notes is payable semi-annually in
arrears on each June 1 and December 1. They will mature on December 1, 2002. The
10 7/8% Notes will be redeemable, in whole or in part, at the option of
Flagstar, at any time on or after December 1, 1997, initially at a redemption
price equal to 105.4375% of the principal amount thereof to and including
November 30, 1998, at a decreased price thereafter to and including November 30,
1999 and thereafter at 100% of the principal amount thereof, together in each
case with accrued interest.
Interest on the 10 3/4% Notes is payable semi-annually in arrears on each
March 15 and September 15. They will mature on September 15, 2001. The 10 3/4%
Notes may not be redeemed prior to maturity, except that prior to September 15,
1996, the Company may redeem up to 35% of the original aggregate principal
amount of the 10 3/4% Notes, at 110% of their principal amount, plus accrued
interest, with that portion, if any, of the net proceeds of any public offering
for cash of the Common Stock that is used by FCI to acquire from the Company
shares of common stock of the Company.
THE SENIOR SUBORDINATED DEBENTURES. Interest on the 11.25% Debentures is
payable semi-annually in arrears on each May 1 and November 1. They will mature
on November 1, 2004. The 11.25% Debentures will be redeemable, in whole or in
part, at the option of Flagstar, at any time on or after November 1, 1997,
initially at a redemption price equal to 105.625% of the principal amount
thereof to and including October 31, 1998, at decreasing prices thereafter to
and including October 31, 2002 and thereafter at 100% of the principal amount
thereof, together in each case with accrued interest.
Interest on the 11 3/8% Debentures is payable semi-annually in arrears on
each March 15 and September 15. They will mature on September 15, 2003. The
11 3/8% Debentures will be redeemable, in whole or in part, at the option of the
Flagstar, at any time on or after September 15, 1998, initially at a redemption
price equal to 105.688% of the principal amount thereof to and including
September 14, 1999, at 102.844% of the principal amount thereof to and including
September 14, 2000 and thereafter at 100% of the principal amount thereof,
together in each case with accrued interest.
THE 10% DEBENTURES. Interest on the 10% Debentures is payable semi-annually
in arrears on each May 1 and November 1. The 10% Debentures mature on November
1, 2014. Unless previously redeemed, the 10% Debentures are convertible at any
time at the option of the holders thereof by exchange into shares of Common
Stock at a conversion price of $24.00 per share, subject to adjustment. The 10%
Debentures are redeemable, in whole or in part, at the option of the Company
upon payment of a premium. The Company is required to call for redemption on
November 1, 2002 and on November 1 of each year thereafter, through and
including November 1, 2013, $7,000,000 principal amount of the 10% Debentures. A
"Change of Control" having occurred on November 16, 1992, holders of the 10%
Debentures had the right, under the indenture relating thereto, to require the
Company, subject to certain conditions, to repurchase such securities at 101% of
their principal amount together with interest accrued to the date of purchase.
On February 19, 1993, FCI made such an offer to repurchase the $100 million of
10% Debentures then outstanding. As of March 24, 1993 the Company repurchased
$741,000 principal amount of the 10% Debentures validly tendered and accepted
pursuant to such offer.
MORTGAGE FINANCINGS
A subsidiary of Flagstar had issued and outstanding, at December 31, 1993,
$208.5 million in aggregate principal amount of 10 1/4% Guaranteed Secured Bonds
due 2000. Interest is payable semi-annually in arrears on each November 15 and
May 15. As a result of the recent downgrade of Flagstar's outstanding debt
securities, certain payments by the Company which fund such interest
payments are now due and payable on a monthly basis. Principal payments
total $2.9 million annually through 1995; $12.5 million annually through
1999; and $152.7 million in 2000. The bonds are secured
by a financial guaranty insurance policy issued by Financial Security Assurance,
Inc. and by collateral assignment of mortgage loans on 237 Hardee's and 148
Quincy's restaurants.
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<PAGE>
Another subsidiary of Flagstar has outstanding $160 million aggregate
principal amount of 11.03% Notes due 2000. Interest is payable quarterly in
arrears, with the principal maturing in a single installment payable in July
2000. These notes are redeemable, in whole, at the subsidiary's option, upon
payment of a premium. They are secured by a pool of cross-collateralized
mortgages on approximately 240 Denny's restaurant properties.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) -- Financial Statements:
See the Index to Financial Statements and Financial Statement
Schedules which appears on page F-1 hereof.
(2) -- Financial Statement Schedules:
See the Index to Financial Statement Schedules which appears on
page F-26 hereof.
(3) -- Exhibits:
Certain of the exhibits to this Report, indicated by an
asterisk, are hereby incorporated by reference to other
documents on file with the Commission with which they
are physically filed, to be a part hereof as of their
respective dates.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
* 3.1 Restated Certificate of Incorporation of FCI and amendment thereto dated November 16, 1992 (incorporated by
reference to Exhibit 3.1 to FCI's 1992 Form 10-K, File No. 0-18051 (the "1992 Form 10-K")).
<C> <S>
* 3.2 Certificate of Designations for the $2.25 Series A Cumulative Convertible Exchangeable Preferred Stock of FCI
(incorporated by reference to Exhibit 3.2 to the 1992 Form 10-K).
3.3 Certificate of Ownership and Merger of FCI dated June 16, 1993.
3.4 Certificate of Amendment to the Restated Certificate of Incorporation of FCI dated June 16, 1993.
* 3.5 By-Laws of FCI as amended November 12, 1992 (incorporated by reference to Exhibit 3.3 to the 1992 Form 10-K).
* 4.1 Specimen certificate of Common Stock of FCI (incorporated by reference to Exhibit 4.5 to the Registration Statement
on Form S-1 (No. 33-29769) of FCI (the "Form S-1")).
* 4.2 Specimen certificate of $2.25 Series A Cumulative Convertible Exchangeable Preferred Stock of FCI (incorporated by
reference to Exhibit 4.25 to the Registration Statement on Form S-1 (No. 33-47339) of FCI (the "Preferred Stock
S-1")).
* 4.3 Indenture between Flagstar and United States Trust Company of New York, as Trustee, relating to the 10% Debentures
(including the form of security) (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form
S-4 (No. 33-48923) of Flagstar (the "11.25% Debentures S-4")).
* 4.4 Supplemental Indenture, dated as of August 7, 1992, between Flagstar and United States Trust Company of New York,
as Trustee, relating to the 10% Debentures (incorporated by reference to Exhibit 4.9A to the 11.25% Debentures
S-4).
* 4.5 Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing, and Assignment of
Leases and Rents, from Denny's Realty, Inc. to State Street Bank and Trust Company, dated July 12, 1990
(incorporated by reference to Exhibit 4.9 to Post-effective Amendment No. 1 to the Registration Statement on Form
S-1 (No. 33-29769) of FCI (the "Form S-1 Amendment")).
* 4.6 Lease between Denny's Realty, Inc. and Denny's, Inc., dated as of December 29, 1989, as amended and restated as of
July 12, 1990 (incorporated by reference to Exhibit 4.10 to the Form S-1 Amendment).
* 4.7 Indenture dated as of July 12, 1990 between Denny's Realty, Inc. and State Street Bank and Trust Company relating
to certain mortgage notes (incorporated by reference to Exhibit 4.11 to the Form S-1 Amendment).
* 4.8 Mortgage Note in the amount of $10,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.15 to the 11.25% Debentures S-4).
* 4.9 Mortgage Note in the amount of $52,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.16 to the 11.25% Debentures S-4).
* 4.10 Mortgage Note in the amount of $98,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.17 to the 11.25% Debentures S-4).
* 4.11 Indenture between Secured Restaurants Trust and The Citizens and Southern National Bank of South Carolina, dated as
of November 1, 1990, relating to certain Secured Bonds (incorporated by reference to Exhibit 4.18 to the 11.25%
Debentures S-4).
* 4.12 Amended and Restated Trust Agreement between Spartan Holdings, Inc., as Depositor for Secured Restaurants Trust,
and Wilmington Trust Company, dated as of October 15, 1990 (incorporated by reference to Exhibit 3.3 to the
Registration Statement on Form S-11 (No. 33-36345) of Secured Restaurants Trust (the "Form S-11")).
* 4.13 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 7/8% Notes
(incorporated by reference to Exhibit 4.13 to the 1992 Form 10-K).
* 4.14 Supplemental Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 7/8%
Notes (incorporated by reference to Exhibit 4.14 to the 1992 Form 10-K).
* 4.15 Form of 10 7/8% Note (incorporated by reference to Exhibit 4.15 to the 1992 Form 10-K).
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 4.16 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to the 11.25%
Debentures (incorporated by reference to Exhibit 4.16 to the 1992 Form 10-K).
* 4.17 Form of 11.25% Debenture (incorporated by reference to Exhibit 4.17 to the 1992 Form 10-K).
* 4.18 Amended and Restated Credit Agreement, dated as of October 26, 1992, among Flagstar and TWS Funding, Inc., as
borrowers, certain lenders and co-agents named therein, and Citibank, N.A., as managing agent (incorporated by
reference to Exhibit 28.1 to the Current Report on Form 8-K of Flagstar filed as of November 20, 1992 (the "Form
8-K")).
* 4.19 Closing Agreement dated as of November 12, 1992, among Flagstar and TWS Funding Inc., as borrowers, certain lenders
and co-agents named therein, and Citibank, N.A., as managing agent (incorporated by reference to Exhibit 28.2 to
the Form 8-K).
* 4.20 First Amendment to the Amended and Restated Credit Agreement dated as of December 23, 1992 (incorporated by
reference to Exhibit 4.20 to the 1992 Form 10-K).
* 4.21 Second Amendment to the Amended and Restated Credit Agreement dated as of August 5, 1993 (incorporated by reference
to Exhibit 4.23 to the Registration Statement on Form S-2 (No. 33-49843) of Flagstar (the "Form S-2")).
4.22 Third Amendment to the Amended and Restated Credit Agreement dated as of December 15, 1993.
4.23 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 3/4% Notes.
4.24 Form of 10 3/4% Note (included in Exhibit 4.23).
4.25 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to the 11 3/8%
Debentures.
4.26 Form of 11 3/8% Debenture (included in Exhibit 4.25).
*10.1 Flagstar's Executive Incentive Compensation Plan (incorporated by reference to Flagstar's 1986 Form
10-K, Exhibit 10(iii), File No. 1-9364).
*10.2 Warrant Agreement, dated November 16, 1992, among FCI, TW Associates and KKR Partners II (incorporated by reference
to Exhibit 10.41 to the 1992 Form 10-K).
*10.3 Consent Order dated March 26, 1993 between the U.S. Department of Justice, Flagstar and Denny's, Inc. (incorporated
by reference to Exhibit 10.42 to the Form S-2).
*10.4 Fair Share Agreement dated July 1, 1993 between FCI and the NAACP (incorporated by reference to Exhibit 10.43 to
the Form S-2).
*10.5 Amendment No. 2 to Stockholders' Agreement, dated as of April 6, 1993, among FCI, GTO and certain affiliated
partnerships, DLJ Capital, Jerome J. Richardson and Associates (incorporated by reference to Exhibit 10 to
Flagstar's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, File No. 1-9364).
10.6 Employment Agreement between Flagstar and A. Ray Biggs dated February 10, 1992.
*10.7 Form of Agreement providing certain supplemental retirement benefits (incorporated by reference to Exhibit 10.7 to
the 1992 Form 10-K).
*10.8 Form of Supplemental Executive Retirement Plan Trust of Flagstar (incorporated by reference to Exhibit 10.8 to the
1992 Form 10-K).
*10.9 FCI 1989 Non-Qualified Stock Option Plan, as adopted December 1, 1989 and amended November 16, 1992 (incorporated
by reference to Exhibit 10.9 to the 1992 Form 10-K).
*10.10 FCI 1990 Non-Qualified Stock Option Plan, as adopted July 31, 1990 (incorporated by reference to Exhibit 10.9 to
the Form S-1 Amendment).
*10.11 Form of Non-Qualified Stock Option Award Agreement pursuant to FCI 1990 Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10.10 to the Form S-1 Amendment).
*10.12 Form of Mortgage related to Secured Restaurants Trust transaction (incorporated by reference to Exhibit 10.1 to the
Form S-11).
*10.13 Mortgage Note in the amount of $521,993,982, made by Flagstar Enterprises, Inc. in favor of Spartan Holdings, Inc.,
dated as of February 1, 1990, as amended and restated November 15, 1990 (incorporated by reference to Exhibit 10.12
to the 11.25% Debentures S-4).
*10.14 Mortgage Note in the amount of $210,077,402, made by Quincy's Restaurants, Inc. in favor of Spartan Holdings, Inc.,
dated as of February 1, 1990, as amended and restated November 15, 1990 (incorporated by reference to Exhibit 10.13
to the 11.25% Debentures S-4).
*10.15 Loan Agreement between Secured Restaurants Trust and Spardee's Realty, Inc., dated as of November 1, 1990
(incorporated by reference to Exhibit 10.14 to the 11.25% Debentures S-4).
*10.16 Loan Agreement between Secured Restaurants Trust and Quincy's Realty, Inc., dated as of November 1, 1990
(incorporated by reference to Exhibit 10.15 to the 11.25% Debentures S-4).
*10.17 Insurance and Indemnity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.16 to the 11.25% Debentures S-4).
*10.18 Intercreditor Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.17 to the 11.25% Debentures S-4).
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
*10.19 Bank Intercreditor Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.18 to the 11.25% Debentures S-4).
*10.20 Indemnification Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.19 to the 11.25% Debentures S-4).
*10.21 Liquidity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction (incorporated
by reference to Exhibit 10.20 to the 11.25% Debentures S-4).
*10.22 Financial Guaranty Insurance Policy, issued November 15, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.21 to the 11.25% Debentures S-4).
*10.23 Amended and Restated Lease between Quincy's Realty, Inc. and Quincy's Restaurants, Inc., dated as of November 1,
1990 (incorporated by reference to Exhibit 10.22 to the 11.25% Debentures S-4).
*10.24 Amended and Restated Lease between Spardee's Realty, Inc. and Spardee's Restaurants, Inc., dated as of November 1,
1990 (incorporated by reference to Exhibit 10.23 to the 11.25% Debentures S-4).
*10.25 Collateral Assignment Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.24 to the 11.25% Debentures S-4).
*10.26 Form of Assignment of Leases and Rents related to Secured Restaurants Trust transaction (incorporated by reference
to Exhibit 10.12 to the Form S-11).
*10.27 Spartan Guaranty, dated as of November 1, 1990, related to Secured Restaurants Trust transaction (incorporated by
reference to Exhibit 10.26 to the 11.25% Debentures S-4).
*10.28 Form of Hardee's License Agreement related to Secured Restaurants Trust transaction (incorporated by reference to
Exhibit 10.14 to the Form S-11).
*10.29 Stock Pledge Agreement among Flagstar Enterprises, Inc. and Secured Restaurants Trust, dated as of November 1, 1990
(incorporated by reference to Exhibit 10.28 to the 11.25% Debentures S-4).
*10.30 Stock Pledge Agreement among Quincy's Restaurants, Inc. and Secured Restaurants Trust, dated as of November 1, 1990
(incorporated by reference to Exhibit 10.29 to the 11.25% Debentures S-4).
*10.31 Management Agreement, dated as of November 1, 1990, related to the Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.30 to the 11.25% Debentures S-4).
*10.32 Form of Collateral Assignment of Security Documents related to Secured Restaurants Trust transaction (incorporated
by reference to Exhibit 10.17 to the Form S-11).
*10.33 Flagstar Indemnity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.32 to the 11.25% Debentures S-4).
*10.34 Subordinated Promissory Note, dated July 28, 1992, from Flagstar to FCI (incorporated by reference to Exhibit 10.33
to the 11.25% Debentures S-4).
*10.35 Development Agreement between the Company and Hardee's Food Systems, Inc., dated January 1992 (incorporated by
reference to Exhibit 10.33 to the Preferred Stock S-1).
*10.36 Stock and Warrant Purchase Agreement, dated as of August 11, 1992, between FCI and TW Associates (incorporated by
reference to Exhibit 10.38 to the 11.25% Debentures S-4).
*10.37 Stockholders' Agreement, dated as of August 11, 1992, among FCI, GTO (on behalf of itself and certain affiliated
partnerships), DLJ Capital, Jerome J. Richardson and TW Associates (incorporated by reference to Exhibit 10.39 to
the 11.25% Debentures S-4).
*10.38 Technical Amendment to the Stockholders' Agreement dated as of September 30, 1992, among FCI , GTO and certain
affiliated partnerships, DLJ Capital, Jerome J. Richardson and TW Associates (incorporated by reference to Exhibit
10.39A to the 11.25% Debentures S-4).
*10.39 Richardson Shareholder Agreement, dated as of August 11, 1992, between FCI and Jerome J. Richardson (incorporated
by reference to Exhibit 10.40 to the 11.25% Debentures S-4).
*10.40 Employment Agreement, dated as of August 11, 1992, between Flagstar and Jerome J. Richardson (incorporated by
reference to Exhibit 10.41 to the 11.25% Debentures S-4).
10.41 Employment Agreement, dated as of March 16, 1992, between Flagstar and David F. Hurwitt.
11 Computation of Earnings (Loss) Per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
*21 Subsidiaries of Flagstar (incorporated by reference to Exhibit 22 to the Preferred Stock S-1).
23 Consent of Deloitte & Touche.
</TABLE>
* Certain of the exhibits to this Annual Report on Form 10-K, indicated by an
asterisk, are hereby incorporated by reference to other documents on file with
the Commission with which they are physically filed, to be part hereof as of
their respective dates.
(b) FCI filed no reports on Form 8-K during the fourth quarter of 1993.
41
<PAGE>
FLAGSTAR COMPANIES, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report........................................................................................... F-2
Statements of Consolidated Operations for the Three Years Ended December 31, 1991, 1992 and 1993....................... F-3
Consolidated Balance Sheets as of December 31, 1992 and 1993........................................................... F-4
Statements of Consolidated Cash Flows for the Three Years Ended December 31, 1991, 1992 and 1993....................... F-5
Notes to Consolidated Financial Statements............................................................................. F-7
Index to Financial Statement Schedules................................................................................. F-26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
FLAGSTAR COMPANIES, INC.
We have audited the accompanying consolidated balance sheets of Flagstar
Companies, Inc. and subsidiaries (the Company), as of December 31, 1992 and
1993, and the related statements of consolidated operations and consolidated
cash flows for each of the three years in the period ended December 31, 1993.
Our audits also included the financial statement schedules listed in the index
at page F-26. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1992 and 1993 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in Notes 8 and 1 to the consolidated financial statements, the
Company changed its method of accounting for other postretirement benefits,
effective January 1, 1992, to conform with Statement of Financial Accounting
Standards No. 106 and also changed its method of accounting for self-insurance
liabilities, effective January 1, 1993.
DELOITTE & TOUCHE
Greenville, South Carolina
March 25, 1994
F-2
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
Operating revenues............................................................ $ 3,617,934 $3,720,281 $ 3,970,205
Operating expenses:
Product cost................................................................ 1,259,777 1,266,901 1,389,668
Payroll & benefits.......................................................... 1,250,548 1,293,478 1,378,507
Depreciation & amortization expense......................................... 218,132 227,191 247,003
Commissions & royalties..................................................... 123,833 130,903 148,828
Other....................................................................... 541,684 555,384 600,118
Write-off of goodwill and other intangible assets (Note 2).................. -- -- 1,474,831
Provision for restructuring charges (Note 3)................................ -- -- 192,003
3,393,974 3,473,857 5,430,958
Operating income (loss)....................................................... 223,960 246,424 (1,460,753 )
Other charges:
Interest and debt expense (Note 4).......................................... 308,837 303,908 266,167
Other -- net................................................................ 797 874 2,464
309,634 304,782 268,631
Loss before income taxes, extraordinary items, and cumulative effect of
changes in accounting principles............................................ (85,674 ) (58,358) (1,729,384 )
Benefit from income taxes (Note 6)............................................ (18,099 ) (6,583) (81,149 )
Loss before extraordinary items and cumulative effect of changes in accounting
principles.................................................................. (67,575 ) (51,775) (1,648,235 )
Extraordinary items, net of income tax benefits of: 1992 -- $85,053;
1993 -- $196 (Note 12)...................................................... -- (155,401) (26,405 )
Loss before cumulative effect of changes in accounting principles............. (67,575 ) (207,176) (1,674,640 )
Cumulative effect of changes in accounting principles, net of income tax
benefits of: 1992 -- $8,785 (Note 8); 1993 -- $90 (Note 1).................. -- (17,834) (12,010 )
Net loss...................................................................... (67,575 ) (225,010) (1,686,650 )
Dividends on preferred stock.................................................. -- (6,064) (14,175 )
Net loss applicable to common shareholders.................................... $ (67,575 ) $ (231,074) $(1,700,825 )
Loss per share applicable to common shareholders (Note 11):
Loss before extraordinary items and cumulative effect of changes in accounting
principle................................................................... $ (3.04 ) $ (2.32) $ (39.23 )
Extraordinary items, net...................................................... -- (6.25) (.62 )
Loss before cumulative effect of changes in accounting principle.............. (3.04 ) (8.57) (39.85 )
Cumulative effect of changes in accounting principle, net..................... -- (0.72) (.29 )
Net loss...................................................................... $ (3.04 ) $ (9.29) $ (40.14 )
Average outstanding and equivalent common shares.............................. 22,212 24,883 42,370
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FLAGSTAR COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1992 1993
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................................... $ 39,266 $ 45,046
Receivables, less allowance for doubtful accounts of: 1992 -- $9,385;
1993 -- $7,538............................................................................... 71,348 97,811
Merchandise and supply inventories............................................................. 91,041 101,621
Other.......................................................................................... 4,925 6,499
206,580 250,977
Property:
Property owned (at cost) (Note 4):
Land......................................................................................... 273,059 271,986
Buildings and improvements................................................................... 875,026 814,703
Merchandising equipment...................................................................... 213,105 226,323
Other property and equipment................................................................. 466,702 455,749
Total property owned............................................................................. 1,827,892 1,768,761
Less accumulated depreciation.................................................................... 491,316 576,174
Property owned -- net............................................................................ 1,336,576 1,192,587
Buildings and improvements, vehicles, and other equipment held under capital leases (Note 5)..... 149,074 205,564
Less accumulated amortization.................................................................... 42,425 60,469
Property held under capital leases -- net........................................................ 106,649 145,095
1,443,225 1,337,682
Other Assets:
Goodwill, net of accumulated amortization: 1992 -- $123,301 (Note 2)........................... 1,305,284 --
Other intangible assets, net of accumulated amortization: 1992 -- $58,980; 1993 --
$33,868 (Note 2)............................................................................. 267,775 66,882
Deferred financing costs -- net................................................................ 114,543 91,085
Other (including loan receivable from officer of: 1992 -- $14,026; 1993 -- $14,815) (Note
13).......................................................................................... 52,559 50,659
1,740,161 208,626
$3,389,966 $ 1,797,285
LIABILITIES
Current Liabilities:
Short-term borrowings (Note 4)................................................................. $ 39,000 $ --
Current maturities of long-term debt (Note 4).................................................. 71,969 41,668
Accounts payable............................................................................... 116,549 145,370
Accrued salaries and vacations................................................................. 66,857 67,134
Accrued insurance.............................................................................. 77,863 76,557
Accrued taxes.................................................................................. 22,661 30,190
Accrued interest............................................................................... 28,365 41,225
Accrued restructuring cost (Note 3)............................................................ -- 33,527
Other.......................................................................................... 67,368 119,919
490,632 555,590
Long-Term Liabilities:
Debt, less current maturities (Note 4)......................................................... 2,179,496 2,352,178
Deferred income taxes (Note 6)................................................................. 130,935 23,861
Liability for self-insured claims.............................................................. 72,380 84,713
Other non-current liabilities and deferred credits............................................. 227,156 203,492
2,609,967 2,664,244
Commitments and Contingent Liabilities (Note 9)
Shareholders' Equity (Deficit) (Note 10):
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock:
$0.10 par value; 1992 and 1993, 25,000 shares authorized; 6,300 shares issued and
outstanding, $25 per share liquidation preference........................................... 630 630
Common stock:
$0.50 par value; 1992 -- 100,000 shares authorized, 42,370 issued and outstanding; 1993 --
200,000 shares authorized, 42,369 issued and outstanding.................................... 21,185 21,185
Paid-in capital................................................................................ 724,545 724,545
Deficit........................................................................................ (456,993) (2,157,818 )
Minimum pension liability adjustment (Note 7).................................................. -- (11,091 )
289,367 (1,422,549 )
$3,389,966 $ 1,797,285
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................................................... $ (67,575) $ (225,010) $(1,686,650 )
Adjustments to Reconcile Net Loss to Cash Flows from Operating Activities:
Write-off of goodwill and intangible assets.............................. -- -- 1,474,831
Provision for restructuring charges...................................... -- -- 192,003
Depreciation and amortization of property................................ 162,658 170,795 183,105
Amortization of goodwill................................................. 35,775 35,744 36,053
Amortization of other intangible assets.................................. 19,699 20,652 27,845
Amortization of deferred financing costs................................. 13,910 11,998 11,815
Interest accretion on debt............................................... 67,573 68,283 --
Deferred income tax benefit.............................................. (27,036) (20,803) (85,409 )
Other.................................................................... 2,746 130 4,730
Extraordinary items, net................................................. -- 155,401 26,405
Cumulative effect of changes in accounting principle, net................ -- 17,834 12,010
Changes in Assets and Liabilities Net of Effects from
Acquisitions and Restructuring:
Decrease (increase) in assets:
Receivables.............................................................. (2,067) (6,916) (24,605 )
Inventories.............................................................. (6,929) (1,217) (4,802 )
Other current assets..................................................... 4,750 412 (1,555 )
Other assets............................................................. -- (207) (2,468 )
Increase (decrease) in liabilities:
Accounts payable......................................................... (9,113) (9,615) 21,786
Accrued salaries and vacations........................................... (2,511) 10,910 277
Accrued taxes............................................................ 4,219 (10,186) 4,475
Other accrued liabilities................................................ (16,898) (1,987) 5,847
Other noncurrent liabilities and deferred credits........................ 7,669 6,831 (24,718 )
Net cash flows from operating activities...................................... 186,870 223,049 170,975
Cash Flows from Investing Activities:
Purchase of property........................................................ (109,484) (135,525) (133,128 )
Proceeds from dispositions of property...................................... 3,732 11,010 36,454
Proceeds from dispositions of assets held for sale.......................... 5,170 -- --
Purchase of other businesses................................................ -- (15,940) (32,895 )
Loan to officer............................................................. -- (13,922) --
Purchase of other long-term assets.......................................... (2,719) (2,995) (31,602 )
Net cash flows used in investing activities................................... (103,301) (157,372) (161,171 )
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Net working capital advances under credit agreements........................ $ (25,000) $ 4,000 $ 54,000
Long-term debt issued in connection with refinancings....................... -- 872,505 400,778
Other long-term borrowings.................................................. -- -- 22,146
Premiums paid in connection with refinancings............................... -- (150,593 ) --
Deferred financing costs.................................................... (8,870) (92,521 ) (14,916 )
Long-term debt payments..................................................... (55,700) (1,138,750 ) (451,855 )
Cash dividends on preferred stock........................................... -- (2,520 ) (14,175 )
Sale of common stock and warrants........................................... -- 300,000 --
Sale of preferred stock..................................................... -- 157,500 --
Stock issuance costs........................................................ -- (14,039 ) --
Other....................................................................... 6 (85 ) (2 )
Net cash flows used in financing activities................................... (89,564) (64,503 ) (4,024 )
Increase (decrease) in cash and cash equivalents.............................. (5,995) 1,174 5,780
Cash and Cash Equivalents at:
Beginning of period......................................................... 44,087 38,092 39,266
End of period............................................................... $ 38,092 $ 39,266 $ 45,046
Supplemental Cash Flow Information:
Income taxes paid........................................................... $ 12,755 $ 10,229 $ 4,917
Interest paid............................................................... $ 221,254 $ 190,071 $ 220,173
Non-cash financing activities:
Debt issued in exchange for $700,880 of debt tendered in exchange
offers................................................................. $ -- $ 722,411 $ --
Capital lease obligations................................................ $ 19,220 $ 36,200 $ 75,842
Other financings......................................................... $ 1,594 $ 4,841 $ 1,278
Dividends declared but not paid.......................................... $ -- $ 3,544 $ 3,544
Issuance of common stock................................................. $ 5,324 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
Flagstar Companies, Inc. (Company) was incorporated under the laws of the
State of Delaware on September 24, 1988 to effect the acquisition of Flagstar
Corporation (Flagstar). Prior to June 16, 1993 the Company and Flagstar had been
known, respectively, as TW Holdings, Inc. and TW Services, Inc.
The acquisition was accounted for under the purchase method of accounting
as of July 20, 1989. Accordingly, the Company has allocated its total purchase
cost of approximately $1.7 billion to the assets and liabilities of Flagstar
based upon their respective fair values, which were determined by valuations and
other studies. As discussed in Note 2, during 1993 the Company determined that
goodwill and certain intangible assets arising principally from the acquisition
were impaired resulting in a $1.5 billion write-off.
On November 16, 1992, a recapitalization of the Company and Flagstar was
substantially completed which included the issuance of 20 million shares of
common stock and warrants to acquire an additional 15 million shares of common
stock at $17.50 per share to TW Associates, L.P., an affiliate of Kohlberg
Kravis Roberts & Co. (KKR) in exchange for $300 million, the consummation of a
Restated Bank Credit Agreement, the consummation of the offers to exchange the
17% Senior Subordinated Discount Debentures Due 2001 (the 17% Debentures) and
the 15% Subordinated Debentures Due 2001 (the 15% Debentures) for 11.25% Senior
Subordinated Debentures Due 2004, the consummation of the sale of $300 million
aggregate principal amount of Senior Notes, the call for redemption of all 17%
Debentures and all 15% Debentures not acquired pursuant to the Exchange Offers,
and the call for redemption of all of the outstanding 14.75% Senior Notes Due
1998 (the 14.75% Senior Notes).
On December 16, 1992 the 17% Debentures and 15% Debentures that were not
exchanged were called for redemption on November 16, 1992, were redeemed at 110%
of accreted value or principal amount. In addition, the 14.75% Senior Notes were
redeemed including a make-whole premium.
On March 24, 1993 the Company repurchased, pursuant to the change in
control provision of the indenture, $741,000 in principal amount from the
holders of its 10% Convertible Debentures such securities at 101% of their
principal amount plus unpaid accrued interest.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies and methods of their application that significantly
affect the determination of financial position, cash flows and results of
operations are as follows:
(a) CONSOLIDATED FINANCIAL STATEMENTS. The Consolidated Financial
Statements include the accounts of the Company, Flagstar, and all its
subsidiaries. Certain 1992 amounts have been reclassified to conform to
the 1993 presentation.
(b) CASH AND CASH EQUIVALENTS. For purposes of the Statements of
Consolidated Cash Flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less
to be cash equivalents.
(c) INVENTORIES. Merchandise and supply inventories are valued primarily at
the lower of average cost or market.
(d) PROPERTY AND DEPRECIATION. Property and equipment owned are depreciated
principally on the straight-line method over its estimated useful life.
Property held under capital leases (at capitalized value) is amortized
over its estimated useful life, limited generally by the lease period.
The following estimated useful service lives were in effect during all
periods presented in the financial statements:
Merchandising equipment -- Principally five to ten years
Buildings -- Fifteen to forty years
Other equipment -- Two to ten years
Leasehold improvements -- Estimated useful life limited by the lease
period.
F-7
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
(e) GOODWILL AND OTHER INTANGIBLE ASSETS. The excess of cost over the fair
value of net assets of companies acquired had been amortized over a
40-year period on the straight-line method prior to being written-off
at December 31, 1993. Other intangible assets consist primarily of
costs allocated in the acquisition to tradenames, franchise and other
operating agreements. Such assets are being amortized on the
straight-line basis over the useful lives of the franchise or the
contract period of the operating agreements. Certain tradenames,
franchise and other operating agreements were amortized over periods up
to 40 years on the straight-line basis prior to being written-off at
December 31, 1993. The Company assesses the recoverability of goodwill
and other intangible assets by projecting future net income, before the
effect of amortization of goodwill and other intangible assets, over
the remaining amortization period of such assets. The Company's large
debt burden requires approximately 60% of the Company's annual cash
flow for current interest cost, as a result, it is appropriate to
reduce operating income by interest expense to evaluate the
recoverability of goodwill and other intangibles. The results of this
evaluation allow the Company to assess whether the amortization of the
goodwill or other intangible assets balance over its remaining life can
be recovered through expected non-discounted future results. The
projected future results used in the evaluation performed in 1993 are
based on the four year historical trends since the 1989 leveraged buy
out. Management believes that the projected future results are the most
likely scenario assuming historical trends continue. See Note 2 for
further discussion of the write-off of goodwill and other intangible
assets.
(f) DEFERRED FINANCING COSTS. Costs related to the issuance of debt are
deferred and amortized as a component of interest and debt expense over
the terms of the respective debt issues using the interest method.
(g) PREOPENING COSTS. The Company capitalizes certain costs incurred in
conjunction with the opening of restaurants and food services locations
and amortizes such costs over a twelve month period from the date of
opening.
(h) INCOME TAXES. Income taxes are accounted for under the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes."
(i) INSURANCE. The Company is primarily self insured for workers
compensation, general liability, and automobile risks which are
supplemented by stop loss type insurance policies. The liabilities for
estimated incurred losses are discounted to their present value based
on expected loss payment patterns determined by independent actuaries
or experience. During 1993, the Company changed its method of
determining the discount rate applied to insurance liabilities
retroactive to January 1, 1993 pursuant to Staff Accounting Bulletin
(SAB) No. 92 issued by the staff of the Securities and Exchange
Commission in June 1993 concerning the accounting for environmental and
other contingent liabilities. The SAB requires, among other things,
that a risk free rate (approximately 4% at December 31, 1993) be used
to discount such liabilities rather than a rate based on average cost
of borrowing which had been the Company's practice. As a result of this
change, the Company recognized an additional liability, measured as of
January 1, 1993 through a one-time charge of $12,100,000 (net of income
tax benefits of $90,000). The effect of this accounting change on 1993
operating results, in addition to recording the cumulative effect for
years prior to 1993, was to increase insurance expense and decrease
interest expense by approximately $7,000,000 (see Note 15). The total
discounted self-insurance liabilities recorded at December 31, 1992 and
1993 were $120.7 million and $139.5 million, respectively. The related
undiscounted amounts at such dates were $142.8 million and $151.9
million, respectively.
(j) POSTRETIREMENT BENEFITS. In 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions." This new
standard requires that the Company's expected cost of retiree health
benefits be charged to expense during the years of employee service.
Previously, such costs were expensed as paid. See Note 8 for a further
description of the accounting for postretirement benefits other than
pensions.
(k) POSTEMPLOYMENT BENEFITS. During November 1992, the Financial Accounting
Standards Board issued Statement No. 112 "Employers' Accounting for
Postemployment Benefits" which requires that benefits provided to
former
F-8
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
or inactive employees prior to retirement be recognized as an obligation
when earned, subject to certain conditions, rather than when paid. The
Company does not expect Statement No. 112 to have a material impact on
its operations and will implement this statement during the first
quarter of 1994.
NOTE 2 WRITE-OFF OF GOODWILL AND OTHER INTANGIBLE ASSETS
For the year ended December 31, 1993, the Company's consolidated statement
of operations reflects non-cash charges totaling $1,474.8 million, including
$1,267.7 million and $207.1 million for the write-off of goodwill and other
intangible assets, primarily tradenames and franchise agreements, respectively.
Since the acquisition of Flagstar in 1989, the Company has not achieved the
revenue and earnings projections prepared at the time of the acquisition. In
assessing the recoverability of goodwill and other intangible assets in prior
years, the Company developed projections of future operations which indicated
the Company would become profitable within several years and fully recover the
carrying value of the goodwill and other intangible assets.
However, actual results have fallen short of these projections primarily
due to increased competition, intensive pressure on pricing due to discounting,
declining customer traffic, adverse economic conditions, and relatively limited
capital resources to respond to these changes. During the fourth quarter of
1993, management determined that the most likely projections of future operating
results would be based on the assumption that historical operating trends
derived from the last four years would continue rather than projections based on
assumptions that the restructuring plan (described in Note 3) will be
successful. Thus, the Company has determined that the projected financial
results would not support the future amortization of the remaining goodwill
balance and certain other intangible assets at December 31, 1993.
The methodology employed to assess the recoverability of the Company's
goodwill and other intangible assets involved a detail six year projection of
operating results extrapolated forward 30 years, which approximates the maximum
remaining amortization period for such assets as of December 31, 1993. The
Company then evaluated the recoverability of goodwill on the basis of this
projection of future operations. Based on this projection over the next six
years, the Company would have a net loss each year before income taxes and
amortization of goodwill and other intangibles. Extension of these trends to
include the entire 36 year amortization period indicates that there would be
losses each year, unless the restructuring plan or other activities are
successful in reversing the present operating trends; thus, the analysis
indicates that there is insufficient net income to recover the goodwill and
other intangible asset balances at December 31, 1993. Accordingly, the Company
wrote off the goodwill balance and certain other intangible asset balances
including tradename and franchise agreements for its Denny's, Quincy's, and El
Pollo Loco restaurant operations and tradename and location contracts for its
contract food and vending services operations. See Note 14 for a description of
the Company's operations.
The projections generally assumed that historical trends experienced by the
Company over the past four years would continue. The current mix between
company-owned and franchised restaurants was assumed to continue, customer
traffic for Denny's, Quincy's, and El Pollo Loco was assumed to decline at
historical rates, average check amounts for Denny's, Hardee's, Quincy's, and El
Pollo Loco were assumed to increase indefinitely at historical rates due to
inflation and changes in product mix, volume for Canteen was assumed to decline
at historical rates, and pricing for Canteen was assumed to increase at
historical rates, as a result of inflation. Capital expenditures are assumed to
continue at a level necessary to repair and maintain current facilities and
systems. No new unit growth was assumed. Variable costs for food and labor are
assumed to remain at their historical percentage of revenues. Other costs are
assumed to increase at the historical inflation rate consistent with revenue
pricing increases. Through the year 1999, the Company's projections indicate
that interest expense will exceed operating income, which is determined after
deducting annual depreciation expense; however, operating income before
depreciation is adequate to cover interest expense. A continuation of this trend
for the next 30 years does not generate cash to repay the current debt and
management assumes it will be refinanced at constant interest rates.
F-9
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 PROVISION FOR RESTRUCTURING CHARGES
Effective the fourth quarter of 1993, as a result of a comprehensive
financial and operational review initiated in 1993, the Company approved a
restructuring plan. The plan involves the sale or closure of restaurants,
reduction in personnel, a reorganization of certain management structures, and a
decision to fundamentally change the competitive positioning of Denny's, El
Pollo Loco, and Quincy's. The plan resulted in a restructuring charge, which is
comprised of the following:
<TABLE>
<S> <C>
Write-down of assets...................................................................... $156,179
Severance and relocation.................................................................. 24,995
Other..................................................................................... 10,829
Total..................................................................................... $192,003
</TABLE>
The write-down of assets represents predominantly non-cash adjustments made
to reduce to net realizable value approximately 240 of the Company's 1,376
Denny's, Quincy's, and El Pollo Loco restaurants. These 240 restaurants have
been identified for sale to franchisees, conversion to another concept, or
closure. The write-down of assets also includes a charge of $22 million to
establish a reserve for operating leases related to restaurant units which will
be sold to franchisees or closed and offices which will be closed.
Approximately $36 million of the restructuring charges represent
incremental cash charges of which approximately $6.5 million had been incurred
and paid in 1993. The reorganization of the field management structure of the
restaurant group and the contract food services group will result in elimination
of a layer of supervisory management and consolidation of field offices
resulting in related severance and relocation costs. In addition, the Company
will eliminate a number of positions in the corporate marketing, accounting, and
administrative functions.
NOTE 4 DEBT
Short-term borrowings of $39.0 million at December 31, 1992 represent
advances under the working capital facility of the Company's credit agreement
(Restated Credit Agreement). Interest on the advances under the working capital
facility at December 31, 1992 accrued at a weighted average rate of 7.1% per
annum and was based on prime or LIBOR. During 1993, an amendment to the Restated
Credit Agreement was consummated and included a modification to the requirement
that working capital advances under the credit facility be repaid in full and
not reborrowed for at least 30 consecutive days during any 13-month period to
provide that working capital advances under the credit facility be paid down to
a maximum borrowing thereunder of $100 million in 1993 reducing to $50 million
in 1998 for such 30 day period in each year. Accordingly, the $93.0 million
outstanding under the working capital portion of the revolving credit facility
at December 31, 1993, is classified as long-term debt. The Restated Credit
Agreement includes a working capital and letter of credit facility up to a total
of $350.0 million with a working capital sublimit of $200.0 million and a letter
of credit sublimit of $245.0 million. All amounts outstanding under the facility
must be repaid by November 16, 1998. See also discussion below.
F-10
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1993
<S> <C> <C>
(IN THOUSANDS)
Restated Credit Agreement:
Borrowings under working capital facility, interest varies with prime and LIBOR at December 31,
1993 -- 6.5%................................................................................. $ -- $ 93,000
Senior term loan, due in installments through 1998, interest varies with prime and LIBOR at
December 31, 1992 -- 6.4375% and December 31, 1993 -- 5.9375%................................ 572,505 171,295
Notes and Debentures:
10.75% Senior Notes due September 15, 2001, interest payable semi-annually...................... -- 275,000
10.875% Senior Notes due December 1, 2002, interest payable semi-annually....................... 300,000 300,000
11.25% Senior Subordinated Debentures due November 1, 2004, interest payable
semi-annually................................................................................ 722,411 722,411
11.375% Senior Subordinated Debentures due September 15, 2003, interest payable semi-annually... -- 125,000
10% Convertible Junior Subordinated Debentures due 2014 (10% Convertible Debentures), interest
payable semi-annually; convertible into Company common stock any time prior to maturity at
$24.00 per share............................................................................. 100,000 99,259
Mortgage Notes Payable:
10.25% Guaranteed Secured Bonds due 2000........................................................ 211,404 208,508
11.03% Notes due 2000........................................................................... 160,000 160,000
10.51% Note, due December 1, 1993............................................................... 11,200 --
Other notes payable, mature over various terms to 20 years, payable in monthly or quarterly
installments with interest rates ranging from 6.5% to 15.0% (a).............................. 26,882 25,348
Capital lease obligations (see Note 5)............................................................ 141,264 190,808
Notes payable secured by equipment, mature over various terms up to 7 years, payable in monthly
installments with interest rates ranging from 8.5% to 9.64%(b).................................. 1,053 21,912
Sundry indebtedness............................................................................... 4,746 1,305
Total............................................................................................. 2,251,465 2,393,846
Less current maturities (c)....................................................................... 71,969 41,668
$2,179,496 $2,352,178
</TABLE>
(a) Collateralized by restaurant and other properties with a net book value of
$41.7 million at December 31, 1993.
(b) Collateralized by equipment with a net book value of $23.5 million at
December 31, 1993.
(c) Aggregate annual maturities during the next five years of long-term debt are
as follows (in thousands): 1994 -- $41,668; 1995 -- $42,450;
1996 -- $55,293; 1997 -- $96,732, and 1998 -- $119,609.
The Restated Credit Agreement provides for a senior term loan and a senior
revolving credit facility. The Company had drawings under the senior term loan
of $572.5 million during 1992 and $778,000 during 1993. The borrowings under the
Restated Credit Agreement are secured by the stock of certain operating
subsidiaries and the Company's trade and service marks and are guaranteed by
certain operating subsidiaries. Such guarantees are further secured by certain
operating subsidiary assets.
The Restated Credit Agreement and indentures under which the debt
securities have been issued contain a number of restrictive covenants. Such
covenants restrict, among other things, the ability of Flagstar and its
subsidiaries to incur indebtedness, create liens, engage in business activities
which are not in the same field as that in which the Company currently operates,
mergers and acquisitions, sales of assets, transactions with affiliates and the
payment of dividends. In addition, the Restated Credit Agreement contains
affirmative and negative financial covenants including provisions for the
maintenance of a minimum level of interest coverage (as defined), limitations on
ratios of indebtedness (as defined) to earnings before interest, taxes,
depreciation and amortization (EBITDA), and limitations on annual capital
expenditures.
During September 1993, net proceeds of $387.5 million from the issuance of
$275 million of 10.75% Senior Notes and $125 million of 11.375% Senior
Subordinated Debentures were used to reduce the Company's senior term loan. In
F-11
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
connection with the reduction of the senior term loan, the Restated Credit
Agreement was amended to include, among other things, the following: an increase
in the amount of annual capital expenditures permitted for remodeling and
expansion of operations, modification of financial ratios of debt to EBITDA and
of interest coverage, a rescheduling of the remaining principal installments
under the senior term loan, and modification of the requirement that working
capital advances under the credit facility be repaid in full and not reborrowed
for at least 30 consecutive days during any 13-month period but at least once
during each year to provide that working capital advances under the credit
facility be paid down to a maximum borrowing thereunder of $100 million in 1993
reducing to $50 million in 1998 for such 30 day period in each year.
The Company was in compliance with the terms of the Restated Credit
Agreement at December 31, 1993. Under the most restrictive provision of the
Restated Credit Agreement (ratio of total debt to EBITDA, as defined), at
December 31, 1993, the Company could incur approximately $44.0 million of
additional indebtedness.
At December 31, 1993, the 10.25% guaranteed bonds were secured by, among
other things, mortgage loans on 385 restaurants, a lien on the related
restaurant equipment, assignment of intercompany lease agreements, and the stock
of the issuing subsidiaries. At December 31, 1993, the restaurant properties and
equipment had a net book value of $347.8 million. In addition, the bonds are
insured with a financial guaranty insurance policy written by a company that
engages exclusively in such coverage. Principal and interest on the bonds is
payable semiannually. Principal payments total $2.9 million annually through
1995; $12.5 million annually through 1999; and $152.7 million in 2000. The
Company through its operating subsidiaries covenants that it will maintain the
properties in good repair and expend annually to maintain the properties at
least $15.8 million in 1994 and increasing each year to $23.7 million in 2000.
The 11.03% mortgage notes are secured by a pool of cross collateralized
mortgages on 240 restaurants with a net book value at December 31, 1993 of
$228.1 million. In addition, the notes are collateralized by, among other
things, a security interest in the restaurant equipment, the assignment of
intercompany lease agreements and the stock of the
issuing subsidiary. Interest on the notes is payable quarterly with the entire
principal due at maturity in 2000. The notes are redeemable, in whole, at the
issuer's option beginning in July 1993. The Company through its operating
subsidiary covenants that it will use each property as a food service facility,
maintain the properties in good repair and expend at least $5.3 million per
annum and not less than $33 million, in the aggregate, in any five year period
to maintain the properties.
At December 31, 1993, the Company has $400 million aggregate notional
amount in effect of reverse interest rate exchange agreements with maturities
ranging from thirty-six to seventy-two months. The Company receives interest on
such notional amount at fixed rates (average rate of 5.64% at December 31, 1993)
and pays interest at six months LIBOR in arrears based floating rates on like
notional amount. Subsequent to December 31, 1993, an additional $400 million
aggregate notional amount of reverse interest rate exchange agreements with
maturities of thirty-six months became effective. The Company will receive
interest on the notional amount at average fixed rates of 5.29% and pay interest
at six months LIBOR in arrears based floating rates on like notional amount.
Also at December 31, 1993 the Company has a $50 million aggregate notional
amount interest rate exchange agreement which matures within twelve months. The
Company pays interest on such notional amount (9.76% at December 31, 1993) and
is paid interest at LIBOR based floating rates (3.30% at December 31, 1993) on
like notional amount. The net payments on all such agreements are reflected in
interest and debt expense.
The estimated fair value of the Company's long-term debt (excluding capital
lease obligations) approximates the principal amount of such debt outstanding at
December 31, 1993. Such computations are based on market quotations for the same
or similar debt issues or the estimated borrowing rates available to the
Company. The estimated fair value of the $50 million notional amount interest
rate exchange agreement at December 31, 1993 is $2.8 million which represents an
unrealized loss and is the amount at which such exchange agreement could be
settled based on estimates obtained from dealers. At December 31, 1993, the
estimated fair value of the $400 million notional amount of reverse interest
rate exchange agreements was zero. The fair value of accounts receivable,
short-term borrowings, and accounts payable approximate their carrying value.
F-12
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 LEASES AND RELATED GUARANTEES
The Company's operations utilize property, facilities, equipment and
vehicles leased from others. In addition, certain owned and leased property,
facilities and equipment are leased to others.
Buildings and facilities leased from others primarily are for restaurants
and support facilities. At December 31, 1993, 974 restaurants were operated
under lease arrangements which generally provide for a fixed basic rent, and, in
some instances, contingent rental based on a percentage of gross operating
profit or gross revenues. Initial terms of land and restaurant building leases
generally are not less than twenty years exclusive of options to renew. Leases
of other equipment primarily consist of merchandising equipment, computer
systems and vehicles, etc.
As lessor, leasing operations principally consist of merchandising
equipment under noncancelable leases for a term of eight years to franchised
distributors of a subsidiary. Numerous miscellaneous sublease agreements also
exist.
Information regarding the Company's leasing activities at December 31, 1993
is as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
CAPITAL LEASES MINIMUM LEASE
MINIMUM MINIMUM PAYMENTS NET OF
LEASE SUBLEASE SUBLEASE RENTALS OF
PAYMENTS PAYMENTS IMMATERIAL AMOUNTS
<S> <C> <C> <C>
(IN THOUSANDS)
Year:
1994........................................................................... $ 45,035 $ 1,836 $ 52,800
1995........................................................................... 39,756 1,822 50,074
1996........................................................................... 34,833 1,730 46,579
1997........................................................................... 30,116 1,566 43,030
1998........................................................................... 23,322 1,360 38,652
Subsequent years............................................................... 149,004 3,337 229,155
Total....................................................................... $322,066 $11,651 $ 460,290
Less imputed interest............................................................ 131,258
Present value of capital lease obligations....................................... $190,808
</TABLE>
The total rental expense included in the determination of operating income
for the three years ended December 31, 1991, 1992 and 1993 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
(IN THOUSANDS)
Basic rents................................................................... $ 49,114 $ 51,373 $ 56,699
Contingent rents.............................................................. 13,305 12,842 12,306
Total......................................................................... $ 62,419 $ 64,215 $ 69,005
</TABLE>
Total rental expense does not include sublease rental income of
$10,068,000, $9,437,000 and $8,998,000 for the three years ended December 31,
1991, 1992, and 1993, respectively.
F-13
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INCOME TAXES
A summary of the provision (benefit) from income taxes attributable to loss
before extraordinary items and cumulative effect of change in accounting
principle is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal..................................................................... $ 4,374 $ 9,452 $ 1,423
State, Foreign and Other.................................................... 4,563 4,768 2,837
8,937 14,220 4,260
Deferred:
Federal..................................................................... (24,183) (17,955) (75,897)
State, Foreign and Other.................................................... (2,853) (2,848) (9,512)
(27,036) (20,803) (85,409)
Benefit from income taxes..................................................... $(18,099) $ (6,583) $(81,149)
The total benefit from income taxes related to:
Loss before extraordinary items and cumulative effect of changes in
accounting principles.................................................... $(18,099) $ (6,583) $(81,149)
Extraordinary items......................................................... -- (85,053) (196)
Cumulative effect of changes in accounting principles....................... -- (8,785) (90)
Total benefit from income taxes............................................... $(18,099) $ (100,421) $(81,435)
</TABLE>
The deferred federal tax benefit for the year ended December 31, 1993
includes a reduction for the utilization of regular tax net operating loss
carryforwards of approximately $9.5 million. In addition, the deferred federal
tax benefit for the year ended December 31, 1993, has been offset by
approximately $2.7 million due to the 1% corporate tax rate increase included in
the Omnibus Budget Reconciliation Act of 1993.
F-14
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INCOME TAXES -- Continued
The following represents the approximate tax effect of each significant
type of temporary difference and carryforward giving rise to the deferred income
tax liability or asset:
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1993
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Amortization (including write-down) of intangible assets............................................. $ -- $ 3,055
Self-insurance reserves.............................................................................. 48,892 15,229
Capitalized leases................................................................................... 7,834 726
Post-retirement benefits............................................................................. 14,749 3,914
Other accruals and reserves (includes restructuring reserves)........................................ 58,491 31,583
Alternative minimum tax credit carryforwards......................................................... 12,418 13,330
General business credit carryforwards................................................................ 4,751 4,751
Net operating loss carryforwards..................................................................... 71,583 72,539
Less: valuation allowance............................................................................ -- (110,644)
Total deferred tax assets............................................................................ 218,718 34,483
Deferred tax liabilities:
Depreciation of fixed assets......................................................................... 270,801 58,344
Amortization of intangible assets.................................................................... 78,852 --
Total deferred tax liabilities....................................................................... 349,653 58,344
Total deferred income tax liability.................................................................. $130,935 $ 23,861
</TABLE>
The Company has provided a valuation allowance for the portion of the
deferred tax asset for which it is more likely than not that a tax benefit will
not be realized.
The difference between the statutory federal income tax rate and the
effective tax rate on loss before extraordinary items and cumulative effect of
accounting changes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
Statutory rate................................................................ 34% 34% 35%
Differences:
State, foreign, and other taxes, net of federal income tax benefit.......... (1) (3) --
Amortization and write-off of goodwill...................................... (14) (20) (26)
Portion of losses not benefited as a result of the establishment of
valuation allowance...................................................... -- -- (4)
Other net permanent differences between the tax return and the statement of
consolidated operations.................................................. 2 -- --
Effective tax rate............................................................ 21% 11% 5%
</TABLE>
At December 31, 1993, the Company has available, to reduce income taxes
that become payable in the future, general business credit carryforwards of
approximately $4.7 million which expire in approximately 2000, and alternative
minimum tax (AMT) credits of $13.3 million. The AMT credits may be carried
forward indefinitely. In addition, the Company has available regular income tax
net operating loss carryforwards of $207.2 million, of which approximately $14.4
million expires in 2006 and $192.8 million expires in 2007. Due to the
Recapitalization of the Company which occurred during 1992, the Company's
ability to utilize general business credits, AMT credits and net operating loss
carryforwards which arose prior to 1992 will be limited to a specified annual
amount. The annual limitation for the utilization of the tax credit
F-15
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INCOME TAXES -- Continued
carryforwards is approximately $8 million and the annual limitation for the
utilization of the net operating loss carryforwards is approximately $24
million. The usage of the net operating loss carryforward which arose in 1992 of
$192.8 million is not expected to be subject to any annual limitation.
NOTE 7 EMPLOYEE BENEFIT PLANS
The Company maintains several defined benefit plans which cover a
substantial number of employees. Benefits are based upon each employee's years
of service and average salary. The Company's funding policy is based on the
minimum amount required under the Employee Retirement Income Security Act of
1974. The Company also maintains defined contribution plans.
Total net pension cost of defined benefit plans for the years ended
December 31, 1991, 1992, and 1993 amounted to $4,576,000, $4,311,000 and
$6,103,000, respectively, of which $3,172,000, $2,231,000 and $3,906,000 related
to funded defined benefit plans and $1,404,000, $2,080,000 and $2,197,000
related to nonqualified unfunded supplemental defined benefit plans for
executives.
The components of net pension cost of the funded and unfunded defined
benefit plans for the three years ended December 31, 1991, 1992, and 1993
determined under SFAS 87 follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost-benefits earned during the year.................................. $ 4,707 $ 4,979 $ 5,794
Interest cost on projected benefit obligations................................ 6,980 7,932 8,779
Actual return on plan assets.................................................. (15,350) (3,125) (7,134)
Net amortization and deferral................................................. 8,239 (5,475) (1,336)
Net pension cost.............................................................. $ 4,576 $ 4,311 $ 6,103
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's balance sheet for its defined benefit plans:
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1993
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested benefits...................................................................................... $75,388 $ 94,403
Non-vested benefits.................................................................................. 2,319 2,238
Accumulated benefit obligations........................................................................ $77,707 $ 96,641
Plan assets at fair value.............................................................................. $91,449 $ 96,279
Projected benefit obligation........................................................................... 89,943 111,650
Funded status.......................................................................................... 1,506 (15,371)
Unrecognized net loss from past experience different from that assumed................................. 7,791 23,345
Unrecognized prior service cost........................................................................ 634 548
Unrecognized net asset at January 1, 1987 being recognized over 15 years............................... (415) (232)
Additional liability................................................................................... (272) (10,761)
Prepaid (accrued) pension costs........................................................................ $ 9,244 $ (2,471)
</TABLE>
As of December 31, 1992 and 1993, the accrued pension liability related to
unfunded plans was $9,940,000 and $10,817,000, respectively, the accumulated
benefit obligation was $6,310,000 and $7,711,000, respectively, and the
projected benefit obligation was $12,118,000 and $13,758,000, respectively.
F-16
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS -- Continued
Significant assumptions used in determining net pension cost and funded
status information for all the periods shown above are as follows:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Discount rate.................................................................. 8.5% 7.5%
Rates of salary progression.................................................... 5.0-5.5% 4.0%
Long-term rates of return on assets............................................ 10.0% 10.0%
</TABLE>
In addition, the Company has defined contribution plans whereby eligible
employees can elect to contribute from 1%-15% of their compensation to the
plans. These plans include profit sharing and savings plans under which the
Company makes matching contributions, with certain limitations. Amounts charged
to income under these plans were $6,706,000, $7,406,000 and $5,327,000 for the
years ended December 31, 1991, 1992, and 1993, respectively.
Incentive compensation plans provide for awards to management employees
based on meeting or exceeding certain levels of income as defined by such plans
The amounts charged to income under the plans for the years ended December 31,
1991, 1992, and 1993 were as follows: $2,605,000, $5,344,000 and zero. In
addition to these incentive compensation plans, certain operations have
incentive plans in place under which regional, divisional and local management
participate.
The 1989 Stock Option Plan permits a Committee of the Board of Directors to
grant options to key employees of the Company and its subsidiaries to purchase
shares of common stock of the Company at a stated price established by the
Committee. Such options are exercisable at such time or times either in whole or
part, as determined by the Committee. During 1992, the 1989 Stock Option Plan
was amended to authorize grants of up to 3,000,000 shares and 651,400 shares
were granted. Options of 866,180 and 612,480, respectively, were outstanding as
of December 31, 1992 and 1993 of which 136,764 and 131,870, respectively, were
exercisable. Such options have exercise prices of $15.00 to $20.00 per share and
twenty percent of the shares under option to become exercisable beginning one
year from the date of grant and an additional twenty percent each year
thereafter until all options are exercisable. During 1993 certain participants
of the 1989 Stock Option Plan received replacement grant options of 1,092,990 at
an exercise price of $11.25 per share which provide for fifty percent of the
shares under option to become exercisable beginning two years after the date of
grant and an additional twenty-five percent each year thereafter, until all the
options are exercisable. The replacement grant options issued during 1993 were
part of a grant to approximately 6,400 of the Company's field managers and
administrative employees each of whom received options to purchase two hundred
shares of the Company's common stock under the same terms as the recipients of
the replacement grant options. At December 31, 1993, options for 1,273,800
shares with an exercise price of $11.25 per share were outstanding of which none
were exercisable. If not exercised, the options expire ten years from the date
of grant.
In 1990, the Board of Directors adopted a 1990 Non-qualified Stock Option
Plan (the 1990 Option Plan) for its directors who do not participate in
management and are not affiliated with GTO (see Note 13). Such plan authorizes
the issuance of up to 30,000 shares of common stock. The plan is substantially
similar in all respects to the 1989 Option Plan described above. The Committee
of the Board administering the 1990 Option Plan granted options for 30,000
shares as of July 31, 1990 at $29.05 per share, the market price per share on
the date of grant. At December 31, 1992 and 1993, respectively, options
outstanding under the 1990 Option Plan totalled 20,000 shares.
NOTE 8 OTHER POSTRETIREMENT BENEFITS
The Company adopted, in the fourth quarter of 1992, Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions" retroactive to January 1, 1992. This statement requires the
accrual of the cost of providing postretirement benefits, including medical and
life insurance benefits, during the active service period of covered employees.
The Company has recognized the accumulated liability, measured as of January 1,
1992 through a one-time charge of $17,834,000 (net of income tax benefit of
$8,785,000). This charge excludes amounts accrued in prior years related to the
acquisition of the Company. The effect of this accounting change on 1992
F-17
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 OTHER POSTRETIREMENT BENEFITS -- Continued
operating results, in addition to recording the cumulative effect for years
prior to 1992, was to recognize additional benefits expense of $3,983,000.
Accordingly, the operating results for the first three quarters of 1992 have
been restated to reflect this change (see Note 15). Prior to 1992, the Company
recognized the cost of postretirement benefits in the year the benefits were
paid.
The Plan, which provides certain medical and life insurance benefits for
eligible retired employees, is unfunded. The Company's contract food service
employees become eligible for such benefits upon at least 15 years of credited
service (as defined in the Plan) and retirement at age 55 or later. The Plan
also requires monthly medical contributions by retired participants based upon
age, credited service, and salary at retirement. Dependent benefits cease after
the death of the retiree. Life insurance benefits provided are non-contributory.
The Company amended the Plan in 1993. The amendment decreased the Company's
accumulated benefit obligation at January 1, 1993 by approximately $17,535,000
which is being accounted for by amortization to income over future periods. The
amendment curtails life and medical benefits for certain eligible employee
groups and phases out the Company's subsidy of the cost of coverage for certain
eligible employee groups over a five year period beginning in 1993.
The components of net periodic postretirement benefit cost determined under
SFAS 106 follow:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992 1993
<S> <C> <C>
(IN THOUSANDS)
Service cost-benefits earned during the year...................................... $2,221 $ 22
Interest cost on accumulated postretirement benefit obligation.................... 2,967 1,428
Net amortization.................................................................. -- (1,639)
Net postretirement benefit cost (income).......................................... $5,188 $ (189)
</TABLE>
The amount charged to expense for years prior to adoption of SFAS 106 was
$1,035,000 for the year ended December 31, 1991. For this period, the cost of
providing benefits for the Company's retired participants is not separable from
the cost of benefits for the Company's active participants.
The following table sets forth the amounts recognized in the Company's
consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1993
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of accumulated postretirement benefit obligation:
Retirees...................................................................... $19,706 $17,676
Other fully eligible plan participants........................................ 5,198 386
Other active plan participants................................................ 13,891 329
Unrecognized prior service cost (unamortized effect of
plan amendment)............................................................ -- 16,074
Unrecognized net gain......................................................... -- 3,151
Accumulated postretirement benefit obligation................................... $38,795 $37,616
</TABLE>
For measuring the expected postretirement benefit obligation, a 20% annual
rate of increase in the cost of covered health care and death benefits was
assumed for 1994. This rate was assumed to decrease to 6.5% in 1997 and remain
at that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rate by 1% each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by $3,385,000 and
would increase the aggregate of the service and interest components of net
periodic postretirement benefit cost for the year then ended by $131,000.
The weighted average discount rate used in determining the accumulated
postretirement obligation was 8.5% at December 31, 1992 and 7.5% at December 31,
1993.
F-18
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 COMMITMENTS AND CONTINGENCIES
There are various claims and pending legal actions against or indirectly
involving the Company, including actions concerned with financing matters, civil
rights of employees and customers, taxes, sales of franchise rights, and other
matters. Certain of these are seeking damages in substantial amounts. The
amounts of liability, if any, on these direct or indirect claims and actions at
December 31, 1993, over and above any insurance coverage in respect to certain
of them, are not specifically determinable at this time.
Flagstar has received proposed deficiencies from the Internal Revenue
Service (IRS) for federal income taxes and penalties totalling approximately
$46.6 million. Proposed deficiencies of $34.3 million relate to examinations of
certain income tax returns filed by Denny's for periods ending prior to
Flagstar's purchase of Denny's on September 11, 1987. These deficiencies
primarily involve the proposed disallowance of certain expenses associated with
borrowings and other costs incurred at the time of the leveraged buyout of
Denny's in 1985 and the purchase of Denny's by Flagstar in 1987. Flagstar filed
protests of the proposed deficiencies with the Appeals Division of the IRS
stating that it believed the proposed deficiencies were erroneous. Flagstar and
the IRS have reached a preliminary agreement on substantially all of the issues
included in the original proposed deficiency. Based on this preliminary
agreement, the IRS has agreed to waive all penalties and Flagstar estimates that
its ultimate federal income tax deficiency will be less than $5 million. The
remaining $12.3 million of proposed deficiencies relate to examinations of
certain income tax returns filed by the Company and Flagstar for the four fiscal
periods ended December 31, 1989. The deficiencies primarily involve the proposed
disallowance of deductions associated with borrowings and other costs incurred
prior to, at and just following the time of the acquisition of Flagstar in 1989.
The Company intends to vigorously contest the proposed deficiencies because it
believes the proposed deficiencies are substantially incorrect.
On March 26, 1993, a consent decree was signed by the Company and the U.S.
Department of Justice resolving a complaint filed by the Department of Justice
that alleged that the Company, through Denny's had engaged in a pattern or
practice of discrimination against African-American customers. The Company
denied any allegation of wrongdoing. The consent decree, which carries no direct
monetary penalties, enjoins the Company from racial discrimination and requires
the Company to implement certain employee training and testing programs and
provide public notice of Denny's nondiscrimination policies. In a related
matter, on March 24, 1993, a public accommodations lawsuit was filed against the
Company in California. The lawsuit alleges that certain Denny's restaurants in
California have engaged in racially discriminatory practices, and seeks
certification as a class action, unspecified actual, compensatory and punitive
damages, and injunctive relief.
On May 24, 1993 and July 8, 1993 two additional public accommodations
lawsuits were filed against the Company. The May 24, 1993 action alleges that a
Denny's restaurant in Annapolis, Maryland engaged in racially discriminatory
practices, and seeks certification as a class action covering all states except
California, unspecified actual compensatory and punitive damages, and injunctive
relief. Other individual public accommodations cases have also been filed,
including some cases which allege substantial compensatory and punitive damages
for each plaintiff, statutory damages, and injunctive relief.
The Company is also the subject of pending and threatened employment
discrimination claims principally in California and Alabama. In certain of these
claims, the plaintiffs have threatened to seek to represent a class alleging
racial discrimination in employment practices at Company restaurants and to seek
actual, compensatory and punitive damages, and injunctive relief.
It is the opinion of Management (including General Counsel), after
considering a number of factors, including but not limited to the current status
of the litigation (including any settlement discussions), the views of retained
counsel, the nature of the litigation or proposed tax deficiencies, the prior
experience of the consolidated companies, and the amounts which the Company has
accrued for known contingencies that the ultimate disposition of these matters
will not materially affect the consolidated financial position or results of
operations of the Company.
F-19
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
TOTAL SHAREHOLDERS'
OTHER EQUITY DEFICIT EQUITY (DEFICIT)
<S> <C> <C> <C>
(IN THOUSANDS)
Balance December 31, 1990...................................................... $297,572 $ (158,344) $ 139,228
Activity:
Net Loss.................................................................. -- (67,575) (67,575)
Issuance of Common Stock.................................................. 5,324 -- 5,324
Balance December 31, 1991...................................................... 302,896 (225,919) 76,977
Activity:
Net Loss.................................................................. -- (225,010) (225,010)
Issuance of Preferred Stock, net.......................................... 150,160 -- 150,160
Issuance of Common Stock and Warrants, net................................ 293,304 -- 293,304
Dividends on Preferred Stock.............................................. -- (6,064) (6,064)
Balance December 31, 1992...................................................... 746,360 (456,993) 289,367
Activity:
Net Loss.................................................................. -- (1,686,650) (1,686,650)
Dividends on Preferred Stock.............................................. -- (14,175) (14,175)
Minimum pension liability adjustment...................................... (11,091) -- (11,091)
Balance December 31, 1993...................................................... $735,269 $(2,157,818) $ (1,422,549)
</TABLE>
On June 16, 1993, the Company's shareholders approved an amendment to the
Restated Certificate of Incorporation authorizing the issuance of 200,000,000
shares of $0.50 par value common stock and 25,000,000 shares of $2.25 Series A
Cumulative Convertible Exchangeable Preferred Stock (Preferred Stock) and
authorizing a five-for-one reverse stock split. Such amendment increases the par
value of the common stock to $0.50 per share from $0.10 per share. All
references in the financial statements with respect to the number of shares of
common stock and related per share amounts have been restated to reflect the
reverse stock split.
Each share of the $2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock (Preferred Stock) is convertible at the option of the holder,
unless previously redeemed, into 1.359 shares of common stock. The Preferred
Stock may be exchanged at the option of the Company, in up to two parts, at the
earlier of any dividend payment date after November 16, 1992 or July 15, 1994
for the Company's 9% Convertible Subordinated Debentures (Exchange Debentures)
due July 15, 2017 in a principal amount equal to $25.00 per share of Preferred
Stock. Each Exchange Debenture, if issued, would be convertible at the option of
the holder into 1.359 shares of common stock of the Company. The Preferred Stock
may be redeemed at the option of the Company, in whole or in part, on or after
July 15, 1994 at $26.80 per share if redeemed during the twelve month-period
beginning July 15, 1994, and thereafter at prices declining annually to $25.00
per share on or after July 15, 2002.
The warrants outstanding at December 31, 1993 entitle the holder to
purchase 15 million shares of Company common stock at $17.50 per share, subject
to adjustment for certain events, and may be exercised at any time after
December 31, 1994 through November 16, 2000.
NOTE 11 LOSS PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
The $2.25 Preferred Stock and 10% Convertible Debentures, which are
convertible into the common stock of the Company (see Note 4), are considered
"other potentially dilutive securities" which may become dilutive in the future
and be included in the calculation of fully diluted loss per share. The
outstanding warrants as well as the stock options issued to management and
directors are common stock equivalents.
Loss per common share during the periods presented have been based on the
weighted average number of Company shares outstanding and give consideration to
the issuance of common shares during the periods presented. In addition, the
F-20
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 LOSS PER SHARE APPLICABLE TO COMMON SHAREHOLDERS -- Continued
loss per share amounts have been adjusted on a retroactive basis to reflect the
reverse stock split effected during 1993. The warrants, options, preferred
stock, and debentures have been omitted from the calculation because they have
an antidilutive effect on loss per share data.
The loss per share applicable to common shareholders before extraordinary
items and the cumulative effect of change in accounting principle would have
been $0.85 for the year ended December 31, 1992 if the issuance of common stock
and warrants and the related recapitalization (see Introduction to Notes to
Consolidated Financial Statements) had occurred at the beginning of the year.
NOTE 12 EXTRAORDINARY ITEMS
The Company recorded losses from extraordinary items as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
INCOME LOSSES,
TAX NET OF
LOSSES BENEFITS TAXES
<S> <C> <C> <C>
(IN THOUSANDS)
Recapitalization:
Premiums paid to retire certain indebtedness.......................................... $170,762 $(62,513) $108,249
Write-off of unamortized deferred financing costs on indebtedness retired............. 57,583 (21,080) 36,503
228,345 (83,593) 144,752
Prepayment of Term B Loan:
Write-off of unamortized deferred financing costs on Term B loan...................... 10,099 (1,310) 8,789
Defeasance of Mortgage Notes Payable:
Premiums paid to defease
certain indebtedness............................................................... 1,362 (102) 1,260
Write-off of unamortized deferred financing costs on indebtedness retired............. 648 (48) 600
2,010 (150) 1,860
Total................................................................................... $240,454 $(85,053) $155,401
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
INCOME LOSSES,
TAX NET OF
LOSSES BENEFITS TAXES
(IN THOUSANDS)
<S> <C> <C> <C>
Prepayment of Term Loan:
Write-off of unamortized deferred financing costs on indebtedness retired............. $ 26,469 $ (179) $ 26,290
Recapitalization:
Premiums and costs to repurchase 10% Convertible Debentures........................... 90 (12) 78
Write-off of unamortized deferred financing cost on indebtedness retired.............. 42 (5) 37
132 (17) 115
Total................................................................................... $ 26,601 $ (196) $ 26,405
</TABLE>
Losses during the fourth quarter of 1992 were attributable to the
recapitalization and related transactions for premiums paid to retire the 14.75%
Senior Notes, 17% Debentures, and 15% Debentures. In addition, the remaining
unamortized deferred financing costs related to such indebtedness and the Term A
loan under the Prior Bank Credit Agreement, were charged-off simultaneously.
F-21
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 EXTRAORDINARY ITEMS -- Continued
During the third quarter of 1992, the prepayment of the Term B loan under
the Prior Bank Credit Agreement resulted in a charge-off of the remaining
unamortized deferred financing costs on the Term B loan. Proceeds received from
the sale of 6,300,000 shares of $2.25 Series A Cumulative Convertible
Exchangeable Preferred Stock were used to prepay the Term B loan.
During the second quarter of 1992, $7,648,000 of the Company's 10.25%
Guaranteed Secured Bonds were defeased in accordance with the provisions of the
bond indenture. Accordingly, premiums were paid on the defeased debt and the
related unamortized deferred financing costs were charged-off.
During the third quarter of 1993, the prepayment of $387.5 million of the
Company's term loan under the Restated Credit Agreement resulted in a charge-off
of $26.5 million of unamortized deferred financing costs.
During the first quarter of 1993, the Company purchased $741,000 in
principal amount of 10% Convertible Debentures at 101% of their principal amount
plus unpaid accrued interest, pursuant to change in control provisions of the
indenture. The repurchase of the 10% Convertible Debentures resulted in a charge
of $132,000.
NOTE 13 RELATED PARTY TRANSACTIONS
The Company expensed annual advisory fees of $1,000,000 during 1991 and
1992, respectively, and $250,000 during 1993 for Gollust, Tierney & Oliver,
Incorporated (GTO). Annual advisory fees of $250,000 will be received by GTO
through 1994. GTO earned interest of $3,574,000 in 1991 and $1,344,000 in 1992
from senior indebtedness which was previously outstanding. In addition, GTO and
related entities received premiums of $2,689,000 related to the redemption of
such indebtedness during 1992.
The Company expensed annual advisory fees to Donaldson, Lufkin & Jenrette
Securities Corporation (DLJ) of $200,000 for 1991 and 1992, respectively. DLJ
earned interest of $5,298,000 in 1991 from senior indebtedness which was
previously outstanding. During 1991, DLJ received $897,000 related to the
disposition of certain non-core businesses of the Company. In 1992 DLJ received
fees of $1,380,000 related to investment banking services for the sale of the
Company's preferred stock, $7,000,000 as financial advisor to the Company, and
$3,738,000 related to the exchange of and issuance of certain indebtedness in
the recapitalization. DLJ received $4,059,000 during 1993 for investment banking
services related to the issuance of indebtedness by the Company.
In 1992, the Company paid a fee to KKR of $15,000,000 for financial
advisory services in connection with the recapitalization. In 1993, KKR received
financial advisory fees of $1,250,000.
In November 1992 in connection with the recapitalization, the Company
loaned $13,922,000 to its chairman and chief executive officer, the proceeds of
which were used to repay a 1989 loan obtained by the officer for the purchase of
Company common stock. The loan is due in November 1997 and is secured by 812,000
shares of common stock and certain other collateral. During 1993, the Company
earned $789,000 on the loan which accrues interest at 5.6% per annum and is
payable at maturity.
NOTE 14 BUSINESS SEGMENTS
The Company's restaurant operations are concentrated in the western and
southeastern United States and consist of Denny's, Hardee's, Quincy's and El
Pollo Loco restaurants. The Company's restaurants include basic food concepts
found in various segments of the food industry: family restaurants, fast-food
hamburger restaurants, steak houses, and char-broiled chicken restaurants. The
Company's contract food service business is conducted by Canteen Corporation,
which directly and through subsidiaries and independent franchised distributors,
engages in vending and contract food and recreation service operations
throughout the United States.
F-22
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 BUSINESS SEGMENTS -- Continued
Revenues and operating income by business segment for each of the last
three years are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
OPERATING OPERATING OPERATING
REVENUES INCOME REVENUES INCOME REVENUES INCOME
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Restaurants................................. $2,338,666 $ 191,997 $2,442,991 $ 214,062 $2,598,893 $(1,085,899)
Contract Food Service....................... 1,279,268 45,913 1,277,290 50,947 1,371,312 (313,320)
Corporate and other, net.................... -- (13,950) -- (18,585) -- (61,534)
Total....................................... $3,617,934 $ 223,960 $3,720,281 $ 246,424 $3,970,205 $(1,460,753)
</TABLE>
Operating income by business segment for the year ended December 31, 1993
reflects nonrecurring charges for the write-off of goodwill and other intangible
assets and the provision for restructuring as follows: restaurants -- $1,265.6
million, contract food service -- $359.8 million, and corporate and other,
net -- $41.4 million.
Depreciation/amortization expense and capital expenditures for each of the
last three years are as follows:
<TABLE>
<CAPTION>
DEPRECIATION/AMORTIZATION CAPITAL EXPENDITURES
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Restaurants.................. $146,850 $155,098 $167,061 $ 93,690 $141,597 $161,891
Contract Food
Service.................... 69,243 68,188 75,540 36,279 35,389 61,174
Corporate and Other.......... 2,039 3,905 4,402 329 1,263 2,423
Total........................ $218,132 $227,191 $247,003 $130,298 $178,249 $225,488
</TABLE>
Identifiable assets as of the specified dates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
<S> <C> <C> <C>
(IN THOUSANDS)
Restaurants................................................................... $2,601,984 $2,598,426 $1,364,377
Contract Food Service......................................................... 683,970 673,811 377,282
Corporate and Other........................................................... 108,511 117,729 55,626
Total......................................................................... $3,394,465 $3,389,966 $1,797,285
</TABLE>
F-23
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 QUARTERLY DATA (UNAUDITED)
The results for each quarter include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for
interim periods. The consolidated financial results on an interim basis are not
necessarily indicative of future financial results on either an interim or an
annual basis. Selected consolidated financial data for each quarter within 1992
and 1993 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, 1992:
Operating revenues..................................................... $859,784 $ 938,465 $ 996,154 $ 925,878
Operating expenses:
Product costs........................................................ 297,996 323,706 332,369 312,830
Payroll & benefits................................................... 311,077 329,140 330,190 323,071
Depreciation & amortization expense.................................. 54,231 55,076 56,955 60,929
Commissions & royalties.............................................. 24,924 31,871 41,662 32,446
Other................................................................ 132,243 137,546 149,137 136,458
820,471 877,339 910,313 865,734
Operating income....................................................... $ 39,313 $ 61,126 $ 85,841 $ 60, 144
Income (loss) before extraordinary items and cumulative effect of
change in accounting principle....................................... $(35,080) $ (12,495) $ 9,264 $ (13,464)
Net loss applicable to common shareholders............................. $(52,914) $ (14,355) $ (2,045) $ (161,760)
Per share amounts applicable to common shareholders:
Income (loss) before extraordinary items and cumulative effect of
change in accounting principle.................................... $ (1.57) $ (0.56) $ 0.30 $ (0.53)
Net loss............................................................. $ (2.37) $ (0.64) $ (0.09) $ (5.00)
Year Ended December 31, 1993:
Operating revenues..................................................... $878,968 $1,000,795 $1,075,304 $ 1,015,138
Operating expenses:
Product costs........................................................ 307,701 354,257 370,275 357,435
Payroll and benefits................................................. 323,657 350,040 357,049 347,761
Depreciation and amortization expense................................ 58,570 60,794 61,507 66,132
Commissions and royalties............................................ 25,915 36,633 47,245 39,035
Other................................................................ 136,042 152,671 171,484 139,921
Write-off of goodwill and intangible assets.......................... -- -- -- 1,474,831
Provision for restructuring charges.................................. -- -- -- 192,003
851,885 954,395 1,007,560 2,617,118
Operating income (loss)................................................ $ 27,083 $ 46,400 $ 67,744 $(1,601,980)
Loss before extraordinary items and cumulative effect of change in
accounting principle................................................. $(30,071) $ (11,852) $ (6,705) $(1,599,607)
Net loss applicable to common shareholders............................. $>(41,137) $ (15,396) $ (26,407) $(1,617,885)
Per share amounts applicable to common shareholders:
Loss before extraordinary items and cumulative effect of change in
accounting principle.............................................. $ (0.80) $ (0.36) $ (0.24) $ (37.83)
Net loss............................................................. $ (0.98) $ (0.36) $ (0.62) $ (38.18)
</TABLE>
F-24
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 QUARTERLY DATA (UNAUDITED) -- Continued
In the fourth quarter of 1992, the Company retroactively adopted to January
1, 1992 SFAS No. 106. Accordingly, operating expenses for the first, second and
third quarters of 1992 have been restated by $1,067,000, $1,071,000, and
$806,000, respectively, to reflect charges related to the implementation of this
statement.
During the third quarter of 1993, the Company changed its method of
determining the discount rate applied to insurance liabilities retroactive to
January 1, 1993 pursuant to Staff Accounting Bulletin (SAB) No. 92 issued by the
staff of the Securities and Exchange Commission in June 1993 concerning the
accounting for environmental and other contingent liabilities. Accordingly,
operating expenses for the first and second quarters of 1993 have been restated
by $1,869,000 and $1,869,000, respectively, to reflect charges related to the
implementation of this pronouncement.
F-25
<PAGE>
FLAGSTAR COMPANIES, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
V. Property, Plant and Equipment for the Years Ended December 31, 1991, 1992 and 1993.............................. F-27
VI. Accumulated Depreciation and Amortization of Property, Plant and Equipment for the Years Ended December 31,
1991, 1992 and 1993........................................................................................... F-30
IX. Short-Term Borrowings for the Years Ended December 31, 1991, 1992 and 1993...................................... F-33
X. Supplemental Income Statement Information for the Years Ended December 31, 1991, 1992 and 1993.................. F-34
</TABLE>
Schedules not filed herewith are omitted because of the absence of
conditions under which they are required or because the information called for
is shown in the Consolidated Financial Statements or Notes thereto.
F-26
<PAGE>
SCHEDULE V
FLAGSTAR COMPANIES, INC.
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(AMOUNTS IN THOUSANDS)
CONSOLIDATED
<TABLE>
<CAPTION>
COLUMN E COLUMN F
COLUMN C COLUMN D OTHER BALANCE
ADDITIONS RETIREMENTS CHANGES ADD AT END
COLUMN A AT COST OR SALES (DEDUCT) OF PERIOD
COLUMN B
BALANCE AT
BEGINNING
OF PERIOD
<S> <C> <C> <C> <C> <C>
Classification
Property owned:
Merchandising equipment............................... $ 180,955 $21,038 $ (4,839) $(3,641) $ 193,513
Land, buildings, and improvements:
Land............................................... 264,328 4,940 (1,252) (193) 267,823
Buildings and improvements......................... 791,055 47,554 (3,313) (3,803) 831,493
Total................................................. 1,055,383 52,494 (4,565) (3,996) 1,099,316
Other property and equipment consisting of furniture
and fixtures, etc.................................. 374,380 37,546 (4,428) 213 407,711
Total property owned.................................. 1,610,718 111,078 (13,832) (7,424) 1,700,540
Property held under capital leases:
Building and improvements............................. 90,305 5,583 (450) (90) 95,348
Vehicles and other property and equipment............. 4,252 13,637 (570) 33 17,352
Total property held under capital leases.............. 94,557 19,220 (1,020) (57) 112,700
Total property.......................................... $1,705,275 $130,298 $ (14,852) $(7,481) $1,813,240
</TABLE>
F-27
<PAGE>
SCHEDULE V
FLAGSTAR COMPANIES, INC.
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(AMOUNTS IN THOUSANDS)
CONSOLIDATED
<TABLE>
<CAPTION>
COLUMN E COLUMN F
COLUMN C COLUMN D OTHER BALANCE
ADDITIONS RETIREMENTS CHANGES ADD AT END
COLUMN A AT COST OR SALES (DEDUCT) OF PERIOD
COLUMN B
BALANCE AT
BEGINNING
OF PERIOD
<S> <C> <C> <C> <C> <C>
Classification
Property owned:
Merchandising equipment............................... $ 193,513 $21,088 $ (4,536) $ 3,040 $ 213,105
Land, buildings, and improvements:
Land............................................... 267,823 7,561 (3,869) 1,544 273,059
Buildings and improvements......................... 831,493 47,734 (8,062) 3,861 875,026
Total................................................. 1,099,316 55,295 (11,931) 5,405 1,148,085
Other property and equipment consisting of furniture
and fixtures, etc.................................. 407,711 65,666 (5,470) (1,205) 466,702
Total property owned.................................. 1,700,540 142,049 (21,937) 7,240 1,827,892
Property held under capital leases:
Buildings and improvements............................ 95,348 15,087 (209) 1,068 111,294
Vehicles and other property and equipment............. 17,352 21,113 (253) (432) 37,780
Total property held under capital leases.............. 112,700 36,200 (462) 636 149,074
Total property.......................................... $1,813,240 $178,249 $ (22,399) $ 7,876 $1,976,966
</TABLE>
F-28
<PAGE>
SCHEDULE V
FLAGSTAR COMPANIES, INC.
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(AMOUNTS IN THOUSANDS)
CONSOLIDATED
<TABLE>
<CAPTION>
COLUMN E COLUMN F
COLUMN C COLUMN D OTHER BALANCE
ADDITIONS RETIREMENTS CHANGES ADD AT END
COLUMN A AT COST OR SALES (DEDUCT) OF PERIOD
COLUMN B
BALANCE AT
BEGINNING
OF PERIOD
<S> <C> <C> <C> <C> <C>
Classification
Property owned:
Merchandising equipment............................. $ 213,105 $32,934 $ (4,494) $ (15,222) $ 226,323
Land, buildings, and improvements:
Land............................................. 273,059 6,916 (8,235) 246 271,986
Buildings and improvements....................... 875,026 53,072 (23,733) (89,662) 814,703
Total............................................... 1,148,085 59,988 (31,968) (89,416) 1,086,689
Other property and equipment consisting of furniture
and fixtures, etc................................ 466,702 56,724 (17,690) (49,987) 455,749
Total property owned................................ 1,827,892 149,646 (54,152) (154,625) 1,768,761
Property held under capital leases:
Buildings and improvements.......................... 111,294 38,530 (1,075) (15,992) 132,757
Vehicles and other property and equipment........... 37,780 37,312 (1,895) (390) 72,807
Total property held under capital leases............ 149,074 75,842 (2,970) (16,382) 205,564
Total property........................................ $1,976,966 $225,488 $ (57,122) $(171,007)(1) $1,974,325
</TABLE>
(1) Substantially all of the amount represents the write-down of property
relating to the Company's restructuring.
F-29
<PAGE>
SCHEDULE VI
FLAGSTAR COMPANIES, INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(AMOUNTS IN THOUSANDS)
CONSOLIDATED
<TABLE>
<CAPTION>
COLUMN B COLUMN E COLUMN F
BALANCE AT COLUMN D OTHER BALANCE
BEGINNING RETIREMENTS CHANGES ADD AT END
COLUMN A OF PERIOD OR SALES (DEDUCT) OF PERIOD
COLUMN C
ADDITIONS
CHARGED
TO COSTS
& EXPENSES
<S> <C> <C> <C> <C> <C>
Classification
Property owned:
Merchandising equipment................................. $ 49,107 $ 34,117 $(3,535) $(3,581) $ 76,108
Buildings and improvements.............................. 69,240 54,692 (2,275) 415 122,072
Other property and equipment consisting of furniture and
fixtures, etc........................................ 82,822 61,726 (2,590) (80) 141,878
Total property owned.................................... 201,169 150,535 (8,400) (3,246) 340,058
Property held under capital leases:
Building and improvements............................... 12,147 9,077 (106) 2 21,120
Vehicles and other property and
equipment............................................ 1,523 3,046 (171) 52 4,450
Total property held under capital leases................ 13,670 12,123 (277) 54 25,570
Total property............................................ $214,839 $162,658 $(8,677) $(3,192) $ 365,628
</TABLE>
F-30
<PAGE>
SCHEDULE VI
FLAGSTAR COMPANIES, INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(AMOUNTS IN THOUSANDS)
CONSOLIDATED
<TABLE>
<CAPTION>
COLUMN E
COLUMN B OTHER COLUMN F
BALANCE AT COLUMN D CHANGES BALANCE
BEGINNING RETIREMENTS ADD AT END
COLUMN A OF PERIOD OR SALES (DEDUCT) OF PERIOD
COLUMN C
ADDITIONS
CHARGED
TO COSTS
& EXPENSES
<S> <C> <C> <C> <C> <C>
Classification
Property owned:
Merchandising equipment.................................... $ 76,108 $ 34,591 $(3,169) $ 4,203 $ 111,733
Buildings and improvements................................. 122,072 57,381 (1,405) 1,167 179,215
Other property and equipment consisting of furniture and
fixtures, etc........................................... 141,878 62,495 (4,241) 236 200,368
Total property owned....................................... 340,058 154,467 (8,815) 5,606 491,316
Property held under capital leases:
Buildings and improvements................................. 21,120 9,030 (54) 1,132 31,228
Vehicles and other property and
equipment............................................... 4,450 7,298 (144) (407 ) 11,197
Total property held under capital leases................... 25,570 16,328 (198) 725 42,425
Total property............................................... $365,628 $170,795 $(9,013) $ 6,331 $ 533,741
</TABLE>
F-31
<PAGE>
SCHEDULE VI
FLAGSTAR COMPANIES, INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(AMOUNTS IN THOUSANDS)
CONSOLIDATED
<TABLE>
<CAPTION>
COLUMN E
COLUMN B OTHER COLUMN F
BALANCE AT COLUMN D CHANGES BALANCE
BEGINNING RETIREMENTS ADD AT END
COLUMN A OF PERIOD OR SALES (DEDUCT) OF PERIOD
COLUMN C
ADDITIONS
CHARGED
TO COSTS
& EXPENSES
<S> <C> <C> <C> <C> <C>
Classification
Property owned:
Merchandising equipment.................................. $111,733 $ 36,215 $ (3,106) $(10,134) $ 134,708
Buildings and improvements............................... 179,215 58,718 (3,136) (25,733 ) 209,064
Other property and equipment consisting of furniture and
fixtures, etc......................................... 200,368 64,025 (8,165) (23,826 ) 232,402
Total property owned..................................... 491,316 158,958 (14,407) (59,693 ) 576,174
Property held under capital leases:
Buildings and improvements............................... 31,228 10,468 (746) (3,744 ) 37,206
Vehicles and other property and
equipment............................................. 11,197 13,679 (1,312) (301 ) 23,263
Total property held under capital leases................. 42,425 24,147 (2,058) (4,045 ) 60,469
Total property............................................. $533,741 $183,105 $ (16,465) $(63,738)(1) $ 636,643
</TABLE>
(1) Substantially all of the amount represents the write-down of property
relating to the Company's restructuring.
F-32
<PAGE>
SCHEDULE IX
FLAGSTAR COMPANIES, INC.
SHORT-TERM BORROWINGS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN F
COLUMN D COLUMN E WEIGHTED
COLUMN A COLUMN C MAXIMUM AVERAGE AVERAGE
CATEGORY OF COLUMN B WEIGHTED AMOUNT AMOUNT INTEREST
AGGREGATE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
SHORT-TERM END OF INTEREST DURING THE DURING THE DURING THE
BORROWINGS PERIOD RATE PERIOD PERIOD(1) PERIOD(2)
<S> <C> <C> <C> <C> <C>
Working capital and letters of credit:
For the year ended December 31, 1991..................... $ 35,000 8.0% $ 70,000 $38,804 9.42%
For the year ended December 31, 1992..................... 39,000 7.08% 70,100 31,550 7.02%
For the year ended December 31, 1993..................... --(3) --%(3) --(3) --(3) --%(3)
</TABLE>
(1) Amount computed by dividing the total of daily outstanding principal
balances by the number of days in the year.
(2) Amount computed by dividing total interest expense by the average amount
outstanding.
(3) Working capital advances outstanding at December 31, 1993 under the Restated
Credit Agreement totalled $93,000 and accrued interest at a weighted average
interest rate of 6.51%. For the year ended December 31, 1993 the maximum
amount outstanding was $103,000, the average amount outstanding during the
period was $49,397 and the weighted average interest rate during the period
was 6.26%. The Restated Credit Agreement, as amended, provides for the
advances outstanding at December 31, 1993 to be classified as long-term.
F-33
<PAGE>
SCHEDULE X
FLAGSTAR COMPANIES, INC.
SUPPLEMENTAL INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(AMOUNTS IN THOUSANDS)
CONSOLIDATED
<TABLE>
<CAPTION>
COLUMN B
CHARGED TO COSTS AND EXPENSES
YEAR ENDED YEAR ENDED YEAR ENDED
COLUMN A DECEMBER 31 DECEMBER 31 DECEMBER 31
ITEM 1991 1992 1993
<S> <C> <C> <C>
Utilities....................................................................... $99,668 $ 102,834 $ 113,605
Maintenance and repairs......................................................... $55,078 $ 51,673 $ 60,315
Advertising and publicity....................................................... $72,639 $ 79,770 $ 89,365
</TABLE>
F-34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FLAGSTAR COMPANIES, INC.
By: /s/ ROBERT L. WYNN, III
Robert L. Wynn, III
(General Counsel)
Date: April 12, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ JEROME J. RICHARDSON Director, Chairman and Chief Executive Officer April 12, 1994
(Principal Executive Officer)
(Jerome J. Richardson)
/s/ A. RAY BIGGS Vice President and Chief Financial Officer April 12, 1994
(Principal Financial and Accounting Officer)
(A. Ray Biggs)
/s/ MICHAEL CHU Director April 12, 1994
(Michael Chu)
/s/ VERA KING FARRIS Director April 12, 1994
(Vera King Farris)
/s/ HAMILTON E. JAMES Director April 12, 1994
(Hamilton E. James)
/s/ HENRY R. KRAVIS Director April 12, 1994
(Henry R. Kravis)
/s/ AUGUSTUS K. OLIVER Director April 12, 1994
(Augustus K. Oliver)
/s/ PAUL E. RAETHER Director April 12, 1994
(Paul E. Raether)
/s/ CLIFTON S. ROBBINS Director April 12, 1994
(Clifton S. Robbins)
/s/ GEORGE R. ROBERTS Director April 12, 1994
(George R. Roberts)
/s/ L. EDWIN SMART Director April 12, 1994
(L. Edwin Smart)
/s/ MICHAEL T. TOKARZ Director April 12, 1994
(Michael T. Tokarz)
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
* 3.1 Restated Certificate of Incorporation of FCI and amendment thereto dated November 16, 1992
(incorporated by reference to Exhibit 3.1 to FCI's 1992 Form 10-K, File No. 0-18051 (the "1992 Form
10-K")).
<C> <S> <C>
* 3.2 Certificate of Designations for the $2.25 Series A Cumulative Convertible Exchangeable Preferred Stock
of FCI (incorporated by reference to Exhibit 3.2 to the 1992 Form 10-K).
3.3 Certificate of Ownership and Merger of FCI dated June 16, 1993.
3.4 Certificate of Amendment to the Restated Certificate of Incorporation of FCI dated June 16, 1993.
* 3.5 By-Laws of FCI as amended November 12, 1992 (incorporated by reference to Exhibit 3.3 to the 1992 Form
10-K).
* 4.1 Specimen certificate of Common Stock of FCI (incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form S-1 (No. 33-29769) of FCI (the "Form S-1")).
* 4.2 Specimen certificate of $2.25 Series A Cumulative Convertible Exchangeable Preferred Stock of FCI
(incorporated by reference to Exhibit 4.25 to the Registration Statement on Form S-1 (No. 33-47339) of
FCI (the "Preferred Stock S-1")).
* 4.3 Indenture between Flagstar and United States Trust Company of New York, as Trustee, relating to the
10% Debentures (including the form of security) (incorporated by reference to Exhibit 4.9 to the
Registration Statement on Form S-4 (No. 33-48923) of Flagstar (the "11.25% Debentures S-4")).
* 4.4 Supplemental Indenture, dated as of August 7, 1992, between Flagstar and United States Trust Company
of New York, as Trustee, relating to the 10% Debentures (incorporated by reference to Exhibit 4.9A to
the 11.25% Debentures S-4).
* 4.5 Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing, and
Assignment of Leases and Rents, from Denny's Realty, Inc. to State Street Bank and Trust Company,
dated July 12, 1990 (incorporated by reference to Exhibit 4.9 to Post-effective Amendment No. 1 to the
Registration Statement on Form S-1 (No. 33-29769) of FCI (the "Form S-1 Amendment")).
* 4.6 Lease between Denny's Realty, Inc. and Denny's, Inc., dated as of December 29, 1989, as amended and
restated as of July 12, 1990 (incorporated by reference to Exhibit 4.10 to the Form S-1 Amendment).
* 4.7 Indenture dated as of July 12, 1990 between Denny's Realty, Inc. and State Street Bank and Trust
Company relating to certain mortgage notes (incorporated by reference to Exhibit 4.11 to the Form S-1
Amendment).
* 4.8 Mortgage Note in the amount of $10,000,000 of Denny's Realty, Inc., dated as of July 12, 1990
(incorporated by reference to Exhibit 4.15 to the 11.25% Debentures S-4).
* 4.9 Mortgage Note in the amount of $52,000,000 of Denny's Realty, Inc., dated as of July 12, 1990
(incorporated by reference to Exhibit 4.16 to the 11.25% Debentures S-4).
* 4.10 Mortgage Note in the amount of $98,000,000 of Denny's Realty, Inc., dated as of July 12, 1990
(incorporated by reference to Exhibit 4.17 to the 11.25% Debentures S-4).
* 4.11 Indenture between Secured Restaurants Trust and The Citizens and Southern National Bank of South
Carolina, dated as of November 1, 1990, relating to certain Secured Bonds (incorporated by reference
to Exhibit 4.18 to the 11.25% Debentures S-4).
* 4.12 Amended and Restated Trust Agreement between Spartan Holdings, Inc., as Depositor for Secured
Restaurants Trust, and Wilmington Trust Company, dated as of October 15, 1990 (incorporated by
reference to Exhibit 3.3 to the Registration Statement on Form S-11 (No. 33-36345) of Secured
Restaurants Trust (the "Form S-11")).
* 4.13 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 7/8%
Notes (incorporated by reference to Exhibit 4.13 to the 1992 Form 10-K).
* 4.14 Supplemental Indenture between Flagstar and First Trust National Association, as Trustee, relating to
the 10 7/8% Notes (incorporated by reference to Exhibit 4.14 to the 1992 Form 10-K).
* 4.15 Form of 10 7/8% Note (incorporated by reference to Exhibit 4.15 to the 1992 Form 10-K).
* 4.16 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to
the 11.25% Debentures (incorporated by reference to Exhibit 4.16 to the 1992 Form 10-K).
* 4.17 Form of 11.25% Debenture (incorporated by reference to Exhibit 4.17 to the 1992 Form 10-K).
* 4.18 Amended and Restated Credit Agreement, dated as of October 26, 1992, among Flagstar and TWS Funding,
Inc., as borrowers, certain lenders and co-agents named therein, and Citibank, N.A., as managing agent
(incorporated by reference to Exhibit 28.1 to the Current Report on Form 8-K of Flagstar filed as of
November 20, 1992 (the "Form 8-K")).
<PAGE>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
* 4.19 Closing Agreement dated as of November 12, 1992, among Flagstar and TWS Funding Inc., as borrowers,
certain lenders and co-agents named therein, and Citibank, N.A., as managing agent (incorporated by
reference to Exhibit 28.2 to the Form 8-K).
* 4.20 First Amendment to the Amended and Restated Credit Agreement dated as of December 23, 1992
(incorporated by reference to Exhibit 4.20 to the 1992 Form 10-K).
* 4.21 Second Amendment to the Amended and Restated Credit Agreement dated as of August 5, 1993 (incorporated
by reference to Exhibit 4.23 to the Registration Statement on Form S-2 (No. 33-49843) of Flagstar (the
"Form S-2")).
4.22 Third Amendment to the Amended and Restated Credit Agreement dated as of December 15, 1993.
4.23 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 3/4%
Notes.
4.24 Form of 10 3/4% Note (included in Exhibit 4.23).
4.25 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to
the 11 3/8% Debentures.
4.26 Form of 11 3/8% Debenture (included in Exhibit 4.25).
*10.1 Flagstar's Executive Incentive Compensation Plan (incorporated by reference to Flagstar's 1986 Form
10-K, Exhibit 10(iii), File No. 1-9364).
*10.2 Warrant Agreement, dated November 16, 1992, among FCI, TW Associates and KKR Partners II (incorporated
by reference to Exhibit 10.41 to the 1992 Form 10-K).
*10.3 Consent Order dated March 26, 1993 between the U.S. Department of Justice, Flagstar and Denny's, Inc.
(incorporated by reference to Exhibit 10.42 to the Form S-2).
*10.4 Fair Share Agreement dated July 1, 1993 between FCI and the NAACP (incorporated by reference to
Exhibit 10.43 to the Form S-2).
*10.5 Amendment No. 2 to Stockholders' Agreement, dated as of April 6, 1993, among FCI, GTO and certain
affiliated partnerships, DLJ Capital, Jerome J. Richardson and Associates (incorporated by reference
to Exhibit 10 to Flagstar's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, File
No. 1-9364).
10.6 Employment Agreement between Flagstar and A. Ray Biggs dated February 10, 1992.
*10.7 Form of Agreement providing certain supplemental retirement benefits (incorporated by reference to
Exhibit 10.7 to the 1992 Form 10-K).
*10.8 Form of Supplemental Executive Retirement Plan Trust of Flagstar (incorporated by reference to Exhibit
10.8 to the 1992 Form 10-K).
*10.9 FCI 1989 Non-Qualified Stock Option Plan, as adopted December 1, 1989 and amended November 16, 1992
(incorporated by reference to Exhibit 10.9 to the 1992 Form 10-K).
*10.10 FCI 1990 Non-Qualified Stock Option Plan, as adopted July 31, 1990 (incorporated by reference to
Exhibit 10.9 to the Form S-1 Amendment).
*10.11 Form of Non-Qualified Stock Option Award Agreement pursuant to FCI 1990 Non-Qualified Stock Option
Plan (incorporated by reference to Exhibit 10.10 to the Form S-1 Amendment).
*10.12 Form of Mortgage related to Secured Restaurants Trust transaction (incorporated by reference to
Exhibit 10.1 to the Form S-11).
*10.13 Mortgage Note in the amount of $521,993,982, made by Flagstar Enterprises, Inc. in favor of Spartan
Holdings, Inc., dated as of February 1, 1990, as amended and restated November 15, 1990 (incorporated
by reference to Exhibit 10.12 to the 11.25% Debentures S-4).
*10.14 Mortgage Note in the amount of $210,077,402, made by Quincy's Restaurants, Inc. in favor of Spartan
Holdings, Inc., dated as of February 1, 1990, as amended and restated November 15, 1990 (incorporated
by reference to Exhibit 10.13 to the 11.25% Debentures S-4).
*10.15 Loan Agreement between Secured Restaurants Trust and Spardee's Realty, Inc., dated as of November 1,
1990 (incorporated by reference to Exhibit 10.14 to the 11.25% Debentures S-4).
*10.16 Loan Agreement between Secured Restaurants Trust and Quincy's Realty, Inc., dated as of November 1,
1990 (incorporated by reference to Exhibit 10.15 to the 11.25% Debentures S-4).
*10.17 Insurance and Indemnity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.16 to the 11.25% Debentures S-4).
*10.18 Intercreditor Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.17 to the 11.25% Debentures S-4).
*10.19 Bank Intercreditor Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.18 to the 11.25% Debentures S-4).
*10.20 Indemnification Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.19 to the 11.25% Debentures S-4).
*10.21 Liquidity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.20 to the 11.25% Debentures S-4).
<PAGE>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
*10.22 Financial Guaranty Insurance Policy, issued November 15, 1990, related to Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.21 to the 11.25% Debentures S-4).
*10.23 Amended and Restated Lease between Quincy's Realty, Inc. and Quincy's Restaurants, Inc., dated as of
November 1, 1990 (incorporated by reference to Exhibit 10.22 to the 11.25% Debentures S-4).
*10.24 Amended and Restated Lease between Spardee's Realty, Inc. and Spardee's Restaurants, Inc., dated as of
November 1, 1990 (incorporated by reference to Exhibit 10.23 to the 11.25% Debentures S-4).
*10.25 Collateral Assignment Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.24 to the 11.25% Debentures S-4).
*10.26 Form of Assignment of Leases and Rents related to Secured Restaurants Trust transaction (incorporated
by reference to Exhibit 10.12 to the Form S-11).
*10.27 Spartan Guaranty, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.26 to the 11.25% Debentures S-4).
*10.28 Form of Hardee's License Agreement related to Secured Restaurants Trust transaction (incorporated by
reference to Exhibit 10.14 to the Form S-11).
*10.29 Stock Pledge Agreement among Flagstar Enterprises, Inc. and Secured Restaurants Trust, dated as of
November 1, 1990 (incorporated by reference to Exhibit 10.28 to the 11.25% Debentures S-4).
*10.30 Stock Pledge Agreement among Quincy's Restaurants, Inc. and Secured Restaurants Trust, dated as of
November 1, 1990 (incorporated by reference to Exhibit 10.29 to the 11.25% Debentures S-4).
*10.31 Management Agreement, dated as of November 1, 1990, related to the Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.30 to the 11.25% Debentures S-4).
*10.32 Form of Collateral Assignment of Security Documents related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.17 to the Form S-11).
*10.33 Flagstar Indemnity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust
transaction (incorporated by reference to Exhibit 10.32 to the 11.25% Debentures S-4).
*10.34 Subordinated Promissory Note, dated July 28, 1992, from Flagstar to FCI (incorporated by reference to
Exhibit 10.33 to the 11.25% Debentures S-4).
*10.35 Development Agreement between the Company and Hardee's Food Systems, Inc., dated January 1992
(incorporated by reference to Exhibit 10.33 to the Preferred Stock S-1).
*10.36 Stock and Warrant Purchase Agreement, dated as of August 11, 1992, between FCI and TW Associates
(incorporated by reference to Exhibit 10.38 to the 11.25% Debentures S-4).
*10.37 Stockholders' Agreement, dated as of August 11, 1992, among FCI, GTO (on behalf of itself and certain
affiliated partnerships), DLJ Capital, Jerome J. Richardson and TW Associates (incorporated by
reference to Exhibit 10.39 to the 11.25% Debentures S-4).
*10.38 Technical Amendment to the Stockholders' Agreement dated as of September 30, 1992, among FCI, GTO and
certain affiliated partnerships, DLJ Capital, Jerome J. Richardson and TW Associates (incorporated by
reference to Exhibit 10.39A to the 11.25% Debentures S-4).
*10.39 Richardson Shareholder Agreement, dated as of August 11, 1992, between FCI and Jerome J. Richardson
(incorporated by reference to Exhibit 10.40 to the 11.25% Debentures S-4).
*10.40 Employment Agreement, dated as of August 11, 1992, between Flagstar and Jerome J. Richardson
(incorporated by reference to Exhibit 10.41 to the 11.25% Debentures S-4).
10.41 Employment Agreement, dated as of March 16, 1992, between Flagstar and David F. Hurwitt.
11 Computation of Earnings (Loss) Per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
*21 Subsidiaries of Flagstar (incorporated by reference to Exhibit 22 to the Preferred Stock S-1).
23 Consent of Deloitte & Touche.
</TABLE>
* Certain of the exhibits to this Annual Report on Form 10-K, indicated by an
asterisk, are hereby incorporated by reference to other documents on file with
the Commission with which they are physically filed, to be part hereof as of
their respective dates.
<PAGE>
EXHIBIT 3.3
CONFORMED COPY
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
FLAGSTAR COMPANIES, INC.
INTO
TW HOLDINGS, INC.
TW Holdings, Inc., a corporation organized and existing under the laws of
the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That this corporation was incorporated on the 29th day of September,
1988, pursuant to the Corporation Law of the State of Delaware.
SECOND: That this corporation owns all of the outstanding shares (of each
class) of the stock of Flagstar Companies, Inc., a corporation incorporated on
the 16th day of June, 1993, pursuant to the Corporation Law of the State of
Delaware.
THIRD: That this corporation, by the following resolutions of its Board of
Directors, duly adopted at a meeting held on the 28th day of April, 1993,
determined to merge into itself said Flagstar Companies, Inc.:
RESOLVED, that the name of this corporation shall be changed to "Flagstar
Companies, Inc." (the "NAME CHANGE"); and
FURTHER RESOLVED, that the officers of this corporation (and any one or
more of them) are hereby authorized and empowered to do or cause to be done all
such acts or things and to sign or cause to be signed and delivered, all such
documents, agreements, instruments and certifications and articles, in the name
and on behalf of this corporation or otherwise, as they may deem necessary,
advisable or appropriate to create a wholly-owned subsidiary of this corporation
in Delaware for the sole purpose of merging such subsidiary with and into this
corporation, with this corporation being the surviving corporation, in
accordance with Section 253 of the Delaware General Corporation Law in order to
effectuate the Name Change (the "MERGER"); and
FURTHER RESOLVED, that the Merger effectuating the Name Change be, and the
same hereby is, in all respects approved, and that the officers of this
corporation (and any one or more of them) are hereby authorized and empowered,
in the name of and on behalf of this corporation, to execute and deliver all
documents, agreements and articles of merger as they may deem necessary,
advisable or appropriate to effectuate the Merger.
FOURTH: That, as a result of the merger, this corporation change its
corporate name by changing Article I of the Restated Certificate of
Incorporation of this corporation to read as follows: "Article I. The name of
the corporation is Flagstar Companies, Inc."
FIFTH: This merger shall be effective upon the date of filing of this
Certificate of Ownership and Merger with the Secretary of State of Delaware.
IN WITNESS WHEREOF, said TW Holdings, Inc. has caused this Certificate to
be signed by A. Ray Biggs ,
its Vice President and attested by George
Moseley , its Secretary , this 16th day of June, 1993.
TW HOLDINGS, INC.
By: /s/ A. RAY BIGGS
Its: VICE PRESIDENT
ATTEST:
By: /s/ George E. Moseley
Its: SECRETARY
<PAGE>
EXHIBIT 3.4
CONFORMED COPY
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
FLAGSTAR COMPANIES, INC.
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
Flagstar Companies, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation (the "Board"), at a
meeting of the Board, duly adopted a resolution pursuant to Section 242 of the
General Corporation Law of the State of Delaware, setting forth and declaring
advisable the amendment to the Restated Certificate of Incorporation of the
Corporation in the form set forth in the stockholder resolution recited below.
The stockholders of the Corporation have duly adopted said amendment in the form
of the resolution recited below at an Annual Meeting of Stockholders held on
June 16, 1993, by the affirmative vote of the holders of greater than a majority
of the Corporation's shares entitled to vote thereon in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
RESOLVED: That the first paragraph of Article FOURTH of the Corporation's
Restated Certificate of Incorporation, as previously amended, be
amended so that, as amended, said paragraph shall be and read as
follows:
FOURTH: The total number of shares of stock which the
Corporation is authorized to issue is 225,000,000, of which
200,000,000 shall be shares of Common Stock, par value $.50 per
share, and 25,000,000 shall be Preferred Stock, par value $0.10
per share.
such amendment being effected in connection with a
five-for-one reverse stock split of the Corporation's
Common Stock resulting in a reduction in the number of
shares of Common Stock outstanding from 211,848,704 to
42,369,741 (subject to adjustment to eliminate fractional
shares), with fractional share interests resulting
therefrom being redeemed for cash in an amount equal to
the fair value therefor on the date hereof.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by the undersigned officer as of the 16th day of June,
1993.
FLAGSTAR COMPANIES, INC.
By: /s/ A. Ray Biggs
VICE PRESIDENT
ATTEST:
By: /s/ George E. Moseley
SECRETARY
<PAGE>
EXHIBIT 4.22
CONFORMED COPY
THIRD AMENDMENT
THIRD AMENDMENT, dated as of December 15, 1993 (this "AMENDMENT"), among
FLAGSTAR CORPORATION, a Delaware corporation formerly known as TW Services, Inc.
("FLAGSTAR"), TWS FUNDING, INC., a Delaware corporation ("FUNDING"), and each
financial institution executing this Amendment as a "Lender" (each, a "LENDER").
PRELIMINARY STATEMENTS:
1. Flagstar, Funding, the Lenders and the Co-Agents and Managing Agent
referred to therein have entered into a Credit Agreement dated as of October 26,
1992 (as amended to date, the "CREDIT AGREEMENT"; the terms defined therein
being used herein as therein defined unless otherwise defined herein).
2. Flagstar proposes to sell up to 150 company-operated restaurants to
third-party operators that would become Denny's franchisees and use up to
$50,000,000 of the proceeds to build or acquire new Denny's restaurants and to
refurbish existing Denny's restaurants in its core market areas. It has
therefore requested that the Credit Agreement be amended to permit such
disposals and the retention of up to $50,000,000 of the proceeds thereof.
3. A Subsidiary of Flagstar proposes to purchase from a franchisee certain
El Pollo Loco restaurants and related assets for an amount of cash and Debt not
to exceed $25,600,000. Flagstar has requested that the purchase of such
restaurants be excluded from the limitations on Investments and Capital
Expenditures as set forth in the Credit Agreement.
4. Flagstar has been informed that FCI proposes to exchange its $2.25
Series A Cumulative Convertible Exchangeable Preferred Stock for subordinated
Debt. Flagstar has requested that the exchange of such Preferred Stock be
excluded from the Events of Default.
5. Flagstar proposes to enter into Hedge Agreements as permitted by Section
5.02(b)(i)(D) of the Credit Agreement and has requested that the limitation on
prepayments of Debt and the Events of Default be amended to permit payments
under Hedge Agreements that terminate in accordance with their terms.
6. The Lenders have expressed their willingness to grant Flagstar's request
to amend the Credit Agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, hereby amended as follows:
(a) Section 1.01 is amended to add the following definition, in
appropriate alphabetical order:
"EL POLLO LOCO ACQUISITION AGREEMENT" means the Asset Purchase and
Franchise Termination Agreement and Escrow Instructions dated November
23, 1993 between El Pollo Loco, Inc., a Delaware corporation, and Alanza
Corporation, a California corporation, and the transactions contemplated
thereby pursuant to which El Pollo Loco, Inc. will purchase up to
fifteen El Pollo Loco restaurants and related assets from Alanza
Corporation and its affiliate for an amount of cash and Debt not to
exceed $25,600,000.
(b) Section 5.02(c) is amended by deleting the word "and" at the end
of Clause (D) thereof, substituting a semicolon followed by the word "and"
for the period at the end of clause (E) thereof and adding a new clause (F)
to read in full as follows:
"(F) additional operating leases and Capitalized Leases entered
into pursuant to the transactions contemplated by the El Pollo Loco
Acquisition Agreement."
(c) Section 5.02(e) is amended by deleting the word "and" at the end
of clause (v) thereof, substituting a semicolon followed by the word "and"
for the period at the end of clause (vi) thereof and adding a new clause
(vii) to read in full as follows:
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<PAGE>
"(vii) dispositions from time to time of all or any portion of the
assets constituting any of the restaurants of Denny's Holdings, Inc. and
its Subsidiaries for a consideration determined by the board of
directors of the Subsidiaries that own such assets (which board of
directors shall include members of senior management of Flagstar) to be
equal to the fair market value of the assets disposed of; PROVIDED THAT
the excess of aggregate Net Cash Proceeds of such dispositions over
$50,000,000 are used to prepay Advances in accordance with Section
2.05."
(d) Section 5.02(n)(i) is amended by deleting the word "and"
immediately preceding the designation "(E)", substituting a comma therefor
and adding at the end of clause (E) after the words "or (b)(iii)(F)" the
following:
"and (F) payments required in respect of Hedge Agreements (as
scheduled payments, payments upon termination or otherwise),"
(e) The first parenthetical clause of the second proviso of Section
5.04(d) is amended in full as follows:
"(other than (a) Investments made, incurred or assumed in
connection with the El Pollo Loco Acquisition Agreement in an aggregate
amount of not more than $25,600,000 and (b) Investments made, incurred
or assumed in an aggregate amount from October 26, 1992 of $50,000,000,
in each case including, without limitation, the aggregate principal
amount of Debt incurred or assumed in connection therewith)".
(f) Section 6.01(f) is amended by (i) deleting the phrase "Hedge
Agreement having a notional amount of at least $20,000,000 or in respect of
any other", (ii) deleting the phrase "such Hedge Agreement or such other"
in both places where it appears, (iii) deleting the phrase "to terminate,
or permit the termination of, such Hedge Agreement, or", (iv) deleting the
phrase "maturity of such other Debt or any such other Debt" and
substituting therefor the phrase "maturity of such Debt or such Debt" and
(v) inserting the parenthetical "(other than Debt described in clause (h)
of the definition of such term)" immediately after the word "Debt" in each
place where it appears.
(g) Section 6.01(p) is amended by deleting the word "and" immediately
before the designation "(iv)", substituting a comma therefor and adding the
following words to the end of clause (iv):
"and (v) Debt of FCI incurred pursuant to the exchange of FCI's
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock for
9% Convertible Subordinated Debentures due July 15, 2017 in a principal
amount equal to $25.00 per share of Preferred Stock so exchanged, in
accordance with the terms and conditions of such Preferred Stock; or"
(h) Section 6.01 is amended by adding a new subsection "(q)" to read
as follows:
"(q) any Loan Party or any of its Subsidiaries shall fail to pay
any amount payable in respect of any Hedge Agreement having a notional
amount of at least $20,000,000 when the same becomes due and payable
(whether by scheduled payment, termination or otherwise), and such
failure shall continue after the applicable grace period, if any,
specified in such Hedge Agreement;".
SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when (a) the Managing Agent shall have received
counterparts of this Amendment executed by Flagstar, Funding and the Required
Lenders or, as to any of the Lenders, advice satisfactory to the Managing Agent
that such Lenders have executed this Amendment, (b) the Managing Agent shall
have received the Consent attached hereto, signed by each Subsidiary of
Flagstar, (c) each of the representations and warranties set forth in Section 3
hereof shall be true and the Managing Agent shall have received a certificate of
a duly authorized officer of Flagstar to that effect and (d) Flagstar shall have
paid to the Managing Agent in accordance with Section 2.10 of the Credit
Agreement and for the account of each Lender that executes this Amendment, an
amendment fee equal to 0.1% of the aggregate amount of such Lender's Commitments
(other than the Letter of Credit Commitments).
SECTION 3. REPRESENTATIONS AND WARRANTIES.
Flagstar represents and warrants as follows:
(a) The execution, delivery and performance by each Loan Party of this
Amendment and the Credit Agreement, as amended hereby, and the consummation
of the transactions contemplated hereby and thereby are within such Loan
Party's corporate powers, have been duly authorized by all necessary
corporate action and do not (i) contravene such Loan Party's charter or
by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934, as amended), rule, regulation (including,
without limitation, Regulation X of the Board of Governors of the
2
<PAGE>
Federal Reserve System, as in effect from time to time), order, writ,
judgment, injunction, decree, determination or award applicable to any Loan
Party, (iii) conflict with or result in the breach of, or constitute a
default under, any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument binding on or affecting any Loan Party,
any of its Subsidiaries or any of their properties or (iv) result in or
require the creation or imposition of any Lien (other than Liens created by
or permitted under the Loan Documents) upon or with respect to any of the
properties of any Loan Party or any of its Subsidiaries except, as to (ii)
and (iii) above, as would not, and would not be reasonably likely to, have
a Material Adverse Effect.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery, recordation,
filing or performance by any Loan Party of this Amendment or the Credit
Agreement, as amended hereby, or for the consummation of the transactions
contemplated hereby and thereby, except where the failure to obtain, take,
give or make such authorizations, approvals, actions, notices or filings
would not, and would not be reasonably likely to, have a Material Adverse
Effect.
(c) This Amendment and the Consent have been duly executed and
delivered by each Loan Party party thereto. Assuming that (i) this
Amendment is duly executed and delivered by, and is within the power and
authority of, the Required Lenders and (ii) the Credit Agreement has been
duly executed and delivered by, and is within the power and authority of
the Managing Agent, the Co-Agents and the Lenders, this Amendment and the
Credit Agreement, as amended hereby, are the legal, valid and binding
obligation of each Loan Party party thereto, enforceable against such Loan
Party in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting creditors' rights generally and subject to
general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
SECTION 4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon the
effectiveness hereof, on and after the date hereof each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement and each reference in the other Loan Documents
to the Credit Agreement, "thereunder", "thereof" or words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement is and shall
continue to be in full force and effect and is hereby in all respects ratified
and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or Co-Agent or the Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
SECTION 5. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
3
<PAGE>
BORROWERS
FLAGSTAR CORPORATION
By /s/ A. RAY BIGGS
TITLE: SR. VICE PRESIDENT
TWS FUNDING, INC.
By /s/ KARL H. SEDLARZ
TITLE: TREASURER
LENDERS
CITIBANK, N.A.
By /s/ NICHOLAS J. CAMPBELL, JR.
TITLE: VICE PRESIDENT
THE BANK OF NOVA SCOTIA
By /s/ J. ALAN EDWARDS
TITLE: VICE PRESIDENT
BANKERS TRUST COMPANY
By /s/ MARY JO JOLLY
TITLE: ASSISTANT VICE PRESIDENT
THE CHASE MANHATTAN BANK, N.A.
By /s/ DAVID B. TOWNSEND
TITLE: MANAGING DIRECTOR
CHEMICAL BANK
By /s/ WILLIAM P. RINDFUSS
TITLE: VICE PRESIDENT
EATON VANCE PRIME RATE RESERVES
By /s/ Michael J. Cannon
TITLE: VICE PRESIDENT
GIROCREDIT BANK
By
TITLE:
KEYPORT LIFE INSURANCE COMPANY
By: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC. as Portfolio
Advisor
By /s/ CHRISTOPHER E. JANSEN
TITLE: VICE PRESIDENT
4
<PAGE>
LEHMAN COMMERCIAL PAPER
By
TITLE:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD. --
NEW YORK BRANCH
By /s/ SHUNKO UCHIDA
TITLE: VICE PRESIDENT
MC INTERNATIONAL INVESTMENT LTD.
By /s/ YUJI KOMIYA
TITLE: PRESIDENT
MERRILL LYNCH PRIME FUND
BY
TITLE:
MERRILL LYNCH PRIME RATE PORTFOLIO
By
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ PATRICIA LORET DE MOLA
TITLE: SENIOR VICE PRESIDENT
MITSUI LEASING (U.S.A.) INC.
By /s/ TOSHIAKI NAGANO
TITLE: EXECUTIVE VICE PRESIDENT
NATIONSBANK OF NORTH CAROLINA, N.A.
By /s/ CYNTHIA A. GRIM
TITLE: SENIOR VICE PRESIDENT
THE NIPPON CREDIT BANK, LTD.
By /s/ HIDEAKI MORI
TITLE: VICE PRESIDENT AND MANAGER
PILGRIM PRIME RATE TRUST
By /s/ KATHLEEN LENARCIC
TITLE: SENIOR CREDIT ANALYST
PROSPECT STREET SENIOR PORTFOLIO, L.P.
By: PROSPECT STREET SENIOR LOAN CORP.,
as Managing General Partner
By /s/ DANA E. ERIKSON
TITLE: ASSISTANT VICE PRESIDENT
5
<PAGE>
PROVIDENT BANK
By
TITLE:
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS, B.V. (ROSA)
By: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC. as Portfolio
Advisor
By /s/ CHRISTOPHER E. JANSEN
TITLE: VICE PRESIDENT
RYOSHIN LEASING (USA) INC.
By /s/ S. MATSUMURA
TITLE: PRESIDENT
THE SAKURA BANK, LTD.
By
TITLE:
STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2 (ROSA 2)
By: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC. as Portfolio
Advisor
By /s/ CHRISTOPHER E. JANSEN
TITLE: VICE PRESIDENT
SENIOR HIGH INCOME PORTFOLIO
By
TITLE:
SENIOR HIGH INCOME PORTFOLIO II, INC.
By
TITLE:
SUN LIFE INSURANCE COMPANY OF AMERICA
By /s/ LYNN A. HOPTON
TITLE: DIRECTOR, CORPORATE FINANCE,
SUNAMERICA INVESTMENTS, INC.
UNION BANK OF FINLAND
By
TITLE:
VAN KAMPEN MERRITT PRIME RATE INCOME
TRUST
By /s/ JEFFREY W. MAILLET
TITLE: VICE PRESIDENT
6
<PAGE>
CONSENT
DATED AS OF DECEMBER 15, 1993.
The undersigned, each a Guarantor under the Amended and Restated Guaranty
dated as of November 16, 1992 (as amended to date, the "GUARANTY") and a Grantor
under the Amended and Restated Security Agreement dated as of November 16, 1992
(as amended to date, the "SECURITY AGREEMENT") in favor of the Managing Agent
for the Lenders parties to the Credit Agreement referred to in the foregoing
Third Amendment, hereby consents to the said Third Amendment and hereby confirms
and agrees that (i) each of the Guaranty and the Security Agreement is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects except that, upon the effectiveness of, and on and
after the date of, the said Third Amendment, each reference in each of the
Guaranty and the Security Agreement to the Loan Documents or any thereof,
"thereunder", "thereof" or words of like import shall mean and be a reference to
the Loan Documents or such Loan Document as amended by the said Third Amendment
and (ii) the Security Agreement and all of the Collateral described therein do,
and shall continue to, secure the payment of all of the Obligations (as defined
therein).
SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES
CANTEEN HOLDINGS, INC.
DENNY'S HOLDINGS, INC.
SPARTAN HOLDINGS, INC.
By /s/ MICHAEL T. TOKARZ
PRESIDENT OR VICE PRESIDENT OF EACH OF THE
CORPORATIONS LISTED ABOVE
7
<PAGE>
CANTEEN SUBSIDIARY GROUP
ACE FOODS, INC.
AUTOMATIC CIGARETTE SERVICE COMPANY
AUTOMATIC MERCHANTS, INC.
BATON ROUGE CIGARETTE SERVICE, INC.
CANTEEN CORPORATION
CANTEEN MANAGEMENT SERVICES, INC.
CANTEEN SERVICE, INC.
CIGARETTE SERVICE CO., INC.
CONSOLIDATED COIN CATERERS CORPORATION
5111 W. LEXINGTON BUILDING CORPORATION
IM VENDING, INC.
IM PARKS, INC.
IM STADIUM, INC.
NEW ORLEANS CIGARETTE SERVICE CORPORATION
THE OAK ROOM, INC.
QUAD COUNTY CANTEEN SERVICE COMPANY
TW RECREATIONAL SERVICES, INC.
UNITED FOOD MANAGEMENT SERVICES, INC. N.Y.
VOLUME SERVICES, INC. (A KANSAS CORPORATION)
VOLUME SERVICES, INC. (A DELAWARE CORPORATION)
By /s/ KARL H. SEDLARZ
VICE PRESIDENT OR TREASURER OF EACH OF THE
CORPORATIONS LISTED ABOVE
8
<PAGE>
DENNY'S SUBSIDIARY GROUP
BUTLER-JEZAK, INC.
CB DEVELOPMENT #3, INC.
CB DEVELOPMENT #4, INC.
CB DEVELOPMENT #6, INC.
CB DEVELOPMENT #8, INC.
C-B-R DEVELOPMENT CO., INC.
DANNY'S DO NUTS #3, INC.
DANNY'S DO NUTS #10, INC.
DANNY'S DO NUTS #15, INC.
DENNY'S, INC.
DENNY'S MANAGEMENT, INC.
DENNY'S REALTY, INC.
DFC TRUCKING CO.
EAVES PACKING COMPANY, INC.
EL POLLO LOCO, INC.
HAROLD BUTLER ENTERPRISES #5, INC.
HAROLD BUTLER ENTERPRISES #13, INC.
HAROLD BUTLER ENTERPRISES #17, INC.
HAROLD BUTLER ENTERPRISES #20, INC.
HAROLD BUTLER ENTERPRISES #45, INC.
HAROLD BUTLER ENTERPRISES #53, INC.
HAROLD BUTLER ENTERPRISES #55, INC.
HAROLD BUTLER ENTERPRISES #58, INC.
HAROLD BUTLER ENTERPRISES #59, INC.
HAROLD BUTLER ENTERPRISES #72, INC.
HAROLD BUTLER ENTERPRISES #74, INC.
HAROLD BUTLER ENTERPRISES #75, INC.
HAROLD BUTLER ENTERPRISES #84, INC.
HAROLD BUTLER ENTERPRISES #88, INC.
HAROLD BUTLER ENTERPRISES #91, INC.
HAROLD BUTLER ENTERPRISES #94, INC.
HAROLD BUTLER ENTERPRISES #98, INC.
HAROLD BUTLER ENTERPRISES #101, INC.
By /s/ ROBERT L. WYNN
PRESIDENT OR VICE PRESIDENT OF EACH OF THE
CORPORATIONS LISTED ABOVE
DENNY'S RESTAURANTS OF IDAHO, INC.
By /s/ ROBERT L. WYNN
TITLE: ASSISTANT TREASURER
9
<PAGE>
DENNY'S SUBSIDIARY GROUP (CONTINUED)
HAROLD BUTLER ENTERPRISES #102, INC.
HAROLD BUTLER ENTERPRISES #103, INC.
HAROLD BUTLER ENTERPRISES #105, INC.
HAROLD BUTLER ENTERPRISES #108, INC.
HAROLD BUTLER ENTERPRISES #111, INC.
HAROLD BUTLER ENTERPRISES #113, INC.
HAROLD BUTLER ENTERPRISES #120, INC.
HAROLD BUTLER ENTERPRISES #122, INC.
HAROLD BUTLER ENTERPRISES #123, INC.
HAROLD BUTLER ENTERPRISES #130, INC.
HAROLD BUTLER ENTERPRISES #139, INC.
HAROLD BUTLER ENTERPRISES #147, INC.
HAROLD BUTLER ENTERPRISES #157, INC.
HAROLD BUTLER ENTERPRISES #158, INC.
HAROLD BUTLER ENTERPRISES #173, INC.
HAROLD BUTLER ENTERPRISES #181, INC.
HAROLD BUTLER ENTERPRISES #186, INC.
HAROLD BUTLER ENTERPRISES #194, INC.
HAROLD BUTLER ENTERPRISES #204, INC.
HAROLD BUTLER ENTERPRISES #211, INC.
HAROLD BUTLER ENTERPRISES #215, INC.
HAROLD BUTLER ENTERPRISES #222, INC.
HAROLD BUTLER ENTERPRISES #224, INC.
HAROLD BUTLER ENTERPRISES #235, INC.
HAROLD BUTLER ENTERPRISES #250, INC.
HAROLD BUTLER ENTERPRISES #254, INC.
HAROLD BUTLER ENTERPRISES #255, INC.
HAROLD BUTLER ENTERPRISES #259, INC.
HAROLD BUTLER ENTERPRISES #262, INC.
HAROLD BUTLER ENTERPRISES #267, INC.
HAROLD BUTLER ENTERPRISES #269, INC.
HAROLD BUTLER ENTERPRISES #270, INC.
HAROLD BUTLER ENTERPRISES #272, INC.
HAROLD BUTLER ENTERPRISES #273, INC.
HAROLD BUTLER ENTERPRISES #287, INC.
HAROLD BUTLER ENTERPRISES #289, INC.
10
<PAGE>
HAROLD BUTLER ENTERPRISES #292, INC.
HAROLD BUTLER ENTERPRISES #303, INC.
HAROLD BUTLER ENTERPRISES #304, INC.
HAROLD BUTLER ENTERPRISES #306, INC.
HAROLD BUTLER ENTERPRISES #308, INC.
HAROLD BUTLER ENTERPRISES #314, INC.
HAROLD BUTLER ENTERPRISES #328, INC.
By /s/ ROBERT L. WYNN
PRESIDENT OR VICE PRESIDENT OF EACH OF THE
CORPORATIONS LISTED ABOVE
11
<PAGE>
DENNY'S SUBSIDIARY GROUP (CONTINUED)
HAROLD BUTLER ENTERPRISES #331, INC.
HAROLD BUTLER ENTERPRISES #332, INC.
HAROLD BUTLER ENTERPRISES #335, INC.
HAROLD BUTLER ENTERPRISES #340, INC.
HAROLD BUTLER ENTERPRISES #351, INC.
HAROLD BUTLER ENTERPRISES #360, INC.
HAROLD BUTLER ENTERPRISES #361, INC.
HAROLD BUTLER ENTERPRISES #362, INC.
HAROLD BUTLER ENTERPRISES #372, INC.
HAROLD BUTLER ENTERPRISES #383, INC.
HAROLD BUTLER ENTERPRISES #386, INC.
HAROLD BUTLER ENTERPRISES #406, INC.
HAROLD BUTLER ENTERPRISES #408, INC.
HAROLD BUTLER ENTERPRISES #418, INC.
HAROLD BUTLER ENTERPRISES #429, INC.
HAROLD BUTLER ENTERPRISES #435, INC.
HAROLD BUTLER ENTERPRISES #451, INC.
HAROLD BUTLER ENTERPRISES #452, INC.
HAROLD BUTLER ENTERPRISES #477, INC.
HAROLD BUTLER ENTERPRISES #479, INC.
HAROLD BUTLER ENTERPRISES #482, INC.
HAROLD BUTLER ENTERPRISES #505, INC.
HAROLD BUTLER ENTERPRISES #508, INC.
HAROLD BUTLER ENTERPRISES #531, INC.
HAROLD BUTLER ENTERPRISES #532, INC.
HAROLD BUTLER ENTERPRISES #545, INC.
HAROLD BUTLER ENTERPRISES #546, INC.
HAROLD BUTLER ENTERPRISES #553, INC.
HAROLD BUTLER ENTERPRISES #571, INC.
HAROLD BUTLER ENTERPRISES #578, INC.
HAROLD BUTLER ENTERPRISES #586, INC.
HAROLD BUTLER ENTERPRISES #589, INC.
HAROLD BUTLER ENTERPRISES #604, INC.
HAROLD BUTLER ENTERPRISES #607, INC.
HAROLD BUTLER ENTERPRISES #611, INC.
HAROLD BUTLER ENTERPRISES #616, INC.
12
<PAGE>
HAROLD BUTLER ENTERPRISES #619, INC.
HAROLD BUTLER ENTERPRISES #626, INC.
HAROLD BUTLER ENTERPRISES #640, INC.
HAROLD BUTLER ENTERPRISES #663, INC.
HAROLD BUTLER ENTERPRISES #667, INC.
HAROLD BUTLER ENTERPRISES #668, INC.
By /s/ ROBERT L. WYNN
PRESIDENT OR VICE PRESIDENT OF EACH OF THE
CORPORATIONS LISTED ABOVE
13
<PAGE>
DENNY'S SUBSIDIARY GROUP (CONTINUED)
HAROLD BUTLER ENTERPRISES #684, INC.
HAROLD BUTLER ENTERPRISES #687, INC.
HAROLD BUTLER ENTERPRISES #693, INC.
HAROLD BUTLER ENTERPRISES #694, INC.
HAROLD BUTLER ENTERPRISES #718, INC.
HAROLD BUTLER ENTERPRISES #739, INC.
DENNY'S RESTAURANTS, INC.
LA MIRADA ENTERPRISES NO. 2, INC.
LA MIRADA ENTERPRISES NO. 5, INC.
LA MIRADA ENTERPRISES NO. 6, INC.
LA MIRADA ENTERPRISES NO. 7, INC.
LA MIRADA ENTERPRISES NO. 8, INC.
LA MIRADA ENTERPRISES NO. 9, INC.
LA MIRADA ENTERPRISES NO. 14, INC.
PORTIONTROL FOODS, INC.
PROFICIENT FOOD COMPANY
By /s/ ROBERT L. WYNN
PRESIDENT OR VICE PRESIDENT OF EACH OF THE
CORPORATIONS LISTED ABOVE
TWS 200 CORP.
TWS 300 CORP.
TWS 500 CORP.
TWS 600 CORP.
TWS 700 CORP.
TWS 800 CORP.
WDH SERVICES, INC.
By /s/ ROBERT L. WYNN
PRESIDENT OR VICE PRESIDENT OF EACH OF THE
CORPORATIONS LISTED ABOVE
CB DEVELOPMENT #9, LTD.
DENNY'S OF CANADA LTD.
DENNY'S RESTAURANTS OF CANADA, LTD.
By /s/ WILLIAM H. MITCHELL
TITLE: VICE PRESIDENT
14
<PAGE>
SPARTAN SUBSIDIARY GROUP
QUINCY'S REALTY, INC.
QUINCY'S RESTAURANTS, INC.
SPARDEE'S RESTAURANTS, INC.
SPARDEE'S REALTY, INC.
SPARTAN FOOD SYSTEMS, INC.
SPARTAN REALTY, INC.
By /s/ KARL H. SEDLARZ
TREASURER OF EACH OF THE CORPORATIONS LISTED ABOVE
SPARTAN MANAGEMENT, INC.
/s/ KARL H. SEDLARZ
TITLE: TREASURER
ADDITIONAL GUARANTOR:
AMS HOLDINGS, INC.
By /s/ MICHAEL T. TOKARZ
TITLE: PRESIDENT OR VICE PRESIDENT
15
Exhibit 4.23
Conformed Copy
FLAGSTAR CORPORATION
AND
FIRST TRUST NATIONAL ASSOCIATION, TRUSTEE
Indenture
Dated as of September 23, 1993
$275,000,000
10 3/4% Senior Notes Due 2001
TABLE OF CONTENTS
Page
PARTIES 1
RECITALS
Authorization of Indenture 1
Form of Face of Security 1
Form of Reverse of Security 3
Form of Trustee's Certificate of Authentication 8
Compliance with Legal Requirements 8
Purpose of and Consideration for Indenture 8
ARTICLE ONE
DEFINITIONS.
SECTION 1.1. Certain Terms Defined 9
Acquisition Indebtedness 9
Adjusted Consolidated Net Worth 9
Affiliate 10
Agent 10
Asset Segment 10
Associates 10
Bankruptcy Law 10
Board of Directors 11
Business Day 11
Business Segment 11
Capital Stock 11
Cash Equivalents 11
Code 12
Commission 12
Consolidated Fixed Charges 12
Consolidated Net Income 13
Consolidated Net Worth 13
Controlled Corporation
EBITDA Amount 14
Corporate Trust Office 14
Credit Agent 14
Credit Agreement 14
Default 14
Disqualified Stock 14
DLJ 15
DLJ Capital 15
EBITDA 15
11.25% Debentures 16
Equity Interests 16
Equity Investment 16
Event of Default 16
Excluded Properties 16
Existing Indebtedness 16
FCI 16
FCI Common Stock 16
Fixed Charge Coverage Ratio 16
GTO 16
GTO Fee 16
Holder, holder of Securities,
Securityholder 17
Indebtedness 17
Indenture 17
Indentures 17
Interest Rate Agreement 17
Investment 17
Issuer 18
KKR 18
Lien 18
Mortgage Financing 18
Mortgage Financing Proceeds 18
Mortgage Refinancing 18
Mortgage Refinancing Proceeds 18
Net Income 19
Net Proceeds 19
New Senior Subordinated Securities 19
Obligations 20
OECD 20
Officers' Certificate 20
Opinion of Counsel 20
Outstanding 20
Permitted Investments 21
Preferred Stock 21
principal 21
Recapitalization 21
Remaining Section 355 Amount 21
Responsible Officer 22
Restricted Investments 22
Section 355 Percentage 22
Section 355 Transaction 23
Security or Securities 23
Senior Indebtedness 23
Significant Subsidiary 23
Specified Issuer EBITDA 24
Subsidiary 24
10% Debentures 24
10 7/8% Notes 24
Trustee 24
Trust Indenture Act of 1939 24
Unrestricted Subsidiary 24
Weighted Average Life to Maturity 25
ARTICLE TWO
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES.
SECTION 2.1. Authentication and Delivery of
Securities 25
SECTION 2.2. Execution of Securities 26
SECTION 2.3. Certificate of Authentication 26
SECTION 2.4. Form, Denomination and Date of
Securities; Payments of Interest 26
SECTION 2.5. Registration, Transfer and Exchange 27
SECTION 2.6. Mutilated, Defaced, Destroyed, Lost
and Stolen Securities 29
SECTION 2.7. Cancellation of Securities;
Destruction Thereof 30
SECTION 2.8. Temporary Securities 30
ARTICLE THREE
COVENANTS OF THE ISSUER AND THE TRUSTEE.
SECTION 3.1. Payment of Principal and Interest 31
SECTION 3.2. Offices for Payments, etc. 31
SECTION 3.3. Appointment to Fill a Vacancy in
Office of Trustee 31
SECTION 3.4. Paying Agents 32
SECTION 3.5. Certificates to Trustee 33
SECTION 3.6. Securityholder Lists 33
SECTION 3.7. Reports by the Issuer 33
SECTION 3.8. Reports by the Trustee 34
SECTION 3.9. Limitation on Restricted Payments 34
SECTION 3.10. Limitation on Dividends and Other
Payment Restrictions Affecting
Subsidiaries 39
SECTION 3.11. Limitation on Additional Indebtedness
and Issuance of Disqualified Stock 40
SECTION 3.12. Limitation on Transactions with
Affiliates 42
SECTION 3.13. Sale of Assets 43
SECTION 3.14. Corporate Existence 46
SECTION 3.15. Limitation on Liens 46
SECTION 3.16. Issuer to Cause Certain
Subsidiaries to Become Guarantors 49
SECTION 3.17. Investments in Unrestricted
Subsidiaries 49
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
SECTION 4.1. Events of Default 50
SECTION 4.2. Acceleration 52
SECTION 4.3. Other Remedies 53
SECTION 4.4. Waiver of Defaults 53
SECTION 4.5. Control by Majority 53
SECTION 4.6. Limitation on Suits 54
SECTION 4.7. Rights of Holders to Receive Payment 54
SECTION 4.8. Collection Suit by Trustee 55
SECTION 4.9. Trustee May File Proofs of Claim 55
SECTION 4.10. Priorities 56
SECTION 4.11. Undertaking for Costs 56
ARTICLE FIVE
CONCERNING THE TRUSTEE.
SECTION 5.1. Duties and Responsibilities of the
Trustee; During Default; Prior to
Default 57
SECTION 5.2. Certain Rights of the Trustee 58
SECTION 5.3. Trustee Not Responsible for Recitals,
Disposition of Securities or
Application of Proceeds Thereof 60
SECTION 5.4. Trustee and Agents May Hold
Securities; Collections, etc. 60
SECTION 5.5. Moneys Held by Trustee 60
SECTION 5.6. Compensation and Indemnification
of Trustee and Its Prior Claim 60
SECTION 5.7. Right of Trustee to Rely on
Officers' Certificate, etc. 61
SECTION 5.8. Persons Eligible for Appointment
as Trustee 61
SECTION 5.9. Resignation and Removal; Appointment
of Successor Trustee 62
SECTION 5.10. Acceptance of Appointment by
Successor Trustee 63
SECTION 5.11. Merger, Conversion, Consolidation or
Succession to Business of Trustee 64
SECTION 5.12. Indenture Not Creating Potential
Conflicting Interests for the
Trustee 64
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS.
SECTION 6.1. Evidence of Action Taken by
Securityholders 65
SECTION 6.2. Proof of Execution of Instruments
and of Holding of Securities;
Record Date 65
SECTION 6.3. Holders to Be Treated as Owners 66
SECTION 6.4. Securities Owned by Issuer Deemed Not
Outstanding 66
SECTION 6.5. Right of Revocation of Action Taken 67
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES.
SECTION 7.1. Supplemental Indentures Without
Consent of Securityholders 67
SECTION 7.2. Supplemental Indentures With Consent
of Securityholders 69
SECTION 7.3. Effect of Supplemental Indenture 70
SECTION 7.4. Documents to Be Given to Trustee 70
SECTION 7.5. Notation on Securities in Respect of
Supplemental Indentures 70
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE.
SECTION 8.1. When Issuer May Merge, etc. 71
SECTION 8.2. Successor Corporation Substituted 72
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS; DEFEASANCE.
SECTION 9.1. Satisfaction and Discharge of
Indenture 73
SECTION 9.2. Application by Trustee of Funds
Deposited for Payment of Securities 74
SECTION 9.3. Repayment of Moneys Held by Paying
Agent 74
SECTION 9.4. Return of Moneys Held by Trustee and
Paying Agent Unclaimed for Three
Years 74
SECTION 9.5. Defeasance 75
ARTICLE TEN
MISCELLANEOUS PROVISIONS.
SECTION 10.1. Incorporators, Stockholders, Officers
and Directors of Issuer Exempt from
Individual Liability 77
SECTION 10.2. Provisions of Indenture for the Sole
Benefit of Parties and Security-
holders 77
SECTION 10.3. Successors and Assigns of Issuer
Bound by Indenture 77
SECTION 10.4. Notices and Demands on Issuer,
Trustee and Securityholders 77
SECTION 10.5. Officers' Certificates and Opinions
of Counsel; Statements to Be
Contained Therein 78
SECTION 10.6. Payments Due on Saturdays, Sundays
and Holidays 79
SECTION 10.7. Conflict of Any Provision of
Indenture with Trust Indenture
Act of 1939 80
SECTION 10.8. New York Law to Govern 80
SECTION 10.9. Counterparts 80
SECTION 10.10. Effect of Headings 80
ARTICLE ELEVEN
REDEMPTION OF SECURITIES.
SECTION 11.1. Right of Optional Redemption 80
SECTION 11.2. Notice of Redemption; Partial
Redemptions 80
SECTION 11.3. Payment of Securities Called for
Redemption 82
SECTION 11.4. Exclusion of Certain Securities from
Eligibility for Selection for
Redemption 83
SECTION 11.5. Offer to Redeem by Application of
Net Proceeds 83
TESTIMONIUM 85
SIGNATURES 85
ACKNOWLEDGMENTS 85
THIS INDENTURE, dated as of September 23, 1993
among Flagstar Corporation, a Delaware corporation (the
"Issuer"), and First Trust National Association, a national
banking association, as Trustee (the "Trustee"),
W I T N E S S E T H :
WHEREAS, the Issuer has duly authorized the issue
of its 10 3/4% Senior Notes Due 2001 (the "Securities") and,
to provide, among other things, for the authentication,
delivery and administration thereof, the Issuer has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, the Securities and the Trustee's
certificate of authentication shall be in substantially the
following form:
[FORM OF FACE OF SECURITY]
No.
$
FLAGSTAR CORPORATION
10 3/4% Senior Notes Due 2001
Flagstar Corporation, a Delaware corporation (the
"Issuer"), for value received hereby promises to pay to or registered
assigns the principal sum
of Dollars at the Issuer's office or agency for
said purpose on September 15, 2001 in 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, and to pay interest, semi-annually on March 15 and
September 15 of each year, on said principal sum in like
coin or currency at the rate per annum set forth above at
said office or agency from the March 15 or the September 15,
as the case may be, next preceding the date of this Security
to which interest on the Securities has been paid or duly
provided for, unless the date hereof is a date to which
interest on the Securities has been paid or duly provided
for, in which case from the date of this Security, or unless
no interest has been paid or duly provided for on the
Securities, in which case from September 23, 1993 until
payment of said principal sum has been made or duly provided
for. Notwithstanding the foregoing, if the date hereof is
after March 1 or September 1, as the case may be, and before
the following March 15 or September 15, this Security shall
bear interest from such March 15 or September 15; provided,
that if the Issuer shall default in the payment of interest
due on such March 15 or September 15, then this Security
shall bear interest from the next preceding March 15 or
September 15 to which interest on the Securities has been
paid or duly provided for, or, if no interest has been paid
or duly provided for on the Securities, from September 23,
1993. The interest so payable on any March 15 or September
15 will, except as otherwise provided in the Indenture
referred to on the reverse hereof, be paid to the person in
whose name this Security is registered at the close of
business on the March 1 or September 1 preceding such March
15 or September 15, whether or not such day is a business
day; provided that interest may be paid, at the option of
the Issuer, by mailing a check therefor payable to the
registered holder entitled thereto at his last address as it
appears on the Security register or by wire transfer to such
holder.
Reference is made to the further provisions set
forth on the reverse hereof. Such further provisions shall
for all purposes have the same effect as though fully set
forth at this place.
This Security shall not be valid or obligatory
until the certificate of authentication hereon shall have
been duly signed by the Trustee acting under the Indenture.
IN WITNESS WHEREOF, the Issuer has caused this
instrument to be duly executed under its corporate seal.
Dated:
[Seal]
______________________________
______________________________
[FORM OF REVERSE OF SECURITY]
Flagstar Corporation
10 3/4% Senior Notes Due 2001
This Security is one of a duly authorized issue of
debt securities of the Issuer, limited to the aggregate
principal amount of $275,000,000 (except as otherwise
provided in the Indenture mentioned below), issued or to be
issued pursuant to an indenture dated as of September 23,
1993 (the "Indenture"), duly executed and delivered by the
Issuer to First Trust National Association, as Trustee
(herein called the "Trustee"). Reference is hereby made to
the Indenture and all indentures supplemental thereto for a
description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the
Trustee, the Issuer and the holders (the words "holders" or
"holder" meaning the registered holders or registered
holder) of the Securities.
If an Event of Default, as defined in the
Indenture, shall have occurred and be continuing, the
Trustee or the holders of at least 30% (or 25% in the case
of a default with respect to payment of principal of,
premium, if any, or interest on the Securities) in principal
amount of the then outstanding Securities may declare the
principal amount of the Securities to be due and payable
immediately; provided, however, that if any Senior
Indebtedness is outstanding pursuant to the Credit
Agreement, upon a declaration of acceleration, such
principal and interest shall be payable upon the earlier of
(x) the day that is five Business Days after the provision
to the Issuer and the Credit Agent of such written notice
unless such Event of Default has been cured or waived prior
to such date and (y) the date of acceleration of any Senior
Indebtedness under the Credit Agreement. In the case of an
Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Securities become due and
payable immediately without further action or notice. The
Indenture provides that in certain events a declaration of
acceleration and its consequences may be waived by the
holders of a majority in aggregate principal amount of the
Securities then outstanding and that the holders of a
majority in aggregate principal amount of the Securities
then outstanding may waive any default under the Indenture
and its consequences except a default in the payment of
principal of, premium, if any, or interest on any of the
Securities. Any such consent or waiver by the holder of
this Security (unless revoked as provided in the Indenture)
shall be conclusive and binding upon such holder and upon
all future holders and owners of this Security and any
Security which may be issued in exchange or substitution
herefor, whether or not any notation thereof is made upon
this Security or such other Securities.
The Indenture permits the Issuer and the Trustee,
with the consent of the holders of not less than a majority
in aggregate principal amount of the Securities at the time
outstanding, evidenced as in the Indenture provided, to
execute supplemental indentures adding any provisions to or
changing in any manner or eliminating any of the provisions
of the Indenture or of any supplemental indenture or
modifying in any manner the rights of the holders of the
Securities; provided that no such supplemental indenture
shall (a) extend the final maturity of any Security, or
reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, or reduce
the premium, if any, payable thereon, or reduce any amount
payable on the redemption thereof or impair or affect the
rights of any Securityholder to institute suit for the
payment thereof, or waive a default in the payment of
principal of, premium, if any, or interest on any Security,
change the currency of payment of principal of, premium, if
any, or interest on any Security, or modify any provision in
the Indenture with respect to the priority of the Securities
in right of payment without the consent of the holder of
each Security so affected; or (b) reduce the aforesaid
percentage of Securities, the consent of the holders of
which is required for any such supplemental indenture,
without the consent of the holders of all Securities then
outstanding.
The Securities are senior in right of payment to
the 10% Convertible Junior Subordinated Debentures Due 2014
of the Issuer issued pursuant to the indenture dated as of
November 1, 1989 between the Issuer and United States Trust
Company of New York, trustee, as supplemented.
No reference herein to the Indenture and no
provision of this Security or of the Indenture shall alter
or impair the obligation of the Issuer, which is absolute
and unconditional, to pay the principal of, premium, if any
and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered
Securities without coupons in denominations of $1,000 and
any multiple of $1,000.
At the office or agency of the Issuer referred to
on the face hereof and in the manner and subject to the
limitations provided in the Indenture, Securities may be
exchanged for a like aggregate principal amount of
Securities of other authorized denominations.
Upon due presentment for registration of transfer
of this Security at the above-mentioned office or agency of
the Issuer, a new Security or Securities of authorized
denominations, for a like aggregate principal amount, will
be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but
the Issuer may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
relation thereto.
The Securities will not be subject to redemption
at the option of the Issuer prior to maturity, except that
prior to September 15, 1996, the Issuer may redeem up to 35%
of the original aggregate principal amount of the
Securities, at a redemption price (expressed as a percentage
of the principal amount) of 110%, plus accrued and unpaid
interest, if any, to the redemption date, with that portion,
if any, of the net proceeds of any public offering for cash
of FCI Common Stock that is used by FCI to acquire from the
Issuer shares of common stock of the Issuer; provided that
any such redemption is effected within 60 days after the
closing of such public offering of FCI Common Stock.
Notice of redemption shall be mailed at least 30
and not more than 60 days prior to the date fixed for
redemption to each holder of Securities to be redeemed at
his registered address. Securities may be redeemed in part
only in multiples of $1,000.
Subject to the terms of the Indenture, if the
Issuer consummates any Asset Sale or sells a Business
Segment (as such terms are defined in the Indenture), the
Issuer shall be obligated to apply the proceeds thereof to
one or more of the following in such combination as the
Issuer may choose: (i) an investment in another asset or
business in the same line of business as the Issuer and its
Subsidiaries, provided such investment occurs within 366
days of such Asset Sale or sale of a Business Segment, (ii)
an offer, expiring within 366 days of such Asset Sale or
such sale of a Business Segment, to redeem Securities at a
redemption price not less than 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the
redemption date (a "Net Proceeds Offer") or (iii) the
prepayment of outstanding Senior Indebtedness within 366
days of such Asset Sale or sale of a Business Segment;
provided, however, that if the net amount not invested
pursuant to clause (i) or applied pursuant to clause (iii)
above to the prepayment of Senior Indebtedness is less than
$15,000,000, the Issuer shall not be further obligated to
offer to redeem Securities pursuant to clause (ii) above.
Holders of Securities which are the subject of an offer to
redeem shall receive an offer to redeem from the Issuer
prior to any related redemption date, and may elect to have
such Securities redeemed by completing the form entitled
"Option of Holder to Elect to Have Security Redeemed"
appearing below. Notwithstanding any provision of the
Indenture to the contrary, the Issuer may, for a period of
120 days after the last date on which holders of Securities
are permitted to elect to have their Securities redeemed in
a Net Proceeds Offer, use any Net Proceeds that were
available to make such Net Proceeds Offer but not used to
redeem Securities pursuant thereto, to purchase, redeem or
otherwise acquire or retire for value securities of the
Issuer ranking junior in right of payment to the Securities
at a price, stated as a percentage of the principal or face
amount of such junior securities, not greater than the
price, stated as a percentage of the principal amount of the
Securities, offered in the Net Proceeds Offer; provided that
if the Net Proceeds Offer is for a principal amount (the
"Net Proceeds Offer Amount") of the Securities less than the
aggregate principal amount of the Securities then
outstanding, then the Net Proceeds available for use by the
Issuer for such a purchase, redemption or other acquisition
or retirement for value of junior securities shall not
exceed the Net Proceeds Offer Amount.
Subject to payment by the Issuer of a sum
sufficient to pay the amount due on redemption, interest on
this Security (or portion hereof if this Security is
redeemed in part) shall cease to accrue upon the date duly
fixed for redemption of this Security (or portion hereof if
this Security is redeemed in part).
The Issuer, the Trustee, and any authorized agent
of the Issuer or the Trustee, may deem and treat the
registered holder hereof as the absolute owner of this
Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Issuer or the Trustee
or any authorized agent of the Issuer or the Trustee), for
the purpose of receiving payment of, or on account of, the
principal hereof and premium, if any, and, subject to the
provisions on the face hereof, interest hereon and for all
other purposes, and neither the Issuer nor the Trustee nor
any authorized agent of the Issuer or the Trustee shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the
principal of or premium, if any, or the interest on this
Security, for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture
or any indenture supplemental thereto, against any
incorporator, shareholder, officer or director, as such,
past, present or future, of the Issuer or of any successor
corporation, either directly or through the Issuer or any
successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement
of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and
released.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the
within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION
, as Trustee
Authorized Signatory
OPTION OF HOLDER TO ELECT TO HAVE SECURITY REDEEMED
If you have received a Net Proceeds Offer from the
Issuer and want to elect to have this Security redeemed by
the Issuer pursuant to Section 11.5 of the Indenture, check
the box: [ ]
Date: _______________ Your Signature: ____________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee: ____________________________
AND WHEREAS, all things necessary to make the
Securities, when executed by the Issuer and authenticated
and delivered by the Trustee as in this Indenture provided,
the valid, binding and legal obligations of the Issuer, and
to constitute these presents a valid indenture and agreement
according to its terms, have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases
of the Securities by the holders thereof, the Issuer and the
Trustee mutually covenant and agree for the equal and
proportionate benefit of the respective holders from time to
time of the Securities as follows:
ARTICLE ONE
DEFINITIONS.
SECTION 1.1 Certain Terms Defined. The following
terms (except as otherwise expressly provided or unless the
context otherwise clearly requires) for all purposes of this
Indenture and of any indenture supplemental hereto shall
have the respective meanings specified in this Section. All
other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939 or the definitions of which in
the Securities Act of 1933 are referred to in the Trust
Indenture Act of 1939 (except as herein otherwise expressly
provided or unless the context otherwise clearly requires),
shall have the meanings assigned to such terms in said Trust
Indenture Act and in said Securities Act as in force at the
date of this Indenture. All accounting terms used herein
and not expressly defined shall have the meanings given to
them in accordance with generally accepted accounting
principles, and the term "generally accepted accounting
principles" shall mean such accounting principles which are
generally accepted at the date or time of any computation or
at the date hereof. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article,
Section or other subdivision. The terms defined in this
Article include the plural as well as the singular.
"Acquisition Indebtedness" means Indebtedness of
any person existing at the time such person becomes a
Subsidiary of the Issuer (or at the time such person is
merged with or into a Subsidiary of the Issuer), excluding
Indebtedness of any Subsidiary of the Issuer (other than
such person) incurred in connection with, or in
contemplation of, such person becoming a Subsidiary of the
Issuer.
"Adjusted Consolidated Net Worth" with respect to
the Issuer means, as of any date, the Consolidated Net Worth
of the Issuer plus (i) the respective amounts reported on
the Issuer's most recent consolidated balance sheet with
respect to any preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid
only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash
received by the Issuer upon issuance of such preferred stock
or of securities converted into such preferred stock,
excluding (ii) any amount reflecting any equity adjustment
resulting from a foreign currency translation on a
consolidated balance sheet of the Issuer, but only to the
extent not excluded in calculating Consolidated Net Worth of
the Issuer, plus (iii) any gain realized upon the sale or
other disposition of any Business Segments to the extent
such gains do not exceed the sum of the aggregate amount of
any losses included (on a net after tax basis) in the
computation of Consolidated Net Worth, plus (iv) transaction
fees and expenses related to the Recapitalization and any
related transactions including amortization thereof, but
only to the extent such fees and expenses were included in
calculating Consolidated Net Worth of the Issuer.
"Affiliate" means any person directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Issuer. For the purposes
of this definition, beneficial ownership of 10% or more of
the voting common equity of a person shall be deemed to be
control unless ownership of a lesser amount may be deemed to
be control under the Trust Indenture Act; provided, however,
that neither DLJ Capital nor any of its affiliates shall be
deemed to be an Affiliate for purposes of the covenants in
this Indenture.
"Agent" means any registrar, paying agent or co-
registrar for the Securities.
"Asset Segment" means (i) Denny's Holdings, Inc.,
(ii) Spartan Holdings, Inc., (iii) Canteen Holdings, Inc.,
or (iv) any Subsidiary, group of Subsidiaries or group of
assets (other than inventory held for sale in the ordinary
course of business) of the Issuer or its Subsidiaries which
(A) accounts for at least 20 percent of the total assets of
the Issuer and its Subsidiaries on a consolidated basis as
of the end of the last fiscal quarter immediately preceding
the date for which such determination is being made or (B)
accounts for at least 20 percent of the income from
continuing operations before income taxes, extraordinary
items and cumulative effects of changes in accounting
principles of the Issuer and its Subsidiaries on a
consolidated basis for the four full fiscal quarters
immediately preceding the date for which such calculation is
being made.
"Associates" means TW Associates, L.P. and KKR
Partners II, L.P.
"Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors.
"Board of Directors" means either the Board of
Directors of the Issuer or any committee of such Board duly
authorized to act hereunder.
"Business Day" means a day which in the city (or
in any of the cities, if more than one) where amounts are
payable in respect of the Securities, as specified on the
face of the form of Security recited above, is neither a
legal holiday nor a day on which banking institutions are
authorized by law or regulation to close.
"Business Segment" means: (i) each of the
Issuer's Significant Subsidiaries, (ii) the capital stock of
any of the Issuer's Subsidiaries or (iii) any group of
assets of the Issuer or any Subsidiary whether now owned or
hereafter acquired, provided, in each case, that the sale
(other than the sale of inventory in the ordinary course of
business), lease, conveyance or other disposition of such
Significant Subsidiary, capital stock or group of assets, as
the case may be, either in a single transaction or group of
related transactions that are part of a common plan, results
in Net Proceeds to the Issuer and its Subsidiaries of $50
million or more.
"Capital Stock" means any and all shares,
interests, participations, rights or other equivalents
(however designated) of corporate stock.
"Cash Equivalents" means (i) securities issued or
directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time
deposits and certificates of deposit of any domestic
commercial bank of recognized standing having capital and
surplus in excess of $500,000,000 or a commercial bank
organized under the laws of any other country that is a
member of the OECD and having total assets in excess of
$500,000,000 with a maturity date not more than one year
from the date of acquisition, (iii) repurchase obligations
with a term of not more than 7 days for underlying
securities of the types described in clause (i) above
entered into with any bank meeting the qualifications
specified in clause (ii) above, (iv) commercial paper issued
by the parent corporation of any domestic commercial bank of
recognized standing having capital and surplus in excess of
$500,000,000 and commercial paper issued by others rated at
least A-2 or the equivalent thereof by Standard & Poor's
Corporation or at least P-2 or the equivalent thereof by
Moody's Investors Service, Inc. and in each case maturing
within one year after the date of acquisition and (v)
investments in money market funds substantially all of whose
assets comprise securities of the types described in clauses
(i) through (iv) above.
"Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time.
"Commission" means the Securities and Exchange
Commission.
"Consolidated Fixed Charges" means, with respect
to any person for a given period, consolidated interest
expense of such person and its consolidated Subsidiaries to
the extent deducted in computing Consolidated Net Income
(including, without limitation, amortization of original
issue discount and non-cash interest payments, all net
payments and receipts in respect of Interest Rate Agreements
and the interest component of capital leases, but excluding
deferred financing costs existing immediately after the
closing of the Equity Investment or incurred in connection
with the Recapitalization and amortization thereof) plus the
amount of all cash dividend payments on any series of
preferred stock of such person; provided that if, during
such period (i) such person or any of its Subsidiaries shall
have made any asset sales (other than, in the case of the
Issuer and its Subsidiaries, sales of the Capital Stock of
or any assets of Unrestricted Subsidiaries), Consolidated
Fixed Charges of such person and its Subsidiaries for such
period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to the
assets which are the subject of such asset sales for such
period and (ii) such person or any of its Subsidiaries has
made any acquisition of assets or Capital Stock (occurring
by merger or otherwise), including, without limitation, any
acquisition of assets or Capital Stock occurring in
connection with the transaction causing a calculation to be
made hereunder, Consolidated Fixed Charges of such person
and its Subsidiaries shall be calculated on a pro forma
basis as if such acquisition of assets or Capital Stock
(including the incurrence of any Indebtedness in connection
with any such acquisition and the application of the
proceeds thereof) took place on the first day of such
period; and provided, further, that in the case of the
Issuer, if the closing of any aspect of the Recapitalization
occurred during such period, Consolidated Fixed Charges of
the Issuer and its Subsidiaries for such period shall be
calculated on a pro forma basis as if such closing
(including the incurrence of any Indebtedness in connection
with such closing and the application of the proceeds
thereof) took place on the first day of such period.
"Consolidated Net Income" with respect to any
person (the "Subject Person") means, for a given period, the
aggregate of the Net Income of such Subject Person and its
Subsidiaries for such period, on a consolidated basis,
determined in accordance with generally accepted accounting
principles, provided that (i) the Net Income of any person
that is not a Subsidiary of the Subject Person or is
accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or
distributions paid to the Subject Person and its
Subsidiaries, (ii) the Net Income of any person that is a
Subsidiary (other than a Subsidiary of which at least 80% of
the capital stock having ordinary voting power for the
election of directors or other governing body of such
Subsidiary is owned by the Subject Person directly or
indirectly through one or more Subsidiaries) shall be
included only to the extent of the lesser of (a) the amount
of dividends or distributions paid to the Subject Person and
its Subsidiaries and (b) the Net Income of such person,
(iii) the Net Income of any person acquired by the Subject
Person and its Subsidiaries in a pooling of interests
transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the Net Income (if
positive) of any person that becomes a Subsidiary of the
Issuer after the date hereof shall be included only to the
extent that the declaration or payment of dividends on
Capital Stock or similar distributions by that Subsidiary to
the Issuer or to any other consolidated Subsidiary of the
Issuer of such Net Income is at the time permitted under the
terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental
regulations binding upon or applicable to that Subsidiary,
provided that if the exclusion from an otherwise positive
Net Income of certain amounts pursuant to this clause (iv)
would cause such Net Income to be negative, then such Net
Income shall be deemed to be zero.
"Consolidated Net Worth" means, with respect to
any person, at any date of determination, the sum of the
Capital Stock and additional paid-in capital plus retained
earnings (or minus accumulated deficit) of such person and
its Subsidiaries on a consolidated basis, each item to be
determined in conformity with generally accepted accounting
principles (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52),
except that all effects of the application of Accounting
Principles Board Opinions Nos. 16 and 17 and related
interpretations and all charges related to the
Recapitalization shall be disregarded.
"Controlled Corporation EBITDA Amount" means, for
any Controlled Corporation securities of which have been
distributed in a Section 355 Transaction, the EBITDA of the
Controlled Corporation for the four full fiscal quarters of
the Issuer last preceding the date such Section 355
Transaction is effected.
"Corporate Trust Office" means the office of the
Trustee at which the corporate trust business of the Trustee
shall, at any particular time, be principally administered,
which office is, at the date as of which this Indenture is
dated, located at 180 East Fifth Street, St. Paul, Minnesota
55101, Attention: Corporate Trust Department.
"Credit Agent" means Citibank, N.A., as Managing
Agent under the Credit Agreement, or any successor thereto;
provided that "Credit Agent" shall also mean any person
acting as managing agent (or in a similar capacity) under
any agreement pursuant to which the Credit Agreement is
refunded or refinanced if such person is designated as such
by each person that is at the time of such designation a
Credit Agent; and provided further that if at any time there
shall be more than one Credit Agent, then "Credit Agent"
shall mean each such Credit Agent, and any notice, consent
or waiver to be given by, action to be taken by, or notice
to be given to, the Credit Agent shall be given or taken by,
or given to, each such Credit Agent.
"Credit Agreement" means the Amended and Restated
Credit Agreement dated as of October 26, 1992 among the
Issuer, the lenders party thereto and Citibank, N.A., as
Managing Agent, including any and all related notes,
collateral and security documents, instruments and
agreements executed in connection therewith (including,
without limitation, all Loan Documents (as defined in such
Credit Agreement)) and all obligations of the Issuer and its
Subsidiaries incurred thereunder or in respect thereof, and
in each case as amended, supplemented, restructured or
otherwise modified, extended or renewed and each other
agreement pursuant to which any or all of the foregoing may
be refunded or refinanced, from time to time.
"Default" means any event that is, or after notice
or passage of time would be, an Event of Default.
"Disqualified Stock" means any capital stock that,
by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the maturity
date of the Securities.
"DLJ" means Donaldson, Lufkin & Jenrette
Securities Corporation.
"DLJ Capital" means DLJ Capital Corporation.
"EBITDA" means, with respect to any person and its
consolidated Subsidiaries for a given period, the
Consolidated Net Income of such person for such period plus
(i) an amount equal to any net loss realized upon the sale
or other disposition of any Business Segment (to the extent
such loss was deducted in computing Consolidated Net
Income), (ii) any provision for taxes based on income or
profits deducted in computing Consolidated Net Income and
any provision for taxes utilized in computing net loss under
clause (i) hereof, (iii) consolidated interest expense
(including amortization of original issue discount and non-
cash interest payments, all net payments and receipts in
respect of Interest Rate Agreements and the interest
component of capital leases), and (iv) depreciation and
amortization (including amortization of goodwill, deferred
financing costs existing immediately after the closing of
the Equity Investment or incurred in connection with the
Recapitalization, and other intangibles) to the extent
required under generally accepted accounting principles, all
on a consolidated basis; provided that if, during such
period (A) such person or any of its Subsidiaries shall have
made any asset sales (other than, in the case of the Issuer
and its Subsidiaries, sales of the Capital Stock of or any
assets of Unrestricted Subsidiaries), EBITDA of such person
and its Subsidiaries for such period shall be reduced by an
amount equal to the EBITDA directly attributable to the
assets which are the subject of such asset sales for such
period and (B) such person or any of its Subsidiaries has
made any acquisition of assets or Capital Stock (occurring
by merger or otherwise), including, without limitation, any
acquisition of assets or Capital Stock occurring in
connection with the transaction causing a calculation to be
made hereunder, EBITDA of such person and its Subsidiaries
shall be calculated, excluding any expenses which in the
good faith estimate of management will be eliminated as a
result of such acquisition, on a pro forma basis as if such
acquisition of assets or Capital Stock (including the
incurrence of any Indebtedness in connection with any such
acquisition and the application of the proceeds thereof)
took place on the first day of such period; and provided,
further, that in the case of the Issuer, if the closing of
any aspect of the Recapitalization occurred during such
period, EBITDA of the Issuer and its Subsidiaries for such
period shall be calculated on a pro forma basis as if such
closing (including the incurrence of any Indebtedness in
connection with such closing and the application of the
proceeds thereof) took place on the first day of such
period.
"11.25% Debentures" means the 11.25% Senior
Subordinated Debentures Due 2004 of the Issuer in an
aggregate principal amount not to exceed $738,800,000.
"Equity Interests" means Capital Stock or
warrants, options or other rights to acquire Capital Stock
(but excluding any debt security that is convertible into or
exchangeable for Capital Stock).
"Equity Investment" means the purchase by
Associates of 100 million shares of FCI Common Stock and 75
million warrants to purchase FCI Common Stock on November
16, 1992.
"Event of Default" means any event or condition
specified as such in Section 4.1 which shall have continued
for the period of time, if any, therein designated.
"Excluded Properties" means each of (i) the
Issuer's food distribution and warehouse facility located in
Rancho Cucamonga, California and (ii) the Issuer's corporate
headquarters property in Spartanburg, South Carolina.
"Existing Indebtedness" means Indebtedness of the
Issuer or any subsidiary existing on the date hereof.
"FCI" means Flagstar Companies, Inc. (formerly TW
Holdings, Inc.), a Delaware corporation.
"FCI Common Stock" means the common stock, par
value $.50 per share, of FCI.
"Fixed Charge Coverage Ratio" means, with respect
to any person, for a given period, the ratio of the EBITDA
of such person for such period to the Consolidated Fixed
Charges of such person for such period.
"GTO" means Gollust, Tierney and Oliver, a New
Jersey general partnership, or Gollust, Tierney and Oliver
Incorporated, a New York corporation.
"GTO Fee" means an annual fee of $250,000 payable
to GTO or any of its affiliates for each of 1993 and 1994.
"Holder", "holder of Securities", "Securityholder"
or other similar terms means the registered holder of any
Security.
"Indebtedness" with respect to any person means at
any date, without duplication, (i) all obligations of such
person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other
similar instruments other than Interest Rate Agreements,
(iii) all reimbursement obligations and other liabilities of
such person with respect to letters of credit issued for
such person's account, (iv) all obligations of such person
to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of
business, (v) all obligations of such person as lessee in
respect of capital lease obligations under capital leases
and (vi) all obligations of others of a nature described in
any of clauses (i) through (v) above guaranteed by such
person; provided that in the case of clauses (i) through (v)
above, Indebtedness shall include only obligations reported
as liabilities in the financial statements of such person in
accordance with generally accepted accounting principles.
"Indenture" means this instrument as originally
executed and delivered or, if amended or supplemented as
herein provided, as so amended or supplemented.
"Indentures" means collectively this Indenture and
the indentures pursuant to which the New Senior Subordinated
Securities, the 11.25% Debentures, the 10 7/8% Notes and the
10% Debentures are issued.
"Interest Rate Agreement" means any interest rate
protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap or other
interest rate hedge arrangement to or under which the Issuer
or any of its subsidiaries is or becomes a party or a
beneficiary.
"Investment" means any direct or indirect advance,
loan (other than advances to customers in the ordinary
course of business, which are recorded as accounts
receivable on the balance sheet of any person or its
subsidiaries) or other extension of credit 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 securities issued by, any other person.
"Issuer" means (except as otherwise provided in
Article Five) Flagstar Corporation, a Delaware corporation,
and, subject to Article Eight, its successors and assigns.
"KKR" means Kohlberg Kravis Roberts & Co., a
Delaware limited partnership, or KKR Associates, a New York
limited partnership.
"Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, whether or
not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention
agreement, any capital lease, any option or other agreement
to sell and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by the
Issuer or a Subsidiary of the Issuer of any Indebtedness
secured by a mortgage or other Lien on real property
acquired or improved by the Issuer or any Subsidiary of the
Issuer after the date hereof.
"Mortgage Financing Proceeds" means, with respect
to any Mortgage Financing, the aggregate amount of cash
proceeds received or receivable by the Issuer or any
Subsidiary of the Issuer in connection with such financing
after deducting therefrom brokerage commissions, legal fees,
finder's fees, closing costs and other expenses incidental
to such Mortgage Financing and the amount of taxes payable
in connection with or as a result of such transaction, to
the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually
paid to a person that is not an Affiliate and are properly
attributable to such transaction or to the asset that is the
subject thereof.
"Mortgage Refinancing" means the incurrence by the
Issuer or a Subsidiary of the Issuer of any Indebtedness
secured by a mortgage or other Lien on real property subject
to a mortgage or other Lien existing on the date hereof or
created or incurred subsequent to the date hereof as
permitted hereby and owned by the Issuer or any Subsidiary
of the Issuer.
"Mortgage Refinancing Proceeds" means, with
respect to any Mortgage Refinancing, the aggregate amount of
cash proceeds received or receivable by the Issuer or any
Subsidiary of the Issuer in connection with such refinancing
after deducting therefrom the original mortgage amount of
the underlying Indebtedness refinanced therewith and
brokerage commissions, legal fees, finder's fees, closing
costs and other expenses incidental to such Mortgage
Refinancing and the amount of taxes payable in connection
with or as a result of such transaction, to the extent, but
only to the extent, that the amounts so deducted are, at the
time of receipt of such cash, actually paid to a person that
is not an Affiliate and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Net Income" of any person shall mean the net
income (loss) of such person, determined in accordance with
generally accepted accounting principles, excluding,
however, (i) any gain or loss, together with any related
provision for taxes on such gain or loss, realized upon the
sale or other disposition (including, without limitation,
dispositions pursuant to sale and leaseback transactions) of
a Business Segment, (ii) any charges arising as a result of
the Recapitalization, and (iii) any gain or loss realized
upon the sale or other disposition by such person of any
capital stock or marketable securities.
"Net Proceeds" with respect to any Asset Sale,
sale and leaseback transaction or sale or other disposition
of a Business Segment, means (i) cash (freely convertible
into U.S. dollars) received by the Issuer or any Subsidiary
from such transaction, after (a) provision for all income or
other taxes measured by or resulting from such transaction,
(b) payment of all brokerage commissions and other expenses
(including, without limitation, the payment of principal,
premium (if any) and interest on Indebtedness required
(other than pursuant to Section 3.13(a)) to be paid as a
result of such transaction) in connection with such
transaction and (c) deduction of appropriate amounts to be
provided by the Issuer as a reserve, in accordance with
generally accepted accounting principles, against any
liabilities associated with the asset disposed of in such
transaction and retained by the Issuer after such sale or
other disposition thereof, including, without limitation,
pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any
indemnification obligations associated with such transaction
and (ii) promissory notes received by the Issuer or any
Subsidiary in connection with such transaction upon the
liquidation or conversion of such notes into cash.
"New Senior Subordinated Securities" means the
11 3/8% Senior Subordinated Debentures Due 2003 of the
Issuer in an aggregate amount not to exceed $125,000,000.
"Obligations" means, with respect to any
Indebtedness or any Interest Rate Agreement, any principal,
premium, interest (including, without limitation, interest,
whether or not allowed, after the filing of a petition
initiating certain bankruptcy proceedings), penalties,
commissions, charges, expenses, fees, indemnifications,
reimbursements and other liabilities or amounts payable
under or in respect of the documentation governing such
Indebtedness or such Interest Rate Agreement.
"OECD" means the Organization for Economic
Cooperation and Development.
"Officers' Certificate" means a certificate signed
by the Chairman of the Board of Directors or the President
or any Vice President (whether or not designated by a number
or numbers or a word or words added before or after the
title "Vice President") and by the Treasurer or the
Secretary or any Assistant Secretary of the Issuer and
delivered to the Trustee. Each such certificate shall
comply with Section 314 of the Trust Indenture Act of 1939
and include the statements provided for in Section 10.5.
"Opinion of Counsel" means an opinion in writing
signed by legal counsel who may be an employee of or counsel
to the Issuer. Each such opinion shall comply with Section
314 of the Trust Indenture Act and include the statements
provided for in Section 10.5, if and to the extent required
hereby.
"Outstanding", when used with reference to
Securities, shall, subject to the provisions of Section 6.4,
mean, as of any particular time, all Securities
authenticated and delivered by the Trustee under this
Indenture, except
(a) Securities theretofore cancelled by the
Trustee or delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the
payment or redemption of which moneys in the necessary
amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the
Issuer) or shall have been set aside, segregated and
held in trust by the Issuer (if the Issuer shall act as
its own paying agent), provided that if such Securities
are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as
herein provided, or provision satisfactory to the
Trustee shall have been made for giving such notice;
and
(c) Securities in substitution for which other
Securities shall have been authenticated and delivered,
or which shall have been paid, pursuant to the terms of
Section 2.6 (unless proof satisfactory to the Trustee
is presented that any of such Securities is held by a
person in whose hands such Security is a legal, valid
and binding obligation of the Issuer).
"Permitted Investments" means (i) cash (including
major foreign currency or currency of a country in which the
Issuer or any of its Subsidiaries has operations) or Cash
Equivalents, (ii) investments that are in persons at least a
majority of whose revenues are derived from food service
operations, ancillary operations or related activities and
that have the purpose of furthering the food service
operations of the Issuer or any of its Subsidiaries, (iii)
advances to employees not in excess of $5,000,000 at any one
time outstanding, (iv) accounts receivable created or
acquired in the ordinary course of business, (v) obligations
or shares of stock received in connection with any good
faith settlement or bankruptcy proceeding involving a claim
relating to a Permitted Investment, (vi) evidences of
Indebtedness, obligations or other investments not exceeding
$5,000,000 in the aggregate held at any one time by the
Issuer or any of its Subsidiaries and (vii) currency swap
agreements and other similar agreements designed to hedge
against fluctuations in foreign exchange rates entered into
in the ordinary course of business in connection with the
operation of the business.
"Preferred Stock" means, with respect to any
person, any and all shares, interests, participations or
other equivalents (however designated) of such person's
preferred or preference stock whether now outstanding or
issued after the date of the Indenture.
"principal" wherever used with reference to the
Securities or any Security or any portion thereof, shall be
deemed to include "and premium, if any".
"Recapitalization" means the recapitalization of
FCI contemplated by the Stock and Warrant Purchase Agreement
dated as of August 11, 1992 between FCI and Associates.
"Remaining Section 355 Amount" means at any time
an amount equal to (i) 30% of the Specified Issuer EBITDA
less (ii) the sum of the Controlled Corporation EBITDA
Amounts for the Controlled Corporations in each Section 355
Transaction effected by the Issuer prior to such time.
"Responsible Officer" when used with respect to
the Trustee means the chairman of the board of directors,
any vice chairman of the board of directors, the chairman of
the trust committee, the chairman of the executive
committee, any vice chairman of the executive committee, the
president, any vice president (whether or not designated by
numbers or words added before or after the title "vice
president"), the cashier, the secretary, the treasurer, any
trust officer, any assistant trust officer, any assistant
vice president, any assistant cashier, any assistant
secretary, any assistant treasurer, or any other officer or
assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at
the time shall be such officers, respectively, or to whom
any corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Investments" means any investments in,
capital contributions, loans or advances to or purchases of
equity interests in, any person that is not a wholly owned
subsidiary, or other transfers of assets to Subsidiaries or
Affiliates that are not wholly owned (other than any such
other transfers of assets to Subsidiaries or Affiliates that
are not wholly owned in transactions the terms of which are
fair and reasonable to the transferor and are at least as
favorable as the terms that could be obtained by the
transferor in a comparable transaction made on an arm's
length basis between unaffiliated parties (as conclusively
determined, for any such transfer involving aggregate
consideration in excess of $5 million, by a majority of the
directors of the Issuer unaffiliated with such Subsidiary or
Affiliate or, if there are no such directors, by a majority
of the directors of the Issuer, and otherwise as
conclusively determined by the Issuer)), except in each case
for Permitted Investments and any such investments existing
on the date hereof.
"Section 355 Percentage" means, for the first
Section 355 Transaction effected after the date hereof, 30%,
and shall thereafter be subject to reduction as follows:
Immediately after the time at which any Section 355
Transaction is effected through a distribution of securities
of a Controlled Corporation pursuant to clause (7) of the
second paragraph of Section 3.9, the Section 355 Percentage
shall equal (i) the Section 355 Percentage immediately prior
to such time less (ii) the percentage of (x) the EBITDA of
the Issuer for the four full fiscal quarters of the Issuer
last preceding the date such Section 355 Transaction is
effected represented by (y) the EBITDA of such Controlled
Corporation for such period.
"Section 355 Transaction" means a transaction that
qualifies for tax-free treatment under Section 355 of the
Code, or any similar taxable transaction, any of which is
effected after the date hereof.
"Security" or "Securities" means any of the
10 3/4% Senior Notes Due 2001 authenticated and delivered
under this Indenture.
"Senior Indebtedness" means (i) all obligations of
the Issuer and its Subsidiaries now or hereafter existing
under or in respect of the Credit Agreement, the Securities
and the 10 7/8% Notes, whether for principal, interest
(including, without limitation, interest accruing after the
filing of a petition initiating any proceeding referred to
in Section 4.1(6) or Section 4.1(7) hereof, whether or not
such interest is an allowable claim under such proceeding),
penalties, commissions, charges, indemnifications,
liabilities, reimbursement obligations in respect of letters
of credit, fees, expenses or other amounts payable under or
in respect of the Credit Agreement and all obligations and
claims related thereto, (ii) all Obligations of the Issuer
in respect of Interest Rate Agreements and (iii) additional
Indebtedness permitted by Section 3.11(a), Section 3.11(b),
Section 3.11(c) or Section 3.11(e) hereof which is not
expressly by its terms subordinated to, or pari passu with,
the 11.25% Debentures and the New Senior Subordinated
Securities, and all Obligations and claims related thereto.
Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (x) any
Indebtedness of the Issuer to any of its Subsidiaries or (y)
Indebtedness incurred for the purchase of goods or materials
or for services (other than services provided by the Credit
Agent in connection with the Credit Agreement or any other
party to an agreement evidencing Senior Indebtedness in
connection with such agreement) obtained in the ordinary
course of business. Senior Indebtedness under or in respect
of the Credit Agreement, the Securities and the 10 7/8%
Notes shall continue to constitute Senior Indebtedness for
all purposes of this Indenture notwithstanding that such
Senior Indebtedness or any obligations or claims in respect
thereof may be disallowed, avoided or subordinated pursuant
to any Bankruptcy Law or other applicable insolvency law or
equitable principles.
"Significant Subsidiary" means any Subsidiary of
the Issuer that would be a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X under the Securities
Act of 1933, as amended (the "Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (as
such Regulation is in effect on the date of the Indenture)
(excluding, except for the purposes of determining an Event
of Default, subparagraph (c) of such definition).
"Specified Issuer EBITDA" means the EBITDA of the
Issuer for the four full fiscal quarters of the Issuer last
preceding the date of the first Section 355 Transaction
effected after the date hereof.
"Subsidiary" of any person means any entity of
which shares of the capital stock or other equity interests
(including partnership interests) entitled to cast at least
a majority of the votes that may be cast by all shares or
equity interests having ordinary voting power for the
election of directors or other governing body of such entity
is owned by such person directly and/or through one or more
Subsidiaries; provided that each Unrestricted Subsidiary
shall be excluded from the definition of Subsidiary.
"10% Debentures" means the 10% Convertible Junior
Subordinated Debentures Due 2014 of the Issuer in an
aggregate principal amount not to exceed $100,000,000.
"10 7/8% Notes" means the 10 7/8% Senior Notes Due
2002 of the Issuer in an aggregate principal amount not to
exceed $300,000,000.
"Trustee" means the entity identified as "Trustee"
in the first paragraph hereof and, subject to the provisions
of Article Five, shall also include any successor trustee.
"Trust Indenture Act of 1939" (except as otherwise
provided in Sections 7.1 and 7.2) means the Trust Indenture
Act of 1939 as in force at the date as of which this
Indenture was originally executed.
"Unrestricted Subsidiary" means (i) any subsidiary
of the Issuer which at the time of determination is an
Unrestricted Subsidiary (as designated by the Board of
Directors, as provided below) and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may
designate any subsidiary of the Issuer (including any
Subsidiary and any newly acquired or newly formed
subsidiary) to be an Unrestricted Subsidiary unless such
subsidiary owns any Capital Stock of, or owns, or holds any
Lien on, any property of, any Subsidiary of the Issuer
(other than any subsidiary of the subsidiary to be so
designated), provided that (a) any Unrestricted Subsidiary
must be an entity of which shares of the capital stock or
other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may
be cast by all shares or equity interests having ordinary
voting power for the election of directors or other
governing body are owned, directly or indirectly, by the
Issuer, (b) the Issuer certifies that such designation
complies with Section 3.9 and Section 3.17 and (c) each of
(I) the subsidiary to be so designated and (II) its
subsidiaries has not at the time of designation, and does
not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender has
recourse to any of the assets of the Issuer or any of its
Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Subsidiary; provided that
immediately after giving effect to such designation, the
Issuer and its Subsidiaries could incur at least $1 of
additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 3.11(a) on a pro
forma basis taking into account such designation.
"Weighted Average Life to Maturity" means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing (i) the then outstanding aggregate
principal amount of such Indebtedness into (ii) the total of
the product obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or
other required payment of principal, including payment at
final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will
elapse between such date and the making of such payment.
ARTICLE TWO
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES.
SECTION 2.1 Authentication and Delivery of
Securities. Upon the execution and delivery of this
Indenture, or from time to time thereafter, Securities in an
aggregate principal amount not in excess of the amount
specified in the form of Security hereinabove recited
(except as otherwise provided in Section 2.6) may be
executed by the Issuer and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate
and deliver said Securities to or upon the written order of
the Issuer, signed by both (a) its Chairman of the Board of
Directors, or any Vice Chairman of the Board of Directors,
or its President or any Vice President (whether or not
designated by a number or numbers or a word or words added
before or after the title "Vice President") and (b) by its
Treasurer or any Assistant Treasurer without any further
action by the Issuer.
SECTION 2.2 Execution of Securities. The
Securities shall be signed on behalf of the Issuer by both
(a) its Chairman of the Board of Directors or any Vice
Chairman of the Board of Directors or its President or any
Vice President (whether or not designated by a number or
numbers or a word or words added before or after the title
"Vice President") and (b) by its Treasurer or any Assistant
Treasurer or its Secretary or any Assistant Secretary, under
its corporate seal which may, but need not, be attested.
Such signatures may be the manual or facsimile signatures of
the present or any future such officers. The seal of the
Issuer may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the
Securities. Typographical and other minor errors or defects
in any such reproduction of the seal or any such signature
shall not affect the validity or enforceability of any
Security which has been duly authenticated and delivered by
the Trustee.
In case any officer of the Issuer who shall have
signed any of the Securities shall cease to be such officer
before the Security so signed shall be authenticated and
delivered by the Trustee or disposed of by the Issuer, such
Security nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Security
had not ceased to be such officer of the Issuer; and any
Security may be signed on behalf of the Issuer by such
persons as, at the actual date of the execution of such
Security, shall be the proper officers of the Issuer,
although at the date of the execution and delivery of this
Indenture any such person was not such officer.
SECTION 2.3 Certificate of Authentication. Only
such Securities as shall bear thereon a certificate of
authentication substantially in the form hereinbefore
recited, executed by the Trustee by manual signature of one
of its authorized signatories, shall be entitled to the
benefits of this Indenture or be valid or obligatory for any
purpose. Such certificate by the Trustee upon any Security
executed by the Issuer shall be conclusive evidence that the
Security so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of
Securities; Payments of Interest. The Securities and the
Trustee's certificates of authentication shall be
substantially in the form recited above. The Securities
shall be issuable as registered securities without coupons
and in denominations provided for in the form of Security
above recited. The Securities shall be numbered, lettered,
or otherwise distinguished in such manner or in accordance
with such plans as the officers of the Issuer executing the
same may determine with the approval of the Trustee.
Any of the Securities may be issued with
appropriate insertions, omissions, substitutions and
variations, and may have imprinted or otherwise reproduced
thereon such legend or legends, not inconsistent with the
provisions of this Indenture, as may be required to comply
with any law or with any rules or regulations pursuant
thereto, or with the rules of any securities market in which
the Securities are admitted to trading, or to conform to
general usage.
Each Security shall be dated the date of its
authentication, shall bear interest from the applicable date
and shall be payable on the dates and in the manner
specified on the face of the form of Security recited above.
The person in whose name any Security is
registered at the close of business on any record date with
respect to any interest payment date shall be entitled to
receive the interest, if any, payable on such interest
payment date notwithstanding any transfer or exchange of
such Security subsequent to the record date and prior to
such interest payment date, except if and to the extent the
Issuer shall default in the payment of the interest due on
such interest payment date, in which case such defaulted
interest shall be paid to the persons in whose names
outstanding Securities are registered at the close of
business on a subsequent record date (which shall be not
less than five business days prior to the date of payment of
such defaulted interest) established by notice given by mail
by or on behalf of the Issuer to the holders of Securities
not less than 15 days preceding such subsequent record date.
The term "record date" as used with respect to any interest
payment date (except a date for payment of defaulted
interest) shall mean if such interest payment date is the
first day of a calendar month, the fifteenth day of the next
preceding calendar month and shall mean, if such interest
payment date is the fifteenth day of a calendar month, the
first day of such calendar month, whether or not such record
date is a business day. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
SECTION 2.5 Registration, Transfer and Exchange.
The Issuer will keep at each office or agency to be
maintained for the purpose as provided in Section 3.2 a
register or registers in which, subject to such reasonable
regulations as it may prescribe, it will register, and will
register the transfer of, Securities as in this Article
provided. Such register shall be in written form in the
English language or in any other form capable of being
converted into such form within a reasonable time. At all
reasonable times such register or registers shall be open
for inspection by the Trustee.
Upon due presentation for registration of transfer
of any Security at each such office or agency, the Issuer
shall execute and the Trustee shall authenticate and deliver
in the name of the transferee or transferees a new Security
or Securities in authorized denominations for a like
aggregate principal amount.
Any Security or Securities may be exchanged for a
Security or Securities in other authorized denominations, in
an equal aggregate principal amount. Securities to be
exchanged shall be surrendered at each office or agency to
be maintained by the Issuer for the purpose as provided in
Section 3.2, and the Issuer shall execute and the Trustee
shall authenticate and deliver in exchange therefor the
Security or Securities which the Securityholder making the
exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding.
All Securities presented for registration of
transfer, exchange, redemption or payment shall (if so
required by the Issuer or the Trustee) be duly endorsed by,
or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Issuer and the Trustee
duly executed by, the holder or his attorney duly authorized
in writing.
The Issuer may require payment of a sum sufficient
to cover any tax or other governmental charge that may be
imposed in connection with any exchange or registration of
transfer of Securities. No service charge shall be made for
any such transaction.
The Issuer shall not be required to exchange or
register a transfer of (a) any Securities for a period of 15
days next preceding the first mailing of notice of
redemption of Securities to be redeemed, or (b) any
Securities selected, called or being called for redemption
except, in the case of any Security where public notice has
been given that such Security is to be redeemed in part, the
portion thereof not so to be redeemed.
All Securities issued upon any transfer or
exchange of Securities shall be valid obligations of the
Issuer, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Securities surrendered
upon such transfer or exchange.
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost
and Stolen Securities. In case any temporary or definitive
Security shall become mutilated, defaced or be apparently
destroyed, lost or stolen, the Issuer in its discretion may
execute, and upon the written request of any officer of the
Issuer, the Trustee shall authenticate and deliver, a new
Security, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated
or defaced Security, or in lieu of and substitution for the
Security so apparently destroyed, lost or stolen. In every
case the applicant for a substitute Security shall furnish
to the Issuer and to the Trustee and any agent of the Issuer
or the Trustee such security or indemnity as may be required
by them to indemnify and defend and to save each of them
harmless and, in every case of destruction, loss or theft
evidence to their satisfaction of the apparent destruction,
loss or theft of such Security and of the ownership thereof.
Upon the issuance of any substitute Security, the
Issuer may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. In case
any Security which has matured or is about to mature, or has
been called for redemption in full, shall become mutilated
or defaced or be apparently destroyed, lost or stolen, the
Issuer may, instead of issuing a substitute Security, pay or
authorize the payment of the same (without surrender thereof
except in the case of a mutilated or defaced Security), if
the applicant for such payment shall furnish to the Issuer
and to the Trustee and any agent of the Issuer or the
Trustee such security or indemnity as any of them may
require to save each of them harmless from all risks,
however remote, and, in every case of apparent destruction,
loss or theft, the applicant shall also furnish to the
Issuer and the Trustee and any agent of the Issuer or the
Trustee evidence to their satisfaction of the apparent
destruction, loss or theft of such Security and of the
ownership thereof.
Every substitute Security issued pursuant to the
provisions of this Section by virtue of the fact that any
Security is apparently destroyed, lost or stolen shall
constitute an additional contractual obligation of the
Issuer, whether or not the apparently destroyed, lost or
stolen Security shall be at any time enforceable by anyone
and shall be entitled to all the benefits of (but shall be
subject to all the limitations of rights set forth in) this
Indenture equally and proportionately with any and all other
Securities duly authenticated and delivered hereunder. All
Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the
foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, defaced, or apparently
destroyed, lost or stolen Securities and shall preclude any
and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with
respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.7 Cancellation of Securities;
Destruction Thereof. All Securities surrendered for
payment, redemption, registration of transfer or exchange,
if surrendered to the Issuer or any agent of the Issuer or
the Trustee, shall be delivered to the Trustee for
cancellation or, if surrendered to the Trustee, shall be
cancelled by it; and no Securities shall be issued in lieu
thereof except as expressly permitted by any of the
provisions of this Indenture. The Trustee shall destroy
cancelled Securities held by it and deliver a certificate of
destruction to the Issuer. If the Issuer 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 same are delivered
to the Trustee for cancellation.
SECTION 2.8 Temporary Securities. Pending the
preparation of definitive Securities, the Issuer may execute
and the Trustee shall authenticate and deliver temporary
Securities (printed, lithographed, typewritten or otherwise
reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities shall be issuable as
registered Securities without coupons, of any authorized
denomination, and substantially in the form of the
definitive Securities but with such omissions, insertions
and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the
concurrence of the Trustee. Temporary Securities may
contain such reference to any provisions of this Indenture
as may be appropriate. Every temporary Security shall be
executed by the Issuer and be authenticated by the Trustee
upon the same conditions and in substantially the same
manner, and with like effect, as the definitive Securities.
Without unreasonable delay the Issuer shall execute and
shall furnish definitive Securities and thereupon temporary
Securities may be surrendered in exchange therefor without
charge at each office or agency to be maintained by the
Issuer for the purpose pursuant to Section 3.2, and the
Trustee shall authenticate and deliver in exchange for such
temporary Securities a like aggregate principal amount of
definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall be entitled to the
same benefits under this Indenture as definitive Securities.
ARTICLE THREE
COVENANTS
OF
THE ISSUER AND THE TRUSTEE.
SECTION 3.1 Payment of Principal and Interest.
The Issuer covenants and agrees that it will duly and
punctually pay or cause to be paid the principal of, and
interest on, each of the Securities at the place or places,
at the respective times and in the manner provided in the
Securities. Each installment of interest on the Securities
may, at the option of the Issuer, be paid by wire transfer
or by check mailed to the holders of Securities entitled
thereto as they shall appear on the registry books of the
Issuer.
SECTION 3.2 Offices for Payments, etc. So long
as any of the Securities remain outstanding, the Issuer will
maintain the following: (a) an office or agency where the
Securities may be presented for payment, (b) an office or
agency where the Securities may be presented for
registration of transfer and for exchange as in this
Indenture provided and (c) an office or agency where notices
and demands to or upon the Issuer in respect of the
Securities or of this Indenture may be served. The Issuer
will give to the Trustee written notice of the location of
any such office or agency and of any change of location
thereof. The Issuer hereby initially designates the
Corporate Trust Office of the Trustee as the office or
agency for each such purpose. In case the Issuer shall fail
to maintain any such office or agency or shall fail to give
such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices
may be served at the Corporate Trust Office.
SECTION 3.3 Appointment to Fill a Vacancy in
Office of Trustee. The Issuer, whenever necessary to avoid
or fill a vacancy in the office of Trustee, will appoint, in
the manner provided in Section 5.9, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 3.4 Paying Agents. Whenever the Issuer
shall appoint a paying agent other than the Trustee, it will
cause such paying agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provisions of this Section,
(a) that it will hold all sums received by it as
such agent for the payment of the principal of or
interest on the Securities (whether such sums have been
paid to it by the Issuer or by any other obligor on the
Securities) in trust for the benefit of the holders of
the Securities or of the Trustee,
(b) that it will give the Trustee notice of any
failure by the Issuer (or by any other obligor on the
Securities) to make any payment of the principal of or
interest on the Securities when the same shall be due
and payable, and
(c) that it will pay any such sums so held in
trust by it to the Trustee upon the Trustee's written
request at any time during the continuance of the
failure referred to in clause (b) above.
The Issuer will, on or prior to each due date of
the principal of or interest on the Securities, deposit with
the paying agent a sum sufficient to pay such principal or
interest, and (unless such paying agent is the Trustee) the
Issuer will promptly notify the Trustee of any failure to
take such action.
If the Issuer shall act as its own paying agent,
it will, on or before each due date of the principal of or
interest on the Securities, set aside, segregate and hold in
trust for the benefit of the holders of the Securities a sum
sufficient to pay such principal or interest so becoming
due. The Issuer will promptly notify the Trustee of any
failure to take such action.
Anything in this Section to the contrary
notwithstanding, the Issuer may at any time, for the purpose
of obtaining a satisfaction and discharge of this Indenture
or for any other reason, pay or cause to be paid to the
Trustee all sums held in trust by the Issuer or any paying
agent hereunder, as required by this Section, such sums to
be held by the Trustee upon the trusts herein contained.
Anything in this Section to the contrary
notwithstanding, the agreement to hold sums in trust as
provided in this Section are subject to the provisions of
Sections 9.3 and 9.4.
SECTION 3.5 Certificates to Trustee. The Issuer
will, so long as any of the Securities are outstanding:
(a) deliver to the Trustee, forthwith upon
becoming aware of any default or defaults in the
performance of any covenant, agreement or condition
contained in this Indenture (including notice of any
event of default which with the giving of notice and
lapse of time would become an Event of Default under
Section 4.1 hereof), an Officers' Certificate
specifying such default or defaults; and
(b) deliver to the Trustee within 120 days after
the end of each fiscal year of the Issuer beginning
with the fiscal year ending December 31, 1993, an
Officers' Certificate in compliance with Section
314(a)(4) of the Trust Indenture Act of 1939.
SECTION 3.6 Securityholder Lists. If and so long
as the Trustee shall not be the Security registrar, the
Issuer will furnish or cause to be furnished to the Trustee
a list in such form as the Trustee may reasonably require of
the names and addresses of the holders of the Securities
pursuant to Section 312 of the Trust Indenture Act (a)
semi-annually not more than 15 days after each record date
for the payment of semi-annual interest on the Securities,
as hereinabove specified, as of such record date, and (b) at
such other times as the Trustee may request in writing,
within thirty days after receipt by the Issuer of any such
request as of a date not more than 15 days prior to the time
such information is furnished.
SECTION 3.7 Reports by the Issuer. The Issuer
covenants:
(a) to file with the Commission and, within 15
days after the Issuer is required to file the same with
the Commission, with the Trustee copies of the annual
reports and of the information, documents, and other
reports which the Issuer may be required to file with
the Commission pursuant to Section 13 or Section 15(d)
of the Exchange Act and, if the Issuer is not required
to file such information, documents, or reports with
the Commission, to file with the Commission and the
Trustee the same such information, documents or reports
as if the Issuer were so subject;
(b) to file with the Trustee and the Commission,
in accordance with rules and regulations prescribed
from time to time by the Commission, such additional
information, documents, and reports with respect to
compliance by the Issuer with the conditions and
covenants provided for in this Indenture as may be
required from time to time by such rules and
regulations; and
(c) to transmit by mail to the Holders of
Securities, within 30 days after the filing thereof
with the Trustee, any information, documents and
reports required to be filed by the Issuer with the
Trustee pursuant to (a) and (b) of this Section 3.7.
SECTION 3.8 Reports by the Trustee. Within 60
days after May 15 of each year beginning May 15, 1994, for
so long as any Securities are outstanding hereunder, the
Trustee shall transmit by mail to all Securityholders, as
their names and addresses appear in the registry books, in
the manner and to the extent provided in Section 313(c) of
the Trust Indenture Act of 1939, a brief report dated as of
such May 15 if required by and in compliance with Section
313(a) of the Trust Indenture Act of 1939.
SECTION 3.9 Limitation on Restricted Payments.
Subject to the other provisions of this Section 3.9, the
Issuer shall not and shall not permit any of its
Subsidiaries to, directly or indirectly:
(a)declare or pay any dividend or make any
distribution on account of the Issuer's or any
Subsidiary's capital stock or other Equity Interests
(other than (i) dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the
Issuer or such Subsidiary and (ii) dividends or
distributions payable by a Subsidiary so long as, in
the case of any dividend or distribution payable on any
class or series of securities issued by a Subsidiary
other than a wholly owned Subsidiary, the Issuer or a
Subsidiary of the Issuer receives at least its pro rata
basis share of such dividend or distribution in
accordance with its Equity Interest in such class or
series of securities); or
(b)purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Issuer or
any Subsidiary of the Issuer (other than any such
Equity Interests owned by the Issuer or any Subsidiary
of the Issuer); or
(c)voluntarily prepay Indebtedness that is
subordinated to the Securities other than in connection
with any (i) refinancing of such Indebtedness
specifically permitted pursuant to Section 3.11(c) or
Section 3.11(e) hereof, (ii) Indebtedness between the
Issuer and a Subsidiary of the Issuer or between
Subsidiaries of the Issuer or (iii) Mortgage Financing
or Mortgage Refinancing; or
(d)make any Restricted Investments (other than
an Investment in any Unrestricted Subsidiary)
(all of the foregoing dividends, distributions,
purchases, redemptions or other acquisitions,
retirements, prepayments or Restricted Investments set
forth in clauses (a) through (d) above being
collectively referred to as "Restricted Payments"), if
at the time of such Restricted Payment:
(i)a Default or Event of Default shall have
occurred and be continuing or shall occur as a
consequence thereof,
(ii) immediately after such Restricted
Payment and after giving effect thereto on a pro
forma basis, the Issuer would not be able to incur
$1 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in
Section 3.11(a), or
(iii) such Restricted Payment, together with
(A) the aggregate of all other Restricted Payments
(in each case valued, where other than cash, at
their fair market value as of the date such
Restricted Payments are made) made after the date
hereof and (B) the amount by which the aggregate
of all then outstanding Investments in
Unrestricted Subsidiaries exceeds $75 million, is
greater than the sum of: (v) 50% of the aggregate
Consolidated Net Income of the Issuer for the
period (taken as one accounting period) from the
beginning of the first quarter immediately after
the date hereof to the end of the Issuer's most
recently ended fiscal quarter at the time of such
Restricted Payment (provided that if Consolidated
Net Income for such period is less than zero, then
minus 100% of the amount of such loss) plus (w)
50% of the aggregate amortization of goodwill for
the period specified in (v) above, plus (x) 100%
of the aggregate net cash proceeds and the fair
market value of marketable securities received by
the Issuer from the issue or sale, after the date
hereof, of capital stock of the Issuer (other than
capital stock issued and sold to a Subsidiary of
the Issuer and other than Disqualified Stock), or
any Indebtedness or other security convertible
into any such capital stock that has been so
converted plus (y) 100% of the aggregate amounts
contributed to the capital of the Issuer plus (z)
100% of the aggregate amounts received in cash and
the fair market value of marketable securities
(other than Restricted Investments) received from
(I) the sale or other disposition of Restricted
Investments made by the Issuer and its
Subsidiaries or (II) the sale of the stock of an
Unrestricted Subsidiary or the sale of all or
substantially all of the assets of an Unrestricted
Subsidiary to the extent that a liquidating
dividend is paid to the Issuer or any Subsidiary
from the proceeds of such sale.
For purposes of clause (iii) above, the fair market value of
property other than cash may be conclusively determined in
good faith by the Board of Directors.
The provisions of this Section 3.9 shall not
prohibit:
(1) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date
of declaration such payment would have complied with
the provisions hereof;
(2)(A) the retirement of any shares of the Capital
Stock of the Issuer (the "Retired Capital Stock") in
exchange for, or out of the net proceeds of the
substantially concurrent sale (other than to a
Subsidiary of the Issuer) of, other shares of the
Capital Stock of the Issuer (the "Refunding Capital
Stock"), other than any Disqualified Stock, and (B) if
immediately prior to such retirement of such Retired
Capital Stock the declaration and payment of dividends
thereon was permitted under clause (5) of this
paragraph, the declaration and payment of dividends on
the Refunding Capital Stock in an aggregate amount per
year no greater than the aggregate amount of dividends
per year that was declarable and payable on such
Retired Capital Stock immediately prior to such
retirement;
(3) the payment of dividends or the making of
distributions for the purpose of (A) financing the
repurchase, redemption or other acquisition or
retirement for value of any Equity Interests in FCI
issued to present and former members of management of
the Issuer and its subsidiaries pursuant to
subscription and option agreements in effect on the
date hereof and Equity Interests in FCI issued to
future members of management pursuant to subscription
agreements executed subsequent to the date hereof,
containing provisions for the repurchase of such Equity
Interests upon death, disability or termination of
employment of such persons which are substantially
identical to those contained in the subscription
agreements in effect on the date hereof, provided that
the amount of such dividends or distributions, after
the date hereof, in the aggregate will not exceed the
sum of (I) $30 million plus (II) the cash proceeds from
any reissuance of such Equity Interests by FCI to
members of management of the Issuer and its
subsidiaries, to the extent such proceeds are
contributed to the Issuer, (B) enabling FCI to pay
accounting and legal fees and expenses and any other
fees and expenses of FCI (such as financing and
underwriting costs) incurred in the ordinary course of
business as a holding company for the Issuer and (C)
financing the repurchase by FCI of FCI Common Stock
from GTO and its affiliates or DLJ and its affiliates,
provided that the aggregate amount of such dividends or
distributions made pursuant to this clause (C), after
the date hereof, will not exceed $50 million;
(4) the repurchase, redemption or other
acquisition or retirement for value of Indebtedness of
the Issuer which is subordinated in right of payment to
the Securities in exchange for or with the proceeds of
the issuance of shares of the Issuer's Equity Interests
(other than Disqualified Stock);
(5) the declaration and payment of dividends to
holders of any class or series of the Issuer's
Preferred Stock (other than Disqualified Stock) issued
after the date hereof (including, without limitation,
the declaration and payment of dividends on Refunding
Capital Stock in excess of the dividends declarable and
payable thereon pursuant to clause (2) of this
paragraph), provided that at the time of such issuance
the Fixed Charge Coverage Ratio of the Issuer, after
giving effect to such issuance, would be greater than
1.25 to 1;
(6) the redemption, repurchase or retirement of
any Indebtedness that is subordinated to the Securities
(A) with the proceeds of, or in exchange for,
Indebtedness incurred pursuant to Section 3.11(c) or
Section 3.11(e) or (B) if, after giving effect to such
redemption, repurchase or retirement, the Issuer could
incur at least $1 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in
Section 3.11(a);
(7) the distribution to stockholders of securities
of a corporation controlled by the Issuer (a
"Controlled Corporation") in a Section 355 Transaction,
but only if (a) the EBITDA of the Controlled
Corporation for the four full fiscal quarters of the
Issuer last preceding the date the Section 355
Transaction is effected is no greater than (I) in the
case of the first Section 355 Transaction effected
after the date hereof, a percentage of the Specified
Issuer EBITDA equal to the Section 355 Percentage at
the time such first Section 355 Transaction is effected
and (II) in the case of any subsequent Section 355
Transaction, the lesser of (A) the Remaining Section
355 Amount at the time of such Section 355 Transaction
and (B) the Section 355 Percentage at the time such
Section 355 Transaction is effected multiplied by the
EBITDA of the Issuer for the four full fiscal quarters
of the Issuer last preceding the date such Section 355
Transaction is effected, (b) the Issuer's Fixed Charge
Coverage Ratio for its four full fiscal quarters last
preceding the date the Section 355 Transaction is
effected would have been at least 2:1, determined on a
pro forma basis as if the Section 355 Transaction had
been effected at the beginning of such four-quarter
period and (c) the ratio of the Indebtedness of the
Issuer and its Subsidiaries on a consolidated basis
immediately after the Section 355 Transaction to EBITDA
of the Issuer for its four full fiscal quarters last
preceding the date the Section 355 Transaction is
effected, determined on a pro forma basis as if such
transaction had occurred at the beginning of such four
quarter period, would be no greater than the ratio of
the Indebtedness of the Issuer and its Subsidiaries on
a consolidated basis immediately prior to the Section
355 Transaction to EBITDA of the Issuer for its four
full fiscal quarters last preceding the date the
Section 355 Transaction is effected;
(8) the declaration and payment, following the
first public offering of FCI Common Stock to occur
after the date hereof, of dividends on the common stock
of the Issuer of up to 6% per annum of the net proceeds
received by FCI in such public offering and any
subsequent public offerings of FCI Common Stock;
(9) any redemption, repurchase or repayment of any
outstanding Obligations under the 10% Debentures,
including any premium or fee incurred in connection
therewith;
(10) payments by the Issuer or any Subsidiary of
the Issuer in respect of its obligations pursuant to
any tax sharing agreement with FCI, the Issuer or any
Subsidiary of FCI; or
(11) the purchase, redemption or other acquisition
or retirement for value of Equity Interests of any
Subsidiary of the Issuer (other than any such Equity
Interests owned by the Issuer or any Subsidiary of the
Issuer) in an amount of (a) up to $5 million for the
first year following the date hereof and (b) for each
year thereafter, up to $5 million plus the unused
portion of the amount permitted to be expended for such
purpose in all preceding years;
provided that in determining the aggregate amount expended
for Restricted Payments in accordance with clause (iii) of
the first paragraph of this Section 3.9, (i) no amounts
expended under clauses (2)(A), (3)(B), (4), (6), (7), (9)
and (10) of this paragraph shall be included, (ii) 100% of
the amounts expended under clauses (2)(B), (3)(A), (3)(C),
(5), (8) and (11) of this paragraph shall be included, and
(iii) 100% of the amounts expended under clause (1), to the
extent not included under subclauses (i) or (ii) of this
proviso, shall be included.
SECTION 3.10 Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries. The Issuer
shall not, and shall not permit any of its Subsidiaries
(other than unconsolidated Subsidiaries) to, directly or
indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction
on the ability of any such Subsidiary to (a) pay dividends
or make any other distributions on its capital stock or any
other interest or participation in, or measured by, its
profits, owned by the Issuer or any Subsidiary of the
Issuer, or pay any Indebtedness owed to, the Issuer or a
Subsidiary of the Issuer, (b) make loans or advances to the
Issuer or a Subsidiary of the Issuer or (c) transfer any of
its properties or assets to the Issuer or a Subsidiary of
the Issuer, except in each case for such encumbrances or
restrictions existing under or by reason of (i) applicable
law, (ii) the Indentures, (iii) the Credit Agreement or any
other agreement entered into in connection therewith or as
contemplated thereby, (iv) customary provisions restricting
subletting or assignment of any lease governing a leasehold
interest of the Issuer or a Subsidiary of the Issuer, (v)
any instrument governing Indebtedness of a Person acquired
by the Issuer or any Subsidiary of the Issuer at the time of
such acquisition, (vi) Existing Indebtedness, or additional
Indebtedness in an aggregate principal amount of up to
$250,000,000 at any one time outstanding or other
contractual obligation of the Issuer or any of its
Subsidiaries existing on the date hereof or any amendment,
modification, renewal, extension, replacement, refinancing
or refunding, provided, that the restrictions contained in
any such amendment, modification, renewal, extension,
replacement, refinancing or refunding are no less favorable
in all material respects to the Holders, (vii) any Mortgage
Financing or Mortgage Refinancing, (viii) any Permitted
Investment or (ix) contracts for the sale of assets.
SECTION 3.11 Limitation on Additional
Indebtedness and Issuance of Disqualified Stock.
(a)Subject to the other provisions of this
Section 3.11,
(x) the Issuer shall not and shall not permit any
of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume or guarantee any Indebtedness
(other than Indebtedness between the Issuer and a
Subsidiary of the Issuer or between Subsidiaries of the
Issuer, or guarantees by any Subsidiary of Indebtedness
of a Subsidiary or the Issuer) and
(y) the Issuer shall not issue any Disqualified
Stock,
unless such Indebtedness or Disqualified Stock is either
Acquisition Indebtedness or is created, incurred, issued,
assumed or guaranteed by the Issuer and not a Subsidiary of
the Issuer and the Issuer's Fixed Charge Coverage Ratio for
its four full fiscal quarters last preceding the date such
additional Indebtedness is created, incurred, assumed or
guaranteed, or such additional stock is issued, would have
been (I) if such date is prior to November 1, 1994, at least
1.75:1 and (II) if such date is on or after November 1,
1994, at least 2:1, determined in each case on a pro forma
basis (including a pro forma application of the net proceeds
of such Indebtedness or such issuance of stock) as if the
additional Indebtedness had been created, incurred, assumed
or guaranteed, or such additional stock had been issued, at
the beginning of such four-quarter period; provided,
however, that the limitations of this Section 3.11(a) shall
not apply to the incurrence by the Issuer or any of its
Subsidiaries of (A) any Indebtedness pursuant to the Credit
Agreement; provided, however, that the principal amount of
such Indebtedness incurred pursuant to the Credit Agreement
for the purposes of this Clause (A) shall not exceed the
aggregate amount of the commitments under the Credit
Agreement on the date hereof; and (B) any Indebtedness
represented by the Securities or the New Senior Subordinated
Securities.
(b)The limitations of Section 3.11(a) hereof
notwithstanding, the Issuer or any Subsidiary may create,
incur, issue, assume or guarantee Indebtedness pursuant to
the Credit Agreement or otherwise (i) in connection with or
arising out of Mortgage Financings relating to real property
acquired after the date hereof or improvements on such
property, Mortgage Refinancings or sale and lease-back
transactions, provided the Mortgage Financing Proceeds,
Mortgage Refinancing Proceeds (excluding any Mortgage
Refinancing Proceeds received in connection with any
refinancing of any Indebtedness secured by a mortgage or
Lien on either or both of the Excluded Properties) or Net
Proceeds, as the case may be, incurred, assumed or created
in connection therewith are used to pay any outstanding
Senior Indebtedness, (ii) constituting purchase money
obligations for property acquired in the ordinary course of
business or other similar financing transactions (including,
without limitation, in connection with Mortgage Financings),
provided that in the case of Indebtedness exceeding $2
million for any such obligation or transaction, such
Indebtedness exists at the date of the purchase or
transaction or is created within 180 days thereafter, (iii)
in connection with capital expenditures (iv) constituting
capital lease obligations, (v) constituting reimbursement
obligations with respect to letters of credit, including,
without limitation, letters of credit in respect of workers'
compensation claims, issued for the account of the Issuer or
a Subsidiary in the ordinary course of its business or other
Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims, (vi) constituting
additional Indebtedness in an aggregate principal amount of
up to $250,000,000 at any one time outstanding, whether
incurred under the Credit Agreement or otherwise, (vii)
constituting Indebtedness secured by either or both of the
Excluded Properties and (viii) constituting Existing
Indebtedness and permitted refinancings thereof in
accordance with Section 3.11(c) or Section 3.11(e).
(c)The limitations of Section 3.11(a) hereof
notwithstanding, the Issuer or any Subsidiary may create,
incur, issue, assume or guarantee any Indebtedness which
serves to refund, refinance or restructure its Existing
Indebtedness or any other Indebtedness incurred as permitted
under this Indenture or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness,
including additional Indebtedness incurred to pay premiums
and fees in connection therewith (the "Refinancing
Indebtedness"), prior to its respective maturity; provided,
however, that such Refinancing Indebtedness (i) bears an
interest rate per annum which is equal to or less than the
interest rate per annum then payable under such Indebtedness
being refunded or refinanced (calculated in accordance with
any formula set forth in the documents evidencing any such
Indebtedness) unless such Refinancing Indebtedness is
incurred, created or assumed within twelve months of the
scheduled maturity of the Indebtedness being refinanced,
(ii) has a Weighted Average Life to Maturity at the time
such Refinancing Indebtedness is incurred which is not less
than the remaining Weighted Average Life to Maturity of such
Indebtedness being refunded or refinanced, and (iii) to the
extent such Refinancing Indebtedness refinances Indebtedness
subordinated to the Securities, such Refinancing
Indebtedness is subordinated to the Securities at least to
the same extent as the Indebtedness being refinanced or
refunded; provided, further, however, that clauses (i), (ii)
and (iii) above shall not apply to any refunding or
refinancing of any Senior Indebtedness.
(d)The foregoing limitations notwithstanding,
any unconsolidated Subsidiary of the Issuer created after
the date of this Indenture may create, incur, issue, assume,
guarantee or otherwise become liable with respect to any
additional Indebtedness, provided that such Indebtedness is
nonrecourse to the Issuer and its consolidated Subsidiaries,
and the Issuer and its consolidated Subsidiaries have no
liability with respect to such additional Indebtedness.
(e) The foregoing limitations notwithstanding,
the Issuer or any Subsidiary may create, incur, issue,
assume or guarantee any Indebtedness which serves to refund,
refinance or restructure the 10% Debentures, including any
premium or fee incurred in connection therewith.
SECTION 3.12 Limitation on Transactions with
Affiliates. The Issuer shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, enter into
any transaction (including, without limitation, the
purchase, sale, lease or exchange of any property or the
rendering of any service) involving aggregate consideration
in excess of $5,000,000 for any one transaction with any
Affiliate, except for (a) transactions (including any
investments or loans or advances by or to any Affiliate) in
good faith the terms of which are fair and reasonable to the
Issuer or such Subsidiary, as the case may be, and are at
least as favorable as the terms which could be obtained by
the Issuer or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's length basis between
unaffiliated parties (in each case as conclusively
determined by a majority of the directors of the Issuer
unaffiliated with such Affiliate or, if there are no such
directors, as conclusively determined by a majority of the
Board of Directors), (b) payments by the Issuer or any of
its Subsidiaries to KKR or any Affiliate thereof made
pursuant to any financial advisory, financing, underwriting
or placement agreement, (c) transactions in which the Issuer
or any of its Subsidiaries, as the case may be, delivers to
the Holders a written opinion of a nationally recognized
investment banking firm stating that such transaction is
fair to the Issuer or such Subsidiary from a financial point
of view, (d) transactions between the Issuer and its
Subsidiaries or between Subsidiaries of the Issuer which are
not otherwise prohibited under Section 3.9 of this
Indenture, (e) payments or loans to employees or
consultants pursuant to employment or consultancy contracts
which are approved by the Board of Directors in good faith,
(f) payments to FCI which are not otherwise prohibited by
Section 3.9 of this Indenture and (g) the payment by the
Issuer of management fees to KKR and/or its affiliates and
the payment by the Issuer of the GTO fee.
SECTION 3.13 Sale of Assets.
(a)Neither the Issuer nor any of its
Subsidiaries (other than unconsolidated Subsidiaries) shall
(A) (I) sell, lease, convey or otherwise dispose of in any
transaction or group of transactions that are part of a
common plan all or substantially all of the assets or
capital stock of any Asset Segment (provided that the sale,
lease, conveyance or other disposition of all or
substantially all of the Issuer's assets shall not be
subject to this Section 3.13 but shall be governed by the
provisions of Section 8.1 hereof) or (II) issue or sell
equity securities of any Asset Segment (each of the
foregoing, an "Asset Sale") or (B) sell, lease, convey or
otherwise dispose of any Business Segment, unless in each
case the Issuer shall apply the Net Proceeds from such Asset
Sale or such sale, lease, conveyance or other disposition of
a Business Segment to one or more of the following in such
combination as the Issuer may choose: (i) an investment in
another asset or business in the same line of business as,
or a line of business similar to that of, the line of
business of the Issuer and its Subsidiaries and such
investment occurs within 366 days of such Asset Sale or such
sale, lease, conveyance or other disposition of a Business
Segment, (ii) a Net Proceeds Offer (as defined below)
expiring within 366 days of such Asset Sale or such sale,
lease, conveyance or other disposition of a Business Segment
or (iii) the purchase, redemption or other prepayment or
repayment of outstanding Senior Indebtedness within 366 days
of such Asset Sale or such sale, lease, conveyance or other
disposition of a Business Segment; provided, however, if the
net amount not invested pursuant to clause (i) above or
applied pursuant to clause (iii) above is less than
$15,000,000 the Issuer shall not be further obligated to
offer to redeem Securities pursuant to clause (ii) above.
Notwithstanding the foregoing, (i) the receipt of all
proceeds of insurance paid on account of the loss of or
damage to any Business Segment and awards of compensation
for any such Business Segment taken by condemnation or
eminent domain which result in Net Proceeds to the Issuer
and its Subsidiaries of $50 million or more (excluding
proceeds to be used for replacement of such Business
Segment, provided the Trustee has received notice from the
Issuer, within 90 days of such receipt, of its intention to
use such proceeds for such purpose) will be deemed an "Asset
Sale" and (ii) Permitted Investments and sales, leases,
conveyances or other dispositions of assets by the Issuer or
any Subsidiary to the Issuer or any wholly owned Subsidiary
of the Issuer will not be deemed an "Asset Sale" or a sale
or other disposition of a Business Segment.
(b)For purposes of subsection (ii) of clause (a)
of this Section, the Issuer shall apply the Net Proceeds of
the Asset Sale or the sale, lease, conveyance or other
disposition of a Business Segment to make a tender offer in
accordance with applicable law (a "Net Proceeds Offer") to
repurchase the Securities at a price not less than 100% of
the principal amount of the Securities plus accrued and
unpaid interest thereon. Any Net Proceeds Offer shall be
made by the Issuer only if and to the extent permitted
under, and subject to prior compliance with, the terms of
any agreement governing Senior Indebtedness. If on the date
any Net Proceeds Offer is commenced securities of the Issuer
ranking pari passu in right of payment with the Securities
are outstanding and the terms of such securities provide
that an offer to repurchase such securities similar to the
Net Proceeds Offer is to be made with respect thereto, then
the Net Proceeds Offer shall be made concurrently with such
other offer, and securities of each issue shall be accepted
on a pro rata basis, in proportion to the principal or face
amount, as the case may be, of securities of each issue
which the holders thereof elect to have redeemed. After the
last date on which holders of the Securities are permitted
to tender their Securities in a Net Proceeds Offer, the
Issuer shall not be restricted under this Section 3.13 as to
its use of any Net Proceeds available to make such Net
Proceeds Offer (up to the amount of Net Proceeds that would
have been used to redeem Securities assuming 100% acceptance
of the Net Proceeds Offer) but not used to redeem Securities
pursuant thereto.
(c)Notwithstanding any other provision hereof to
the contrary, for a period of 120 days after the last date
on which holders of the Securities are permitted to elect to
have their Securities redeemed in the Net Proceeds Offer,
the Issuer may use any Net Proceeds available to make such
Net Proceeds Offer but not used to redeem Securities
pursuant thereto to purchase, redeem or otherwise acquire or
retire for value any securities of the Issuer ranking junior
in right of payment to the Securities at a price, stated as
a percentage of the principal or face amount of such junior
securities, not greater than the price, stated as a
percentage of the principal amount of the Securities,
offered in the Net Proceeds Offer; provided that if the Net
Proceeds Offer is for a principal amount (the "Net Proceeds
Offer Amount") of the Securities less than the aggregate
principal amount of the Securities then outstanding, then
the Net Proceeds available for use by the Issuer for such a
purchase, redemption or other acquisition or retirement for
value of junior securities shall not exceed the Net Proceeds
Offer Amount.
(d)An offer to redeem Securities pursuant to
this Section 3.13 shall be made pursuant to the provisions
of Section 11.5 hereof. Simultaneously with the
notification of such offer of redemption to the Trustee as
required by Section 11.5 hereof, the Issuer shall provide
the Trustee with an Officers' Certificate setting forth the
information required to be included therein by Section 11.5
hereof and, in addition, setting forth the calculations used
in determining the amount of Net Proceeds to be applied to
the redemption of Securities.
(e)In the event that the Issuer shall make any
payment of Net Proceeds to the Trustee which, to the actual
knowledge of a trust officer of the Trustee, should properly
have been made to holders or to the Representative of the
holders of any Senior Indebtedness for the prepayment or
repayment of such Senior Indebtedness pursuant to the
provisions of this Section 3.13, such payment shall be held
by the Trustee for the benefit of, and, upon written request
of the holders of such Senior Indebtedness or their
Representative, shall be paid forthwith over and delivered
to, the holders of such Senior Indebtedness or their
Representative for application in accordance with the
provisions of this Section 3.13. With respect to the
holders of such Senior Indebtedness, the Trustee undertakes
to perform only such obligations on the part of the Trustee
as are specifically set forth in this Section 3.13(e), and
no implied covenants or obligations with respect to the
holders of such Senior Indebtedness shall be read into this
Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such
Senior Indebtedness. If Net Proceeds are received by
Holders which, pursuant to the provisions of this Section
3.13, should properly have been received by the holders of
such Senior Indebtedness or their Representative for the
prepayment or repayment of such Senior Indebtedness, the
Holders who receive such Net Proceeds shall hold such Net
Proceeds in trust for, and pay such Net Proceeds over to,
the holders of such Senior Indebtedness or their
Representative.
(f) Notwithstanding the foregoing, Permitted
Investments and sales, leases, conveyances or other
dispositions of assets by the Issuer or any Subsidiary to
the Issuer or any wholly owned Subsidiary of the Issuer
shall not be deemed an Asset Sale or a sale or other
disposition of a Business Segment.
SECTION 3.14 Corporate Existence. Subject to
Article 8 hereof and other than as permitted by the Credit
Agreement, the Issuer 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 Significant
Subsidiary in accordance with the respective organizational
documents as they may be from time to time amended of the
Issuer and each such Subsidiary and the rights (charter and
statutory), governmental licenses and governmental
franchises of the Issuer and its Subsidiaries; provided,
however, that the Issuer shall not be required to preserve
any such right, license or franchise, or the corporate,
partnership or other existence of any such Subsidiary, if
the preservation thereof is no longer necessary in the
conduct of the business of the Issuer and its Subsidiaries
taken as a whole and the loss thereof is not adverse in any
material respect to the Holders (which determination, if
made in good faith by the Board of Directors, shall be
conclusive).
SECTION 3.15 Limitation on Liens. (a) The
Issuer shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist
any Lien on any asset now owned or hereafter acquired by the
Issuer or any such Subsidiary, except:
(i) Liens existing on the date hereof, Liens
securing or arising under or in connection with any
Indebtedness of the Issuer not expressly by its terms
subordinate or junior in right of payment to any other
Indebtedness of the Issuer (including, without
limitation, Liens permitted by or required pursuant to
the Credit Agreement), Liens arising under or in
connection with Section 9.1 hereof and Liens relating
to judgments to the extent such judgments do not give
rise to an Event of Default pursuant to Section 4.1(5)
hereof;
(ii) Liens for taxes or assessments and similar
charges either (x) not delinquent or (y) contested in
good faith by appropriate proceedings and as to which
the Issuer or a Subsidiary shall have set aside on its
books such reserves as may be required pursuant to
generally accepted accounting principles;
(iii) Liens incurred or pledges and deposits in
connection with workers' compensation, unemployment
insurance and other social security benefits, or
securing performance bids, tenders, leases, contracts
(other than for the repayment of borrowed money),
statutory obligations, progress payments, surety and
appeal bonds and other obligations of like nature,
incurred in the ordinary course of business;
(iv) Liens imposed by law, such as mechanics',
carriers', warehousemen's, materialmen's and vendors'
Liens, incurred in good faith in the ordinary course of
business;
(v) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of
real property or minor irregularities of title incident
thereto which do not in the aggregate materially
detract from the value of the property or assets of the
Issuer and its Subsidiaries, taken as a whole, or
materially impair the operation of the business of the
Issuer and its Subsidiaries, taken as a whole;
(vi) Liens created by Subsidiaries to secure
Indebtedness of such Subsidiaries to the Issuer or its
Subsidiaries;
(vii) pledges of or Liens on raw materials or on
manufactured products as security for any drafts or
bills of exchange in connection with the importation of
such raw materials or manufactured products in the
ordinary course of business;
(viii) a Lien on any assets (x) securing
Indebtedness incurred or assumed pursuant to Section
3.11(b) hereof for the purpose of financing all or any
part of the cost of acquiring such asset or
construction thereof or thereon or (y) existing on
assets or businesses at the time of the acquisition
thereof;
(ix) the Lien granted to the Trustee pursuant to
Section 5.6 hereof and any substantially equivalent
Lien granted to the respective trustees under the
indentures for other debt securities of the issuer;
(x) Liens arising in connection with any
Mortgage Financing or Mortgage Refinancing by the
Issuer or any of its Subsidiaries;
(xi) Liens securing reimbursement obligations
with respect to letters of credit issued for the
account of the Issuer or any of its Subsidiaries in the
ordinary course of business;
(xii) any Lien on either or both of the Excluded
Properties;
(xiii) Liens securing an interest of a landlord in
real property leases;
(xiv) all other Liens incurred in the ordinary
course of business; provided that the aggregate amount
of Indebtedness secured by such Liens shall not exceed
$5,000,000 at any one time outstanding; or
(xv) Liens created in connection with the
refinancing of any Indebtedness secured by Liens
permitted to be incurred or to exist pursuant to the
foregoing clauses; provided, however, that no
additional assets are encumbered by such Liens in
connection with such refinancing, unless permitted by
clause (i) above or Section 3.15(b).
(b) Notwithstanding the provisions of paragraph
(a) above, the Issuer or any Subsidiary may create or assume
any Lien upon any of its properties or assets, whether now
owned or hereafter acquired, if the Issuer makes or causes
to be made effective provision whereby the Securities will
be equally and ratably secured with any and all other
Indebtedness secured by such Lien as long as any such other
Indebtedness shall be so secured, provided that if such Lien
ceases to exist, such equal and ratable Lien shall thereupon
automatically cease to exist.
SECTION 3.16 Issuer to Cause Certain Subsidiaries
to Become Guarantors. The Issuer shall not permit any of
its Subsidiaries to guarantee the payment of any
Indebtedness of the Issuer that is expressly by its terms
subordinate or junior in right of payment to any other
Indebtedness of the Issuer (a "Subordinated Indebtedness
Guarantee") unless (i) such Subsidiary executes and delivers
a supplemental indenture evidencing its guarantee of the
Issuer's Obligations hereunder and under the Securities on a
substantially similar basis (the "Securities Guarantee") and
(ii) the Securities Guarantee is senior in right of payment
to such Subordinated Indebtedness Guarantee to the same
extent as the Securities are senior in right of payment to
such junior Indebtedness of the Issuer; provided that if
such Subordinated Indebtedness Guarantee ceases to exist for
any reason, then the Securities Guarantee shall thereupon
automatically cease to exist.
SECTION 3.17 Investments in Unrestricted
Subsidiaries. The Issuer will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make any
Investment in any Unrestricted Subsidiary unless (i) the
amount of such Investment does not exceed the amount then
permitted to be used to make a Restricted Payment pursuant
to clause (iii) of the first paragraph of Section 3.9 and
(ii) immediately after such Investment, and after giving
effect thereto on a pro forma basis deducting from net
income the amount of any Investment the Issuer or any
Subsidiary of the Issuer has made in an Unrestricted
Subsidiary during the four full fiscal quarters last
preceding the date of such Investment, the Issuer and its
Subsidiaries would be able to incur $1 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in Section 3.11(a). Notwithstanding clause
(i) and (ii) of this Section or any other provisions hereof
to the contrary, the Issuer and its Subsidiaries shall be
permitted to make Investments in Unrestricted Subsidiaries
in an aggregate amount not to exceed $75 million at any one
time outstanding. The amount by which the aggregate of all
Investments in Unrestricted Subsidiaries exceeds $75 million
shall be counted in determining the permissible amount of
Restricted Payments pursuant to clause (iii) of the first
paragraph of Section 3.9. The Issuer will not permit any
Unrestricted Subsidiary to become a Subsidiary except
pursuant to the last sentence of the definition of
Unrestricted Subsidiary set forth in Section 1.1.
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
SECTION 4.1 Events of Default. An "Event of
Default" occurs if:
(1)the Issuer defaults in the payment of
interest on any Security when the same becomes due and
payable and the Default continues for a period of 30
days;
(2)the Issuer defaults in the payment of the
principal of any Security when the same becomes due and
payable at maturity, upon redemption or otherwise;
(3)the Issuer fails to comply with any of its
other agreements or covenants in, or any other
provisions of, the Securities or this Indenture and the
Default continues for the period and after the notice
specified in this Section 4.1;
(4)a default occurs under any mortgage,
indenture or instrument under which there may be issued
or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Issuer or any of
its Subsidiaries (or the payment of which is guaranteed
by the Issuer or any of its Subsidiaries) other than
(i) Indebtedness of the Issuer or any Subsidiary of the
Issuer to the Issuer or any Subsidiary of the Issuer or
(ii) Indebtedness permitted pursuant to Section 3.11(d)
hereof, whether such Indebtedness or guarantee now
exists or shall be created hereafter, if (a) either (x)
such default results from the failure to pay principal
upon the final maturity of such Indebtedness (after the
expiration of any applicable grace period) or (y) as a
result of such default the maturity of such
Indebtedness has been accelerated prior to its final
maturity, (b) the principal amount of such
Indebtedness, together with the principal amount of any
such Indebtedness with respect to which the principal
amount remains unpaid upon its final maturity (after
the expiration of any applicable grace period), or the
maturity of which has been so accelerated, aggregates
$30,000,000 or more and (c) such default does not
result from compliance with any applicable law or any
court order or governmental decree to which the Issuer
or any of its Subsidiaries is subject;
(5)a final judgment or final judgments for the
payment of money are entered by a court or courts of
competent jurisdiction against the Issuer or any of its
Subsidiaries and such judgment or judgments remain
undischarged for a period (during which execution shall
not be effectively stayed) of 60 days, provided that
the aggregate of all such judgments (net of amounts
covered by insurance, treating any deductibles, self-
insurance or retention as not so covered) exceeds
$10,000,000;
(6)the Issuer or any Significant Subsidiary of
the Issuer pursuant to or within the meaning of any
Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for
relief against it in an involuntary case,
(c) consents to the appointment of a
Custodian of it or for all or substantially all of
its property, or
(d) makes a general assignment for the
benefit of its creditors; or
(7)a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(a)is for relief against the Issuer or any
Significant Subsidiary of the Issuer in an
involuntary case,
(b)appoints a Custodian of the Issuer or
any Significant Subsidiary of the Issuer or for
all or substantially all of its property, or
(c)orders the liquidation of the Issuer or
any Significant Subsidiary of the Issuer,
and the order or decree remains unstayed and in effect
for 60 days.
The term "Custodian" means any receiver, trustee,
assignee, liquidator or similar official under any
Bankruptcy Law.
An Event of Default shall not be deemed to have
occurred under clause (4) or (5) until the Issuer shall have
received written notice from the Trustee or the Holders of
at least 30% in principal amount of the then outstanding
Securities. A Default under clause (3) is not an Event of
Default until the Trustee notifies the Issuer, or the
Holders of at least 30% in principal amount of the then
outstanding Securities notify the Issuer and the Trustee, of
the Default and the Issuer does not cure the Default within
30 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state
that the notice is a "Notice of Default".
In the case of any Event of Default pursuant to
the provisions of this Section 4.1 occurring by reason of
any willful action (or inaction) taken (or not taken) by or
on behalf of the Issuer with the intention of avoiding
payment of the premium which the Issuer would have to pay if
the Issuer then had elected to redeem the Securities
pursuant to Section 11.1, an equivalent premium shall also
become and be immediately due and payable to the extent
permitted by law, anything in this Indenture or in the
Securities contained to the contrary notwithstanding.
SECTION 4.2 Acceleration. If an Event of Default
(other than an Event of Default specified in clause (6) or
(7) of Section 4.1) occurs and is continuing, the Trustee
may, by written notice to the Issuer, or the Holders of at
least 30% (or 25% in the case of an Event of Default
specified in Section 4.1(1) or 4.1(2)) in principal amount
of the then outstanding Securities may, by written notice to
the Issuer and the Trustee, and the Trustee shall, upon the
request of such Holders, declare the unpaid principal of and
any accrued but unpaid interest on all the Securities to be
due and payable. Upon such declaration the principal and
interest shall be due and payable immediately; provided,
however, that if any Senior Indebtedness is outstanding
pursuant to the Credit Agreement, upon a declaration of
acceleration, such principal and interest shall be due and
payable upon the earlier of (x) the day that is five
Business Days after the provision to the Issuer and the
Credit Agent of such written notice, unless such Event of
Default is cured or waived prior to such date and (y) the
date of acceleration of any Senior Indebtedness under the
Credit Agreement. In the event of a declaration of
acceleration because an Event of Default specified in
Section 4.1(4) has occurred and is continuing, such
declaration of acceleration shall be automatically annulled
if such payment default is cured or waived or the holders of
the Indebtedness which is the subject of such Event of
Default have rescinded their declaration of acceleration in
respect of such Indebtedness within 60 days thereof and the
Trustee has received written notice of such cure, waiver or
rescission and no other Event of Default under Section
4.1(4) has occurred and is continuing with respect to which
60 days have elapsed since the declaration of acceleration
of the Indebtedness which is the subject of such other event
of default (without rescission of the declaration of
acceleration of such Indebtedness). If an Event of Default
specified in clause (6) or (7) of Section 4.1 occurs, the
unpaid principal of and any accrued but unpaid interest on
all the Securities shall ipso facto become and be
immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the then outstanding
Securities by written notice to the Trustee may rescind an
acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or
interest that has become due solely because of the
acceleration) have been cured or waived. No such rescission
shall affect any subsequent Default or Event of Default or
impair any right consequent thereto.
SECTION 4.3 Other Remedies. If an Event of
Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal of or
interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it
does not possess any of the Securities or does not produce
any of them in the proceeding. A delay or omission by the
Trustee or any Holder 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. Except as set forth in Section 2.6
hereof, all remedies are cumulative to the extent permitted
by law.
SECTION 4.4 Waiver of Defaults. Subject to
Section 7.2 hereof, the Holders of a majority in principal
amount of the then outstanding Securities by notice to the
Trustee may waive any past Default or Event of Default and
its consequences except a continuing Default or Event of
Default in the payment of the principal of or interest on
any Security. Upon any such waiver, such Default or Event
of Default shall cease to exist and together with any Event
of Default arising therefrom, shall be deemed to have been
cured for every purpose of this Indenture, but no such
waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 4.5 Control by Majority. The Holders of
a majority in principal amount of the then 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.
However, the Trustee may (i) refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee
reasonably determines may be unduly prejudicial to the
rights of other Holders or that may subject the Trustee to
personal liability or (ii) take any other action that it
deems proper that is not inconsistent with such decision.
The Trustee shall be entitled to indemnification reasonably
satisfactory to it against losses or expenses caused by the
taking or not taking of such action.
SECTION 4.6 Limitation on Suits. A Holder may
pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee written
notice of a continuing Event of Default;
(2)the Holders of at least 30% (or 25% in the
case of an Event of Default specified in Section 4.1(1)
or 4.2(2) hereof) in principal amount of the then
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 Holders of a
majority in principal amount of the then outstanding
Securities do not give the Trustee a direction which,
in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights
of another Holder or to obtain a preference or priority over
another Holder.
SECTION 4.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of and
interest on the Security, on or after the respective due
dates expressed in the 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 4.8 Collection Suit by Trustee. If an
Event of Default specified in Section 4.1(1) or (2) occurs
and is continuing, the Trustee is authorized to recover
judgment in its own name and as trustee of an express trust
against the Issuer for the whole amount of principal and
interest remaining unpaid on the Securities and interest on
overdue principal and, to the extent lawful, interest 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.
SECTION 4.9 Trustee May File Proofs of Claim.
The Trustee is authorized to 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 the Holders allowed in any judicial proceedings
relative to the Issuer (or any other obligor upon the
Securities), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any
such claims and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 5.6 hereof. To
the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee
under Section 5.6 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out
of, any and all distributions, dividends, money, securities
and other properties which the Holders may be entitled to
receive in such proceeding whether in liquidation or under
any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the
Securities or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any
such proceeding. If the Trustee does not file a proper
claim or proof of debt in the form required in any such
proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the Credit Agent
shall have the right to file and is hereby authorized to
file an appropriate claim for and on behalf of the Holders.
SECTION 4.10 Priorities. If the Trustee collects
any money pursuant to this Article, it shall pay out the
money in the following order:
First: to the Trustee, its agents and attorneys
for amounts due under Section 5.6, including payment of
all compensation, expense and liabilities incurred, and
all advances made, by the Trustee and the costs and
expenses of collection;
Second: to the Holders for amounts due and unpaid
on the Securities for principal and interest, ratably,
without preference or priority of any kind, according
to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Issuer.
The Trustee may fix a record date and payment date
for any payment to Holders.
SECTION 4.11 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 a 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 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 4.7, or a
suit by Holders of more than 10% in principal amount of the
then outstanding Securities.
ARTICLE FIVE
CONCERNING THE TRUSTEE.
SECTION 5.1 Duties and Responsibilities of the
Trustee; During Default; Prior to Default. The Trustee,
prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have
occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. In
case an Event of Default has occurred (which has not been
cured or waived) 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 man would exercise or use under the circumstances in
the conduct of his own affairs.
No provision of this Indenture shall be construed
to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act or its own wilful
misconduct, except that
(a) prior to the occurrence of an Event of
Default and after the curing or waiving of all such
Events of Default which may have occurred:
(i) the duties and obligations of the
Trustee shall be determined solely by the
express provisions of this Indenture, and the
Trustee shall not be liable except for the
performance of such duties and obligations as
are specifically set forth in this Indenture,
and no implied covenants or obligations shall
be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on the
part of the Trustee, the Trustee may
conclusively rely, as to the truth of the
statements and the correctness of the
opinions expressed therein, upon any
statements, certificates or opinions
furnished to the Trustee and conforming to
the requirements of this Indenture; but in
the case of any such statements, certificates
or opinions which by any provision hereof are
specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not
they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error
of judgment made in good faith by a responsible officer
or responsible officers of the Trustee, unless it shall
be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the
holders of not less than a majority in principal amount
of the Securities at the time outstanding relating to
the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under
this Indenture.
None of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any
of its rights or powers, if there shall be reasonable ground
for believing that the repayment of such funds or adequate
indemnity against such liability is not reasonably assured
to it.
This Section 5.1 is in furtherance of and subject
to Sections 315 and 316 of the Trust Indenture Act of 1939.
SECTION 5.2 Certain Rights of the Trustee. In
furtherance of and subject to the Trust Indenture Act of
1939, and subject to Section 5.1:
(a) the Trustee may rely and shall be protected
in acting or refraining from acting upon any
resolution, Officers' Certificate or any other
certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, note,
coupon, security or other paper or document believed by
it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request, direction, order or demand of
the Issuer mentioned herein shall be sufficiently
evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of
Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant
secretary of the Issuer;
(c) the Trustee may consult with counsel and any
advice or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action
taken, suffered or omitted to be taken by it hereunder
in good faith and in accordance with such advice or
Opinion of Counsel;
(d) the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by
this Indenture at the request, order or direction of
any of the Securityholders pursuant to the provisions
of this Indenture, unless such Securityholders shall
have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities
which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any
action taken or omitted by it in good faith and
believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this
Indenture;
(f) prior to the occurrence of an Event of
Default hereunder and after the curing or waiving of
all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters
stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent,
order, approval, appraisal, bond, debenture, note,
coupon, security, or other paper or document unless
requested in writing so to do by the holders of not
less than a majority in aggregate principal amount of
the Securities then outstanding; provided that, if the
payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable
indemnity against such expenses or liabilities as a
condition to proceeding; the reasonable expenses of
every such examination shall be paid by the Issuer or,
if paid by the Trustee or any predecessor trustee,
shall be repaid by the Issuer upon demand; and
(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys not
regularly in its employ and the Trustee shall not be
responsible for any misconduct or negligence on the
part of any such agent or attorney appointed with due
care by it hereunder.
SECTION 5.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application of Proceeds
Thereof. The recitals contained herein and in the
Securities, except the Trustee's certificates of
authentication, shall be taken as the statements of the
Issuer, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no
representation as to the validity or sufficiency of this
Indenture or of the Securities or as to the adequacy of any
disclosure document used in connection with the sale of the
Securities. The Trustee shall not be accountable for the
use or application by the Issuer of any of the Securities or
of the proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold
Securities; Collections, etc. The Trustee or any agent of
the Issuer or the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities with
the same rights it would have if it were not the Trustee or
such agent and may otherwise deal with the Issuer and
receive, collect, hold and retain collections from the
Issuer with the same rights it would have if it were not the
Trustee or such agent.
SECTION 5.5 Moneys Held by Trustee. Subject to
the provisions of Section 9.4 hereof, all moneys received by
the Trustee shall, until used or applied as herein provided,
be held in trust for the purposes for which they were
received, but need not be segregated from other funds except
to the extent required by mandatory provisions of law.
Neither the Trustee nor any agent of the Issuer or the
Trustee shall be under any liability for interest on any
moneys received by it hereunder.
SECTION 5.6 Compensation and Indemnification of
Trustee and Its Prior Claim. The Issuer covenants and
agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) and the
Issuer covenants and agrees to pay or reimburse the Trustee
and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or
made by or on behalf of it in accordance with any of the
provisions of this Indenture (including the reasonable
compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in
its employ) except any such expense, disbursement or advance
as may arise from its negligence or bad faith. The Issuer
also covenants to indemnify the Trustee and each predecessor
Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including the costs and
expenses of defending itself against or investigating any
claim of liability in the premises. The obligations of the
Issuer under this Section to compensate and indemnify the
Trustee and each predecessor Trustee and to pay or reimburse
the Trustee and each predecessor Trustee for expenses,
disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional
indebtedness shall be a senior claim to that of the
Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the
benefit of the holders of particular Securities, and the
Securities are hereby subordinated to such senior claim. If
the Trustee incurs expenses or renders services after an
Event of Default specified in clause (6) or (7) of Section
4.1 occurs, such expenses and the compensation for such
services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 5.7 Right of Trustee to Rely on Officers'
Certificate, etc. Subject to Sections 5.1 and 5.2, whenever
in the administration of the trusts of this Indenture the
Trustee shall deem it necessary or desirable that a matter
be proved or established prior to taking or suffering or
omitting any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers' Certificate delivered
to the Trustee, and such certificate, in the absence of
negligence or bad faith on the part of the Trustee, shall be
full warrant to the Trustee for any action taken, suffered
or omitted by it under the provisions of this Indenture upon
the faith thereof.
SECTION 5.8 Persons Eligible for Appointment as
Trustee. The Trustee hereunder shall at all times be a
corporation having a combined capital and surplus of at
least $5,000,000, and which is eligible in accordance with
the provisions of Section 310(a) of the Trust Indenture Act
of 1939. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of
a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published.
SECTION 5.9 Resignation and Removal; Appointment
of Successor Trustee. (a) The Trustee may at any time
resign by giving written notice of resignation to the Issuer
and by mailing notice thereof by first-class mail to holders
of Securities at their last addresses as they shall appear
on the Security register. Upon receiving such notice of
resignation, the Issuer shall promptly appoint a successor
trustee by written instrument in duplicate, executed by
authority of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and
one copy to the successor trustee. If no successor trustee
shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide
holder of a Security or Securities for at least six months
may, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any of the following
shall occur:
(i) the Trustee shall fail to comply with the
provisions of Section 310(b) of the Trust Indenture Act
of 1939, after written request therefor by the Issuer
or by any Securityholder who has been a bona fide
holder of a Security or Securities for at least six
months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 5.8 and shall
fail to resign after written request therefor by the
Issuer or by any such Securityholder; or
(iii) the Trustee shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent,
or a receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee
and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors of
the Issuer, one copy of which instrument shall be delivered
to the Trustee so removed and one copy to the successor
trustee, or, subject to Section 315(e) of the Trust
Indenture Act of 1939, any Securityholder who has been a
bona fide holder of a Security or Securities for at least
six months may on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove
the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate
principal amount of the Securities at the time outstanding
may at any time remove the Trustee and appoint a successor
trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Issuer the
evidence provided for in Section 6.1 of the action in that
regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and
any appointment of a successor trustee pursuant to any of
the provisions of this Section 5.9 shall become effective
upon acceptance of appointment by the successor trustee as
provided in Section 5.10.
SECTION 5.10 Acceptance of Appointment by
Successor Trustee. Any successor trustee appointed as
provided in Section 5.9 shall execute and deliver to the
Issuer and to its predecessor trustee an instrument
accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall
become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with
all rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally
named as trustee herein; but, nevertheless, on the written
request of the Issuer or of the successor trustee, upon
payment of its charges then unpaid, the trustee ceasing to
act shall, subject to Section 9.4, pay over to the successor
trustee all moneys at the time held by it hereunder and
shall execute and deliver an instrument transferring to such
successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee,
the Issuer shall execute any and all instruments in writing
for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any
trustee ceasing to act shall, nevertheless, retain a prior
claim upon all property or funds held or collected by such
trustee to secure any amounts then due it pursuant to the
provisions of Section 5.6.
Upon acceptance of appointment by a successor
trustee as provided in this Section 5.10, the Issuer shall
mail notice thereof by first-class mail to the holders of
Securities at their last addresses as they shall appear in
the Security register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the
notice called for by the preceding sentence may be combined
with the notice called for by Section 5.9. If the Issuer
fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of the
Issuer.
SECTION 5.11 Merger, Conversion, Consolidation or
Succession to Business of Trustee. Any corporation into
which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from
any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to the
corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such
corporation shall be eligible under the provisions of
Section 5.8, without the execution or filing of any paper or
any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee
shall succeed to the trusts created by this Indenture any of
the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and
deliver such Securities so authenticated; and, in case at
that time any of the Securities shall not have been
authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in
all such cases such certificate shall have the full force
which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have;
provided, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall
apply only to its successor or successors by merger,
conversion or consolidation.
SECTION 5.12 Indenture Not Creating Potential
Conflicting Interests for the Trustee. The following
indenture is hereby specifically described for the purposes
of Section 310(b) of the Trust Indenture Act of 1939: the
indenture dated as of November 16, 1992 between the Issuer
and First Trust National Association, as trustee, relating
to the 10 7/8% Notes.
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS.
SECTION 6.1 Evidence of Action Taken by
Securityholders. Any request, demand, authorization,
direction, notice, consent, waiver or other action provided
by this Indenture to be given or taken by Securityholders
may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such
Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or
instruments are delivered to the Trustee. Proof of
execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this
Indenture and (subject to Sections 5.1 and 5.2) conclusive
in favor of the Trustee and the Issuer, if made in the
manner provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and
of Holding of Securities; Record Date. Subject to Sections
5.1 and 5.2, the execution of any instrument by a
Securityholder or his agent or proxy may be proved in
accordance with such reasonable rules and regulations as may
be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee. The holding of Securities
shall be proved by the Security register or by a certificate
of the registrar thereof. The Issuer may set a record date
for purposes of determining the identity of holders of
Securities entitled to vote or consent to any action
referred to in Section 6.1, which record date may be set at
any time or from time to time by notice to the Trustee, for
any date or dates (in the case of any adjournment or
resolicitation) not more than 60 days nor less than five
days prior to the proposed date of such vote or consent, and
thereafter, notwithstanding any other provisions hereof,
only holders of Securities of record on such record date
shall be entitled to so vote or give such consent or to
withdraw such vote or consent.
SECTION 6.3 Holders to Be Treated as Owners. The
Issuer, the Trustee and any agent of the Issuer or the
Trustee may deem and treat the person in whose name any
Security shall be registered upon the Security register as
the absolute owner of such Security (whether or not such
Security shall be overdue and notwithstanding any notation
of ownership or other writing thereon) for the purpose of
receiving payment of or on account of the principal of and,
subject to the provisions of this Indenture, interest on
such Security and for all other purposes; and neither the
Issuer nor the Trustee nor any agent of the Issuer or the
Trustee shall be affected by any notice to the contrary.
All such payments so made to any such person, or upon his
order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability
for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Issuer Deemed Not
Outstanding. In determining whether the holders of the
requisite aggregate principal amount of Securities have
concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Issuer or any
other obligor on the Securities or by any person directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor
on the Securities shall be disregarded and deemed not to be
outstanding for the purpose of any such determination,
except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction,
consent or waiver only Securities which the Trustee knows
are so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Issuer or
any other obligor upon the Securities or any person directly
or indirectly controlling or controlled by or under direct
or indirect common control with the Issuer or any other
obligor on the Securities. In case of a dispute as to such
right, the advice of counsel shall be full protection in
respect of any decision made by the Trustee in accordance
with such advice. Upon request of the Trustee, the Issuer
shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Securities, if any,
known by the Issuer to be owned or held by or for the
account of any of the above-described persons; and, subject
to Sections 5.1 and 5.2, the Trustee shall be entitled to
accept such Officers' Certificate as conclusive evidence of
the facts therein set forth and of the fact that all
Securities not listed therein are outstanding for the
purpose of any such determination.
SECTION 6.5 Right of Revocation of Action Taken.
At any time prior to (but not after) the evidencing to the
Trustee, as provided in Section 6.1, of the taking of any
action by the holders of the percentage in aggregate
principal amount of the Securities specified in this
Indenture in connection with such action, any holder of a
Security the certificate number of which is shown by the
evidence to be included among the certificate numbers of the
Securities the holders of which have consented to such
action may, by filing written notice at the Corporate Trust
Office and upon proof of holding as provided in this
Article, revoke such action so far as concerns such
Security. Except as aforesaid any such action taken by the
holder of any Security shall be conclusive and binding upon
such holder and upon all future holders and owners of such
Security and of any Securities issued in exchange or
substitution therefor, irrespective of whether or not any
notation in regard thereto is made upon any such Security.
Any action taken by the holders of the percentage in
aggregate principal amount of the Securities specified in
this Indenture in connection with such action shall be
conclusively binding upon the Issuer, the Trustee and the
holders of all the Securities.
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES.
SECTION 7.1 Supplemental Indentures Without
Consent of Securityholders. The Issuer, when authorized by
a resolution of its Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the
following purposes:
(a) to evidence the succession of another
corporation to the Issuer, or successive successions,
and the assumption by the successor corporation of the
covenants, agreements and obligations of the Issuer
pursuant to Article Eight;
(b) to add to the covenants of the Issuer such
further covenants, restrictions, conditions or
provisions as its Board of Directors and the Trustee
shall consider to be for the protection of the holders
of Securities, and to make the occurrence, or the
occurrence and continuance, of a default in any such
additional covenants, restrictions, conditions or
provisions an Event of Default permitting the
enforcement of all or any of the several remedies
provided in this Indenture as herein set forth;
provided, that in respect of any such additional
covenant, restriction, condition or provision such
supplemental indenture may provide for a particular
period of grace after default (which period may be
shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit
the remedies available to the Trustee upon such an
Event of Default or may limit the right of the holders
of a majority in aggregate principal amount of the
Securities to waive such an Event of Default;
(c) to cure any ambiguity or to correct or
supplement any provision contained herein or in any
supplemental indenture which may be defective or
inconsistent with any other provision contained herein
or in any supplemental indenture; or to make such other
provisions in regard to matters or questions arising
under this Indenture or under any supplemental
indenture as the Board of Directors may deem necessary
or desirable and which shall not materially and
adversely affect the interests of the holders of the
Securities; and
(d) to provide for the issuance under this
Indenture of Securities in coupon form (including
Securities registrable as to principal only) and to
provide for exchangeability of such Securities with
Securities issued hereunder in fully registered form,
and to make all appropriate changes for such purpose.
The Trustee is hereby authorized to join in the
execution of any such supplemental indenture, to make any
further appropriate agreements and stipulations which may be
therein contained and to accept the conveyance, transfer,
assignment, mortgage or pledge of any property thereunder,
but the Trustee shall not be obligated to enter into any
such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or
otherwise.
Any supplemental indenture authorized by the
provisions of this Section may be executed without the
consent of the holders of any of the Securities at the time
outstanding, notwithstanding any of the provisions of
Section 7.2.
SECTION 7.2 Supplemental Indentures With Consent
of Securityholders. With the consent (evidenced as provided
in Article Six) of the holders of not less than a majority
in aggregate principal amount of the Securities at the time
outstanding, the Issuer, when authorized by a resolution of
its Board of Directors, and the Trustee may, from time to
time and at any time, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions
to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental
indenture or of modifying in any manner the rights of the
holders of the Securities; provided, that no such
supplemental indenture shall (a) extend the final maturity
of any Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest
thereon, or reduce the premium, if any, payable thereon, or
reduce any amount payable on redemption thereof, or impair
or affect the right of any Securityholder to institute suit
for the payment thereof, or waive a default in the payment
of principal of, premium, if any, or interest on any
Security, change the currency of payment of principal of,
premium, if any, or interest on any Security, or modify any
provision of this Indenture with respect to the priority of
the Securities in right of payment without the consent of
the holder of each Security so affected, or (b) reduce the
aforesaid percentage of Securities, the consent of the
holders of which is required for any such supplemental
indenture, without the consent of the holders of all
Securities then outstanding.
Upon the request of the Issuer, accompanied by a
copy of a resolution of the Board of Directors certified by
the Secretary or an Assistant Secretary of the Issuer
authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence
of the consent of Securityholders and other documents, if
any, required by Section 6.1, the Trustee shall join with
the Issuer in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own
rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the
Securityholders under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance
thereof.
Promptly after the execution by the Issuer and the
Trustee of any supplemental indenture pursuant to the
provisions of this Section, the Issuer shall mail a notice
thereof by first-class mail to the holders of Securities at
their addresses as they shall appear on the registry books
of the Issuer, setting forth in general terms the substance
of such supplemental indenture. Any failure of the Issuer
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 7.3 Effect of Supplemental Indenture.
Upon the execution of any supplemental indenture pursuant to
the provisions hereof, this Indenture shall be and be deemed
to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations,
duties and immunities under this Indenture of the Trustee,
the Issuer and the holders of Securities shall thereafter be
determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the
terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 7.4 Documents to Be Given to Trustee.
The Trustee, subject to the provisions of Sections 5.1 and
5.2, may receive an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that any such supplemental
indenture complies with the applicable provisions of this
Indenture.
SECTION 7.5 Notation on Securities in Respect of
Supplemental Indentures. Securities authenticated and
delivered after the execution of any supplemental indenture
pursuant to the provisions of this Article may bear a
notation in form approved by the Trustee as to any matter
provided for by such supplemental indenture or as to any
action taken at any such meeting. If the Issuer or the
Trustee shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained
in any such supplemental indenture may be prepared by the
Issuer, authenticated by the Trustee and delivered in
exchange for the Securities then outstanding.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE.
SECTION 8.1 When Issuer May Merge, etc. The
Issuer shall not consolidate or merge with or into, or sell,
transfer, lease or convey all or substantially all of its
assets to, any person unless:
(1)the person formed by or surviving any
such consolidation or merger (if other than the
Issuer), or to which such sale, transfer, lease or
conveyance shall have been made, is a corporation
organized and existing under the laws of the
United States, any state thereof or the District
of Columbia;
(2)the corporation formed by or surviving
any such consolidation or merger (if other than
the Issuer), or to which such sale, transfer,
lease or conveyance shall have been made, assumes
by supplemental indenture in a form reasonably
satisfactory to the Trustee all the obligations of
the Issuer under the Securities and this
Indenture;
(3)immediately after the transaction no
Default or Event of Default exists;
(4)the Issuer or any corporation formed by
or surviving any such consolidation or merger, or
to which such sale, transfer, lease or conveyance
shall have been made, shall have an Adjusted
Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal
to or greater than the Adjusted Consolidated Net
Worth of the Issuer immediately preceding the
transaction; provided, however, that this clause
(4) shall not apply to any transaction where the
consideration consists solely of common stock or
other Equity Interests of the Issuer or any
surviving corporation and any liabilities of such
other person are not assumed by and are
specifically non-recourse to the Issuer or such
surviving corporation; and
(5)after giving effect to such transaction
and immediately thereafter, the Issuer or any
corporation formed by or surviving any such
consolidation or merger, or to which such sale,
transfer, lease or conveyance shall have been
made, shall be permitted to incur at least $1.00
of additional Indebtedness pursuant to Section
3.11(a), provided that, if the Fixed Charge
Coverage Ratio of the Issuer immediately prior to
such transaction is within the range set forth in
Column A below, then the pro forma Fixed Charge
Coverage Ratio of the Issuer or the surviving
entity, as the case may be, immediately after such
transaction, shall be at least equal to the lesser
of (1) the ratio determined by multiplying the
percentage set forth in column (B) below by the
Fixed Charge Coverage Ratio of the Issuer prior to
such transaction and (2) the ratio set forth in
column (C) below:
(A) (B) (C)
1.11:1 to 1.99:1 90%1.5:1
2.00:1 to 2.99:1 80%2.1:1
3.00:1 to 3.99:1 70%2.4:1
4.00:1 or more 60%2.5:1
and provided, further, that if, immediately after
giving effect to such transaction on a pro forma
basis, the Fixed Charge Coverage Ratio of the
Issuer or the surviving entity, as the case may
be, is 2.5:1 or more, the calculation in the
preceding proviso shall be inapplicable and such
transaction shall be deemed to have complied with
the requirements of this clause (5).
The Issuer shall deliver to the Trustee prior to
the consummation of the proposed transaction an Officers'
Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transaction and such
supplemental Indenture comply with this Section 8.1. The
Trustee shall be entitled to rely conclusively upon such
Officers' Certificate and Opinion of Counsel.
SECTION 8.2 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, transfer,
lease, conveyance or other disposition of all or
substantially all of the assets of the Issuer in accordance
with Section 8.1, the successor corporation formed by such
consolidation or into or with which the Issuer is merged or
to which such sale, lease, conveyance or other disposition
is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this
Indenture with the same effect as if such successor person
has been named as the Issuer herein and thereafter, except
in the case of a lease, the predecessor corporation shall be
relieved of all obligations and covenants under this
Indenture and the Securities.
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS; DEFEASANCE.
SECTION 9.1 Satisfaction and Discharge of
Indenture. If at any time (a) the Issuer shall have paid or
caused to be paid the principal of and interest on all the
Securities outstanding hereunder, as and when the same shall
have become due and payable, or (b) the Issuer shall have
delivered to the Trustee for cancellation all Securities
theretofore authenticated (other than any Securities which
shall have been destroyed, lost or stolen and which shall
have been replaced or paid as provided in Section 2.6) or
(c) all Securities not theretofore cancelled or delivered to
the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable
within 1 year or are to be called for redemption within 1
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption, and the Issuer shall deposit
with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption of all the Securities (other
than any Securities which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as
provided in Section 2.6) not theretofore cancelled or
delivered to the Trustee for cancellation, including
principal and interest due or to become due to such date of
maturity or redemption date, as the case may be, but
excluding, however, the amount of any moneys for the payment
of principal of or interest on the Securities theretofore
repaid to the Issuer in accordance with the provisions of
Section 9.4 or paid to any State or the District of Columbia
pursuant to its unclaimed property or similar laws, and if
the Issuer shall also pay or cause to be paid all other sums
payable hereunder by the Issuer, then this Indenture shall
cease to be of further effect (except as to (i) rights of
registration of transfer and exchange, and the Issuer's
right of optional redemption, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen
Securities, (iii) rights of holders to receive payments of
principal thereof and interest thereon, (iv) the rights,
obligations and immunities of the Trustee hereunder, (v) the
rights of the Securityholders as beneficiaries hereof with
respect to the property so deposited with the Trustee
payable to all or any of them and (vi) the obligation of the
Issuer to maintain an office or agency as provided in
Section 3.2) and the Trustee, on demand of the Issuer
accompanied by an Officers' Certificate and an Opinion of
Counsel and at the cost and expense of the Issuer, shall
execute proper instruments acknowledging such satisfaction
of and discharging this Indenture. The Issuer agrees to
reimburse the Trustee for any costs or expenses thereafter
reasonably and properly incurred and to compensate the
Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture or
the Securities.
SECTION 9.2 Application by Trustee of Funds
Deposited for Payment of Securities. Subject to Section
9.4, all moneys deposited with the Trustee pursuant to
Section 9.1 or 9.5 shall be held in trust and applied by it
to the payment, either directly or through any paying agent
(including the Issuer acting as its own paying agent), to
the holders of the particular Securities for the payment or
redemption of which such moneys have been deposited with the
Trustee, of all sums due and to become due thereon for
principal and interest; but such money need not be
segregated from other funds except to the extent required by
law.
SECTION 9.3 Repayment of Moneys Held by Paying
Agent. In connection with the satisfaction and discharge of
this Indenture all moneys then held by any paying agent
under the provisions of this Indenture shall, upon demand of
the Issuer, be repaid to it or paid to the Trustee and
thereupon such paying agent shall be released from all
further liability with respect to such moneys.
SECTION 9.4 Return of Moneys Held by Trustee and
Paying Agent Unclaimed for Three Years. Any moneys
deposited with or paid to the Trustee or any paying agent
for the payment of the principal of or interest on any
Security and not applied but remaining unclaimed for three
years after the date upon which such principal or interest
shall have become due and payable, shall, upon the written
request of the Issuer and unless otherwise required by
mandatory provisions of applicable escheat or abandoned or
unclaimed property law, be repaid to the Issuer by the
Trustee or such paying agent, and the holder of such
Security shall, unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed
property laws, thereafter look only to the Issuer for any
payment which such holder may be entitled to collect, and
all liability of the Trustee or any paying agent with
respect to such moneys shall thereupon cease.
SECTION 9.5 Defeasance. At the Issuer's option,
either (a) the Issuer shall be deemed to have been Dis-
charged (as defined below) from its respective obligations
under the Securities on the 91st day after the applicable
conditions set forth below have been satisfied or (b) the
Issuer shall cease to be under any obligation to comply with
any term, provision or condition set forth in Sections 3.9
through 3.17, 8.1 and 8.2 with respect to the Securities at
any time after the applicable conditions set forth below
have been satisfied:
(1) the Issuer shall have deposited or caused to
be deposited irrevocably with the Trustee as funds in
trust, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of the
Securities, (i) funds in an amount sufficient to pay
the principal amount of the Securities in full on the
date of maturity of the Securities or a selected date
of redemption of the Securities as permitted under this
Indenture (if such Securities are to be called for
redemption and satisfactory arrangements have been made
with the Trustee for the giving of notice of
redemption) and the interest on such aggregate
principal amount to the date of maturity of the
Securities or such date of redemption, taking into
account all intervening interest payment dates, for the
period from the date through which interest on the
Securities has been paid to the date of maturity of the
Securities or such date of redemption and all other
sums payable hereunder by the Issuer; and provided that
such funds, if invested, shall be invested only in U.S.
Government Obligations maturing prior to the date of
maturity of the Securities or, to the extent
applicable, such date of redemption and such
intervening interest payment dates; and, provided
further, however, that the Trustee shall have no
obligation to invest such funds; or (ii) U.S.
Government Obligations in such aggregate principal
amount and maturity on such dates as will, together
with the income or increment to accrue thereon, but
without consideration of any reinvestment of such
income or increment, be sufficient to pay when due
(including any intervening interest payment dates) the
amounts set forth in the foregoing clauses (A) and (B);
or (iii) a combination of (i) and (ii), sufficient (in
the cases of deposits made pursuant to (ii) or (iii)),
in the opinion of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay
and discharge each installment of principal of, and
interest on, the outstanding Securities on the dates
such installments of principal or interest are due;
(2) no Event of Default or event which with
notice or lapse of time would become an Event of
Default with respect to the Securities shall have
occurred and be continuing on the date of such deposit;
(3) the Issuer shall have delivered to the
Trustee (A) an Opinion of Counsel to the effect that
the deposit of such funds or investments or both to
defease the Issuer's obligations in respect of the
Securities is in accordance with the provisions of this
Indenture and (B) either (i) an Opinion of Counsel to
the effect that Holders of the Securities will not
recognize income, gain or loss for United States
federal income tax purposes as a result of the exercise
of the option under this Section 9.5 and will be
subject to United States Federal income tax on the same
amount and in the same manner and at the same time as
would have been the case if such option had not been
exercised, or (ii) a private letter ruling to that
effect directed to the Trustee received from the United
States Internal Revenue Service; and
(4)the deposit of such funds or investments
shall not contravene applicable law.
"Discharged" means that the Issuer shall be deemed
to have paid and discharged the entire indebtedness
represented by, and obligations under, the Securities and to
have satisfied all the obligations under this Indenture and
the Securities (and the Trustee, at the request and the
expense of the Issuer, shall execute proper instruments
acknowledging the same), except (i) the rights of Holders of
Securities to receive, from the trust fund described in
clause (1) above, payment of the Principal of and the
interest on the Securities when such payments are due; (ii)
the Issuer's obligations with respect to the Securities
under Section 2.5, 2.6, and 9.4; (iii) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, and
(iv) the obligation of the Issuer to maintain an office or
agency as provided in Section 3.2.
ARTICLE TEN
MISCELLANEOUS PROVISIONS.
SECTION 10.1 Incorporators, Stockholders,
Officers and Directors of Issuer Exempt from Individual
Liability. No recourse under or upon any obligation,
covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby,
shall be had against any incorporator, as such, or against
any past, present or future stockholder, officer or
director, as such, of the Issuer or of any successor, either
directly or through the Issuer or any successor, under any
rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly
waived and released by the acceptance of the Securities by
the holders thereof and as part of the consideration for the
issue of the Securities.
SECTION 10.2 Provisions of Indenture for the Sole
Benefit of Parties and Securityholders. Nothing in this
Indenture or in the Securities, expressed or implied, shall
give or be construed to give to any person, firm or
corporation, other than the parties hereto and their
successors and the holders of Senior Indebtedness and the
holders of the Securities, any legal or equitable right,
remedy or claim under this Indenture or under any covenant
or provision herein contained, all such covenants and
provisions being for the sole benefit of the parties hereto
and their successors and of the holders of Senior
Indebtedness and the holders of the Securities.
SECTION 10.3 Successors and Assigns of Issuer
Bound by Indenture. All the covenants, stipulations,
promises and agreements in this Indenture contained by or in
behalf of the Issuer shall bind its successors and assigns,
whether so expressed or not.
SECTION 10.4 Notices and Demands on Issuer,
Trustee and Securityholders. Any notice or demand which by
any provision of this Indenture is required or permitted to
be given or served by the Trustee or by the holders of
Securities to or on the Issuer may be given or served by
hand delivery, by overnight courier or by being deposited
postage prepaid, first-class mail (except, in each case, as
otherwise specifically provided herein), in each case
addressed (until another address of the Issuer is filed by
the Issuer with the Trustee) to Flagstar Corporation, 203
East Main Street, Spartanburg, South Carolina 29319,
Attention: Chief Financial Officer. Any notice, direction,
request or demand by the Issuer or any Securityholder to or
upon the Trustee shall be deemed to have been sufficiently
given or made, for all purposes, if given or made at the
Corporate Trust Office.
Where this Indenture provides for notice to
holders, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and
delivered by hand, delivered by overnight courier or mailed,
first-class postage prepaid, to each holder entitled
thereto, at his last address as it appears in the Security
register. In any case where notice to holders is given by
any of the foregoing means, neither the failure to give such
notice by such means, nor any defect in any notice so given,
to any particular holder shall affect the sufficiency of
such notice with respect to other holders. Where this
Indenture provides for notice in any manner, such notice may
be waived in writing by the person entitled to receive such
notice, either before or after the event, and such waiver
shall be the equivalent of such notice. Waivers of notice
by holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
In case, by reason of the suspension of or
irregularities in regular mail service, it shall be
impracticable to mail notice to the Issuer and
Securityholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner
of giving such notice as shall be satisfactory to the
Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 10.5 Officers' Certificates and Opinions
of Counsel; Statements to Be Contained Therein. Upon any
application or demand by the Issuer to the Trustee to take
any action under any of the provisions of this Indenture,
the Issuer shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent provided
for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in
the opinion of such counsel all such conditions precedent
have been complied with, except that in the case of any such
application or demand as to which the furnishing of such
documents is specifically required by any provision of this
Indenture relating to such particular application or demand,
no additional certificate or opinion need be furnished.
Each certificate or opinion provided for in this
Indenture and delivered to the Trustee with respect to
compliance with a condition or covenant provided for in this
Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or
condition, (b) a brief statement as to the nature and scope
of the examination or investigation upon which the
statements or opinions contained in such certificate or
opinion are based, (c) a statement that, in the opinion of
such person, he has made such examination or investigation
as is necessary to enable him to express an informed opinion
as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in
the opinion of such person, such condition or covenant has
been complied with.
Any certificate, statement or opinion of an
officer of the Issuer may be based, insofar as it relates to
legal matters, upon a certificate or opinion of or
representations by counsel, unless such officer knows that
the certificate or opinion or representations with respect
to the matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the
exercise of reasonable care should know that the same are
erroneous. Any certificate, statement or opinion of counsel
may be based, insofar as it relates to factual matters
information with respect to which is in the possession of
the Issuer, upon the certificate, statement or opinion of or
representations by an officer or officers of the Issuer,
unless such counsel knows that the certificate, statement or
opinion or representations with respect to the matters upon
which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable
care should know that the same are erroneous.
Any certificate, statement or opinion of an
officer of the Issuer or of counsel may be based, insofar as
it relates to accounting matters, upon a certificate or
opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer
or counsel, as the case may be, knows that the certificate
or opinion or representations with respect to the accounting
matters upon which his certificate, statement or opinion may
be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm
of public accountants filed with the Trustee shall contain a
statement that such firm is independent.
SECTION 10.6 Payments Due on Saturdays, Sundays
and Holidays. If the date of maturity of interest on or
principal of the Securities or the date fixed for redemption
of any Security shall not be a Business Day, then payment of
interest or principal need not be made on such date, but may
be made on the next succeeding Business Day with the same
force and effect as if made on the date of maturity or the
date fixed for redemption, and no interest shall accrue for
the period after such date.
SECTION 10.7 Conflict of Any Provision of
Indenture with Trust Indenture Act of 1939. If and to the
extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in
this Indenture by operation of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939 (an
"incorporated provision"), such incorporated provision shall
control.
SECTION 10.8 New York Law to Govern. This
Indenture and each Security shall be deemed to be a contract
under the laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of
said State, except as may otherwise be required by mandatory
provisions of law.
SECTION 10.9 Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall
be an original; but such counterparts shall together
constitute but one and the same instrument.
SECTION 10.10 Effect of Headings. The Article and
Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction
hereof.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES.
SECTION 11.1 Right of Optional Redemption. The
Securities may not be redeemed at the option of the Issuer
prior to maturity, except that the Securities may be
redeemed in part at the option of the Issuer prior to
September 15, 1996 upon the terms and subject to the
conditions set forth in the form of Security hereinabove
recited.
SECTION 11.2 Notice of Redemption; Partial
Redemptions. Notice of redemption to the holders of
Securities to be redeemed as a whole or in part shall be
given by mailing notice of such redemption by first class
mail, postage prepaid, at least 30 days and not more than 60
days prior to the date fixed for redemption to such holders
of Securities at their last addresses as they shall appear
upon the registry books. Any notice which is mailed in the
manner herein provided shall be conclusively presumed to
have been duly given, whether or not the holder receives the
notice. Failure to give notice by mail, or any defect in
the notice to the holder of any Security designated for
redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other
Security.
The notice of redemption to each such holder shall
specify the principal amount of each Security held by such
holder to be redeemed, the date fixed for redemption, the
redemption price, the place or places of payment, that
payment will be made upon presentation and surrender of such
Securities, that interest accrued to the date fixed for
redemption will be paid as specified in said notice and that
on and after said date interest thereon or on the portions
thereof to be redeemed will cease to accrue. In case any
Security is to be redeemed in part only the notice of
redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such Security,
a new Security or Securities in principal amount equal to
the unredeemed portion thereof will be issued.
The notice of redemption of Securities to be
redeemed at the option of the Issuer shall be given by the
Issuer or, at the Issuer's request, by the Trustee in the
name and at the expense of the Issuer.
On or prior to the redemption date specified in
the notice of redemption given as provided in this Section,
the Issuer will deposit with the Trustee or with one or more
paying agents (or, if the Issuer is acting as its own paying
agent, set aside, segregate and hold in trust as provided in
Section 3.4) an amount of money sufficient to redeem on the
redemption date all the Securities so called for redemption
at the appropriate redemption price, together with accrued
interest to the date fixed for redemption. If less than all
the outstanding Securities are to be redeemed the Issuer
will deliver to the Trustee at least 70 days prior to the
date fixed for redemption an Officers' Certificate stating
the aggregate principal amount of Securities to be redeemed.
If less than all the Securities are to be
redeemed, the Trustee shall select, in such manner as it
shall deem appropriate and fair but generally pro rata or by
lot, Securities to be redeemed in whole or in part.
Securities may be redeemed in part in multiples of $1,000
only. The Trustee shall promptly notify the Issuer in
writing of the Securities selected for redemption and, in
the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Security
redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is
to be redeemed.
SECTION 11.3 Payment of Securities Called for
Redemption. If notice of redemption has been given as above
provided, the Securities or portions of Securities specified
in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable
redemption price, together with interest accrued to the date
fixed for redemption, and on and after said date (unless the
Issuer shall default in the payment of such Securities at
the redemption price, together with interest accrued to said
date) interest on the Securities or portions of Securities
so called for redemption shall cease to accrue and, except
as provided in Sections 5.5 and 9.4, such Securities shall
cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture,
and the holders thereof shall have no right in respect of
such Securities except the right to receive the redemption
price thereof and unpaid interest to the date fixed for
redemption. On presentation and surrender of such
Securities at a place of payment specified in said notice,
said Securities or the specified portions thereof shall be
paid and redeemed by the Issuer at the applicable redemption
price, together with interest accrued thereon to the date
fixed for redemption; provided that any semi-annual payment
of interest becoming due on the date fixed for redemption
shall be payable to the holders of such Securities
registered as such on the relevant record date subject to
the terms and provisions of Section 2.4 hereof.
If any Security called for redemption shall not be
so paid upon surrender thereof for redemption, the principal
shall, until paid or duly provided for, bear interest from
the date fixed for redemption at the rate borne by the
Security.
Upon presentation of any Security redeemed in part
only, the Issuer shall execute and the Trustee shall
authenticate and deliver to or on the order of the holder
thereof, at the expense of the Issuer, a new Security or
Securities, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so
presented.
SECTION 11.4 Exclusion of Certain Securities from
Eligibility for Selection for Redemption. Securities shall
be excluded from eligibility for selection for redemption if
they are identified by registration and certificate number
in a written statement signed by an authorized officer of
the Issuer and delivered to the Trustee at least 40 days
prior to the last date on which notice of redemption may be
given as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Issuer or (b) an
entity specifically identified in such written statement
directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer.
SECTION 11.5 Offer to Redeem by Application of
Net Proceeds. At such time as the Issuer determines to make
a Net Proceeds Offer pursuant to the provisions of Section
3.13 hereof, the Issuer shall deliver to the Trustee a
notice to such effect specifying the aggregate principal
amount of the Securities for which the Net Proceeds Offer
will be made. Within 15 days thereafter, the Trustee shall
select the Securities to be offered to be redeemed in
accordance with Section 11.2 hereof. Within 10 days
thereafter the Issuer shall mail or cause the Trustee to
mail (in the Issuer's name and at its expense and pursuant
to an Officer's Certificate as required by Section 3.13
hereof) a Net Proceeds Offer to redeem to each Holder of
Securities whose Securities are to be offered to be
redeemed. The Net Proceeds Offer shall identify the
Securities to which it relates and shall contain the
information required by the second paragraph of Section 11.2
hereof and shall provide for a redemption date no earlier
than 65 days after the mailing of the Net Proceeds Offer.
A Holder receiving a Net Proceeds Offer may elect
to have redeemed the Securities to which the Net Proceeds
Offer relates by providing written notice thereof to the
Trustee and the Issuer on or before 35 days preceding the
redemption date and shall thereafter complete the form
entitled "Option of Holder to Elect to Have Security
Redeemed" on the reverse of the Security and surrender the
Security to the Issuer, or depositary, if appointed by the
Issuer, or a paying agent at least three days prior to the
redemption date. A Holder may not elect to have redeemed
less than all of the Securities to which the Net Proceeds
Offer relates.
Other than as specifically provided in this
Section 11.5, any redemption pursuant to this Section 11.5
shall be made pursuant to the provisions of Sections 11.2
through 11.4 hereof.
IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed and attested, all as of
the date first above written.
FLAGSTAR CORPORATION
By /s/ Karl H. Sedlarz
Title: Vice President and
Treasurer
Attest:
By /s/ George E. Moseley
Title: Secretary
FIRST TRUST NATIONAL
ASSOCIATION,
as Trustee
By /s/ Frank Leslie
Title: Assistant Vice President
Attest:
By /s/
Title: Assistant Vice President
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 23rd day of September, 1993, before me
personally came Karl H. Sedlarz, to me known, who being by me
personally sworn, did depose and say that he is the
Vice President and Treasurer of Flagstar Corporation, the
corporation described in and on behalf of which he has
executed the above instrument, and that he is authorized by
said corporation to execute the same.
/s/ Kate Kamish
Notary Public
STATE OF MINNESOTA )
: ss.:
COUNTY OF RAMSEY )
On this 23rd day of September, 1993, before me
personally came Frank P. Leslie III, to me known, who being by me
personally sworn, did depose and say that he is the
Assistant Vice President of First Trust National Association, the
corporation described in and on behalf of which he has
executed the above instrument, and that he is authorized by
said corporation to execute the same.
/s/ Mary K. Reber
Notary Public
Exhibit 4.25
Conformed Copy
FLAGSTAR CORPORATION
AND
NATIONSBANK OF GEORGIA, NATIONAL ASSOCIATION, TRUSTEE
Indenture
Dated as of September 23, 1993
$125,000,000
11 3/8% Senior Subordinated Debentures Due 2003
TABLE OF CONTENTS
Page
PARTIES.............................................. 1
RECITALS
Authorization of Indenture...................... 1
Form of Face of Security........................ 1
Form of Reverse of Security..................... 3
Form of Trustee's Certificate of Authentication. 9
Compliance with Legal Requirements.............. 9
Purpose of and Consideration for Indenture...... 9
ARTICLE ONE
DEFINITIONS.
SECTION 1.1. Certain Terms Defined................. 10
Acquisition Indebtedness..............10
Adjusted Consolidated Net Worth.......10
Affiliate.............................11
Agent.................................11
Asset Segment.........................11
Associates............................11
Bankruptcy Law........................11
Board of Directors....................12
Business Day..........................12
Business Segment......................12
Capital Stock.........................12
Cash Equivalents......................12
Code..................................13
Commission............................13
Consolidated Fixed Charges............13
Consolidated Net Income...............14
Consolidated Net Worth................14
Controlled Corporation EBIDTA Amount..15
Corporate Trust Office................15
Credit Agent..........................15
Credit Agreement......................15
Default...............................15
Disqualified Stock....................15
DLJ...................................16
DLJ Capital...........................16
EBITDA................................16
11.25% Debentures.....................17
Equity Interests...................... 17
Equity Investment..................... 17
Event of Default......................17
Excluded Properties................... 17
Existing Indebtedness.................17
FCI...................................17
FCI Common Stock......................17
Fixed Charge Coverage Ratio...........17
GTO...................................17
GTO Fee...............................17
Holder, holder of Securities,
Securityholder......................18
Indebtedness..........................18
Indenture.............................18
Indentures............................18
Interest Rate Agreement...............18
Investment............................18
Issuer................................19
KKR...................................19
Lien..................................19
Mortgage Financing....................19
Mortgage Financing Proceeds...........19
Mortgage Refinancing..................19
Mortgage Refinancing Proceeds.........19
Net Income............................20
Net Proceeds..........................20
Obligations...........................20
OECD..................................21
Officers' Certificate.................21
Opinion of Counsel....................21
Outstanding...........................21
Permitted Investments.................22
Preferred Stock.......................22
principal.............................22
Recapitalization......................22
Remaining Section 355 Amount..........22
Responsible Officer...................22
Restricted Investments................23
Section 355 Percentage................23
Section 355 Transaction...............23
Security or Securities................24
Senior Indebtedness...................24
Senior Notes..........................24
Senior Note Indenture.................24
Significant Subsidiary................25
Specified Issuer EBITDA...............25
Specified Senior Indebtedness.........25
Subsidiary............................25
10% Debentures........................25
10 7/8% Notes.........................25
Trust Indenture Act of 1939...........25
Trustee...............................25
Unrestricted Subsidiary...............25
Weighted Average Life to Maturity.....26
ARTICLE TWO
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES.
SECTION 2.1. Authentication and Delivery of
Securities..........................27
SECTION 2.2. Execution of Securities............... 27
SECTION 2.3. Certificate of Authentication......... 28
SECTION 2.4. Form, Denomination and Date of
Securities; Payments of Interest....28
SECTION 2.5. Registration, Transfer and Exchange... 29
SECTION 2.6. Mutilated, Defaced, Destroyed, Lost
and Stolen Securities...............30
SECTION 2.7. Cancellation of Securities;
Destruction Thereof.................31
SECTION 2.8. Temporary Securities.................. 32
ARTICLE THREE
COVENANTS OF THE ISSUER AND THE TRUSTEE.
SECTION 3.1. Payment of Principal and Interest..... 32
SECTION 3.2. Offices for Payments, etc............. 32
SECTION 3.3. Appointment to Fill a Vacancy in
Office of Trustee...................33
SECTION 3.4. Paying Agents......................... 33
SECTION 3.5. Certificates to Trustee............... 34
SECTION 3.6. Securityholder Lists.................. 34
SECTION 3.7. Reports by the Issuer................. 35
SECTION 3.8. Reports by the Trustee................ 35
SECTION 3.9. Limitation on Restricted Payments..... 35
SECTION 3.10. Limitation on Dividends and Other
Payment Restrictions Affecting
Subsidiaries........................41
SECTION 3.11. Limitation on Additional Indebtedness
and Issuance of Disqualified Stock..42
SECTION 3.12. Limitation on Transactions with
Affiliates..........................44
SECTION 3.13. Sale of Assets........................ 45
SECTION 3.14. Corporate Existence................... 47
SECTION 3.15. Limitation on Liens................... 48
SECTION 3.16. Issuer to Cause Certain
Subsidiaries to Become Guarantors...50
SECTION 3.17. Limitation on Senior Subordinated
Debt................................50
SECTION 3.18. Investments in Unrestricted
Subsidiaries........................51
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
SECTION 4.1. Events of Default .................... 51
SECTION 4.2. Acceleration.......................... 54
SECTION 4.3. Other Remedies........................ 55
SECTION 4.4. Waiver of Defaults.................... 55
SECTION 4.5. Control by Majority................... 55
SECTION 4.6. Limitation on Suits................... 56
SECTION 4.7. Rights of Holders to Receive Payment.. 56
SECTION 4.8. Collection Suit by Trustee............ 56
SECTION 4.9. Trustee May File Proofs of Claim...... 57
SECTION 4.10. Priorities............................ 58
SECTION 4.11. Undertaking for Costs................. 58
ARTICLE FIVE
CONCERNING THE TRUSTEE.
SECTION 5.1. Duties and Responsibilities of the
Trustee; During Default; Prior to
Default.............................58
SECTION 5.2. Certain Rights of the Trustee......... 60
SECTION 5.3. Trustee Not Responsible for Recitals,
Disposition of Securities or
Application of Proceeds Thereof.....61
SECTION 5.4. Trustee and Agents May Hold
Securities; Collections, etc........62
SECTION 5.5. Moneys Held by Trustee................ 62
SECTION 5.6. Compensation and Indemnification
of Trustee and Its Prior Claim......62
SECTION 5.7. Right of Trustee to Rely on
Officers' Certificate, etc..........63
SECTION 5.8. Persons Eligible for Appointment
as Trustee..........................63
SECTION 5.9. Resignation and Removal; Appointment
of Successor Trustee................63
SECTION 5.10. Acceptance of Appointment by
Successor Trustee...................65
SECTION 5.11. Merger, Conversion, Consolidation or
Succession to Business of Trustee...66
SECTION 5.12. Indenture Not Creating Potential
Conflicting Interests for Trustee...66
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS.
SECTION 6.1. Evidence of Action Taken by
Securityholders.....................67
SECTION 6.2. Proof of Execution of Instruments
and of Holding of Securities;
Record Date.........................67
SECTION 6.3. Holders to Be Treated as Owners....... 67
SECTION 6.4. Securities Owned by Issuer Deemed Not
Outstanding.........................68
SECTION 6.5. Right of Revocation of Action Taken... 68
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES.
SECTION 7.1. Supplemental Indentures Without
Consent of Securityholders..........69
SECTION 7.2. Supplemental Indentures With Consent
of Securityholders..................70
SECTION 7.3. Effect of Supplemental Indenture...... 72
SECTION 7.4. Documents to Be Given to Trustee...... 72
SECTION 7.5. Notation on Securities in Respect of
Supplemental Indentures.............72
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE.
SECTION 8.1. When Issuer May Merge, etc............ 73
SECTION 8.2. Successor Corporation Substituted..... 74
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS; DEFEASANCE.
SECTION 9.1. Satisfaction and Discharge of
Indenture...........................75
SECTION 9.2. Application by Trustee of Funds
Deposited for Payment of Securities.76
SECTION 9.3. Repayment of Moneys Held by Paying
Agent...............................76
SECTION 9.4. Return of Moneys Held by Trustee and
Paying Agent Unclaimed for Three
Years...............................76
SECTION 9.5. Defeasance............................ 77
ARTICLE TEN
MISCELLANEOUS PROVISIONS.
SECTION 10.1. Incorporators, Stockholders, Officers
and Directors of Issuer Exempt from
Individual Liability................79
SECTION 10.2. Provisions of Indenture for the Sole
Benefit of Parties and Security-
holders.............................79
SECTION 10.3. Successors and Assigns of Issuer
Bound by Indenture..................79
SECTION 10.4. Notices and Demands on Issuer,
Trustee and Securityholders.........79
SECTION 10.5. Officers' Certificates and Opinions
of Counsel; Statements to Be
Contained Therein...................80
SECTION 10.6. Payments Due on Saturdays, Sundays
and Holidays........................82
SECTION 10.7. Conflict of Any Provision of
Indenture with Trust Indenture
Act of 1939.........................82
SECTION 10.8. New York Law to Govern................ 82
SECTION 10.9. Counterparts.......................... 82
SECTION 10.10. Effect of Headings.................... 82
ARTICLE ELEVEN
REDEMPTION OF SECURITIES.
SECTION 11.1. Right of Optional Redemption.......... 82
SECTION 11.2. Notice of Redemption; Partial
Redemptions.........................83
SECTION 11.3. Payment of Securities Called for
Redemption..........................84
SECTION 11.4. Exclusion of Certain Securities from
Eligibility for Selection for
Redemption..........................85
SECTION 11.5. Offer to Redeem by Application of
Net Proceeds........................85
ARTICLE TWELVE
SUBORDINATION OF SECURITIES.
SECTION 12.1. Agreement to Subordinate.............. 86
SECTION 12.2. Certain Definitions................... 86
SECTION 12.3. Liquidation; Dissolution; Bankruptcy.. 87
SECTION 12.4. Default on Senior Indebtedness........ 88
SECTION 12.5. Acceleration of Securities............ 90
SECTION 12.6. When Distribution Must be Paid Over... 90
SECTION 12.7. Notice by Issuer...................... 91
SECTION 12.8. Subrogation........................... 91
SECTION 12.9. Relative Rights....................... 92
SECTION 12.10. Subordination May Not Be Impaired..... 92
SECTION 12.11. Distribution or Notice to
Representative......................94
SECTION 12.12. Rights of Trustee and Paying Agent.... 94
SECTION 12.13. Authorization to Effect Subordination. 94
SECTION 12.14. Miscellaneous......................... 95
TESTIMONIUM.......................................... 96
SIGNATURES........................................... 96
ACKNOWLEDGMENTS...................................... 96
THIS INDENTURE, dated as of September 23, 1993
between Flagstar Corporation, a Delaware corporation (the
"Issuer"), and NationsBank of Georgia, National Association,
a national banking association, as Trustee (the "Trustee"),
W I T N E S S E T H :
WHEREAS, the Issuer has duly authorized the issue
of its 11 3/8% Senior Subordinated Debentures Due 2003 (the
"Securities") and, to provide, among other things, for the
authentication, delivery and administration thereof, the
Issuer has duly authorized the execution and delivery of
this Indenture; and
WHEREAS, the Securities and the Trustee's
certificate of authentication shall be in substantially the
following form:
[FORM OF FACE OF SECURITY]
No.
$
FLAGSTAR CORPORATION
11 3/8% Senior Subordinated Debentures Due 2003
Flagstar Corporation, a Delaware corporation (the
"Issuer"), for value received hereby promises to pay to or
registered assigns the principal sum
of Dollars at the Issuer's office or agency for
said purpose on September 15, 2003 in 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, and to pay interest, semi-annually on March 15 and
September 15 of each year, on said principal sum in like
coin or currency at the rate per annum set forth above at
said office or agency from the March 15 or the September 15,
as the case may be, next preceding the date of this Security
to which interest on the Securities has been paid or duly
provided for, unless the date hereof is a date to which
interest on the Securities has been paid or duly provided
for, in which case from the date of this Security, or unless
no interest has been paid or duly provided for on the
Securities, in which case from September 23, 1993, until
payment of said principal sum has been made or duly provided
for. Notwithstanding the foregoing, if the date hereof is
after March 1 or September 1, as the case may be, and before
the following March 15 or September 15, this Security shall
bear interest from such March 15 or September 15; provided,
that if the Issuer shall default in the payment of interest
due on such March 15 or September 15, then this Security
shall bear interest from the next preceding March 15 or
September 15 to which interest on the Securities has been
paid or duly provided for, or, if no interest has been paid
or duly provided for on the Securities, from September 23,
1993. The interest so payable on any March 15 or September
15 will, except as otherwise provided in the Indenture
referred to on the reverse hereof, be paid to the person in
whose name this Security is registered at the close of
business on the March 1 or September 1 preceding such March
15 or September 15, whether or not such day is a business
day; provided that interest may be paid, at the option of
the Issuer, by mailing a check therefor payable to the
registered holder entitled thereto at his last address as it
appears on the Security register or by wire transfer to such
holder.
Reference is made to the further provisions set
forth on the reverse hereof, including without limitation
provisions subordinating the payment of principal of,
premium, if any, and interest on the Securities to the
payment in full of all Senior Indebtedness as defined in
said Indenture. Such further provisions shall for all
purposes have the same effect as though fully set forth at
this place.
This Security shall not be valid or obligatory
until the certificate of authentication hereon shall have
been duly signed by the Trustee acting under the Indenture.
IN WITNESS WHEREOF, the Issuer has caused this
instrument to be duly executed under its corporate seal.
Dated:
[Seal]
______________________________
______________________________
[FORM OF REVERSE OF SECURITY]
Flagstar Corporation
11 3/8% Senior Subordinated Debentures Due 2003
This Security is one of a duly authorized issue of
debt securities of the Issuer, limited to the aggregate
principal amount of $125,000,000 (except as otherwise
provided in the Indenture mentioned below), issued or to be
issued pursuant to an indenture dated as of September 23,
1993 (the "Indenture"), duly executed and delivered by the
Issuer to NationsBank of Georgia, National Association, as
Trustee (herein called the "Trustee"). Reference is hereby
made to the Indenture and all indentures supplemental
thereto for a description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the
Trustee, the Issuer and the holders (the words "holders" or
"holder" meaning the registered holders or registered
holder) of the Securities.
If an Event of Default, as defined in the
Indenture, shall have occurred and be continuing, the
Trustee or the holders of at least 30% (or 25% in the case
of a default with respect to payment of principal of,
premium, if any, or interest on the Securities) in principal
amount of the then outstanding Securities may declare the
principal amount of the Securities to be due and payable
immediately; provided, however, that if any Senior
Indebtedness is outstanding pursuant to the Credit
Agreement, upon a declaration of acceleration, such
principal and interest shall be payable upon the earlier of
(x) the day that is five Business Days after the provision
to the Issuer and the Credit Agent of such written notice
unless such Event of Default has been cured or waived prior
to such date and (y) the date of acceleration of any Senior
Indebtedness under the Credit Agreement. In the case of an
Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Securities become due and
payable immediately without further action or notice. The
Indenture provides that in certain events a declaration of
acceleration and its consequences may be waived by the
holders of a majority in aggregate principal amount of the
Securities then outstanding and that the holders of a
majority in aggregate principal amount of the Securities
then outstanding may waive any default under the Indenture
and its consequences except a default in the payment of
principal of, premium, if any, or interest on any of the
Securities. Any such consent or waiver by the holder of
this Security (unless revoked as provided in the Indenture)
shall be conclusive and binding upon such holder and upon
all future holders and owners of this Security and any
Security which may be issued in exchange or substitution
herefor, whether or not any notation thereof is made upon
this Security or such other Securities.
The Indenture permits the Issuer and the Trustee,
with the consent of the holders of not less than a majority
in aggregate principal amount of the Securities at the time
outstanding, evidenced as in the Indenture provided, to
execute supplemental indentures adding any provisions to or
changing in any manner or eliminating any of the provisions
of the Indenture or of any supplemental indenture or
modifying in any manner the rights of the holders of the
Securities; provided that no such supplemental indenture
shall (a) extend the final maturity of any Security, or
reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, or reduce
the premium, if any, payable thereon, or reduce any amount
payable on the redemption thereof or impair or affect the
rights of any Securityholder to institute suit for the
payment thereof, or waive a default in the payment of
principal of, premium, if any, or interest on any Security,
change the currency of payment of principal of, premium, if
any, or interest on any Security, or modify any provision in
the Indenture with respect to the priority of the Securities
in right of payment without the consent of the holder of
each Security so affected; or (b) reduce the aforesaid
percentage of Securities, the consent of the holders of
which is required for any such supplemental indenture,
without the consent of the holders of all Securities then
outstanding.
The Securities are subordinated to Senior
Indebtedness (as defined in the Indenture), which includes
(a) all Senior Indebtedness of the Issuer and its
Subsidiaries arising under or in respect of the Credit
Agreement, the Senior Notes and the 10 7/8% Notes (each as
defined in the Indenture) and all obligations and claims
related thereto, (b) all Obligations of the Issuer in
respect of Interest Rate Agreements (as defined in the
Indenture) and (c) all other Indebtedness permitted by the
Indenture to be thereafter created, incurred, assumed or
guaranteed by the Issuer which is not expressly by its terms
subordinated to, or pari passu with, the Securities and all
obligations and claims related thereto. Indebtedness is
defined in the Indenture to include (i) all obligations in
respect of borrowed money, (ii) all obligations evidenced by
bonds, notes, debentures or similar instruments other than
Interest Rate Agreements, (iii) all reimbursement
obligations and other liabilities with respect to letters of
credit, (iv) all obligations to pay the deferred purchase
price of property or services, except accounts payable
arising in the ordinary course of business, (v) all capital
lease obligations under capital leases and (vi) the guaranty
of items which would be included in the definition of
Indebtedness pursuant to clauses (i) through (v) above;
provided that in the case of clauses (i) through (v) above,
Indebtedness of any person shall include only obligations
reported as liabilities in the financial statements of such
person in accordance with generally accepted accounting
principles. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid.
The Issuer agrees, and each holder by its acceptance of this
Security agrees, to the subordination provided in the
Indenture and authorizes the Trustee to give it effect. The
Securities are senior in right of payment to the 10%
Convertible Junior Subordinated Debentures Due 2014 of the
Issuer issued pursuant to the indenture dated as of November
1, 1989 between the Issuer and United States Trust Company
of New York, trustee, as supplemented. The Securities are
pari passu with the 11.25% Senior Subordinated Debentures
Due 2004 of the Issuer issued pursuant to the indenture
dated as of November 16, 1992 between the Issuer and
NationsBank of Georgia, National Association, trustee.
No reference herein to the Indenture and no
provision of this Security or of the Indenture shall alter
or impair the obligation of the Issuer, which is absolute
and unconditional, to pay the principal of, premium, if any
and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered
Securities without coupons in denominations of $1,000 and
any multiple of $1,000.
At the office or agency of the Issuer referred to
on the face hereof and in the manner and subject to the
limitations provided in the Indenture, Securities may be
exchanged for a like aggregate principal amount of
Securities of other authorized denominations.
Upon due presentment for registration of transfer
of this Security at the above-mentioned office or agency of
the Issuer, a new Security or Securities of authorized
denominations, for a like aggregate principal amount, will
be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but
the Issuer may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
relation thereto.
Except as set forth in the following paragraph,
the Securities may not be redeemed at the option of the
Issuer prior to September 15, 1998. The Securities will be
redeemable, in whole or in part, at the option of the
Issuer, upon mailing of a notice of such redemption not less
than 30 or more than 60 days prior to the redemption date to
each holder of Securities to be redeemed, at the redemption
prices (expressed as percentages of the principal amount)
set forth below, plus accrued and unpaid interest, if any,
to the redemption date, if redeemed during the 12-month
period beginning September 15 of the years indicated below:
Year Percentage
1998...................................... 105.688%
1999...................................... 102.844
2000 and thereafter ...................... 100.000
provided that if the date fixed for redemption is March 15
or September 15, then the interest payable on such date
shall be paid to the holder of record on the next preceding
March 1 or September 1.
Prior to September 15, 1996, the Issuer may redeem
up to 35% of the original aggregate principal amount of the
Securities, at a redemption price (expressed as a percentage
of the principal amount) of 110%, plus accrued and unpaid
interest, if any, to the redemption date, with that portion,
if any, of the net proceeds of any public offering for cash
of FCI Common Stock that is used by FCI to acquire from the
Issuer shares of common stock of the Issuer; provided that
any such redemption is effected within 60 days after the
closing of such public offering of FCI Common Stock.
Notice of redemption shall be mailed at least 30
and not more than 60 days prior to the date fixed for
redemption to each holder of Securities to be redeemed at
his registered address. Securities may be redeemed in part
only in multiples of $1,000.
Subject to the terms of the Indenture, if the
Issuer consummates any Asset Sale or sells a Business
Segment (as such terms are defined in the Indenture), the
Issuer shall be obligated to apply the proceeds thereof to
one or more of the following in such combination as the
Issuer may choose: (i) an investment in another asset or
business in the same line of business as the Issuer and its
Subsidiaries, provided such investment occurs within 366
days of such Asset Sale or sale of a Business Segment, (ii)
an offer, expiring within 366 days of such Asset Sale or
such sale of a Business Segment, to redeem Securities at a
redemption price not less than 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the
redemption date (a "Net Proceeds Offer") or (iii) the
prepayment of outstanding Senior Indebtedness within 366
days of such Asset Sale or sale of a Business Segment;
provided, however, that if the net amount not invested
pursuant to clause (i) or applied pursuant to clause (iii)
above to the prepayment of Senior Indebtedness is less than
$25,000,000, the Issuer shall not be further obligated to
offer to redeem Securities pursuant to clause (ii) above.
Holders of Securities which are the subject of an offer to
redeem shall receive an offer to redeem from the Issuer
prior to any related redemption date, and may elect to have
such Securities redeemed by completing the form entitled
"Option of Holder to Elect to Have Security Redeemed"
appearing below. Notwithstanding any provision of the
Indenture to the contrary, the Issuer may, for a period of
120 days after the last date on which holders of Securities
are permitted to elect to have their Securities redeemed in
a Net Proceeds Offer, use any Net Proceeds that were
available to make such Net Proceeds Offer but not used to
redeem Securities pursuant thereto, to purchase, redeem or
otherwise acquire or retire for value securities of the
Issuer ranking junior in right of payment to the Securities
at a price, stated as a percentage of the principal or face
amount of such junior securities, not greater than the
price, stated as a percentage of the principal amount of the
Securities, offered in the Net Proceeds Offer; provided that
if the Net Proceeds Offer is for a principal amount (the
"Net Proceeds Offer Amount") of the Securities less than the
aggregate principal amount of the Securities then
outstanding, then the Net Proceeds available for use by the
Issuer for such a purchase, redemption or other acquisition
or retirement for value of junior securities shall not
exceed the Net Proceeds Offer Amount.
Subject to payment by the Issuer of a sum
sufficient to pay the amount due on redemption, interest on
this Security (or portion hereof if this Security is
redeemed in part) shall cease to accrue upon the date duly
fixed for redemption of this Security (or portion hereof if
this Security is redeemed in part).
The Issuer, the Trustee, and any authorized agent
of the Issuer or the Trustee, may deem and treat the
registered holder hereof as the absolute owner of this
Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Issuer or the Trustee
or any authorized agent of the Issuer or the Trustee), for
the purpose of receiving payment of, or on account of, the
principal hereof and premium, if any, and, subject to the
provisions on the face hereof, interest hereon and for all
other purposes, and neither the Issuer nor the Trustee nor
any authorized agent of the Issuer or the Trustee shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the
principal of or premium, if any, or the interest on this
Security, for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture
or any indenture supplemental thereto, against any
incorporator, shareholder, officer or director, as such,
past, present or future, of the Issuer or of any successor
corporation, either directly or through the Issuer or any
successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement
of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and
released.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the
within-mentioned Indenture.
NATIONSBANK OF GEORGIA,
NATIONAL ASSOCIATION,
as Trustee
Authorized Signatory
OPTION OF HOLDER TO ELECT TO HAVE SECURITY REDEEMED
If you have received a Net Proceeds Offer from the
Issuer and want to elect to have this Security redeemed by
the Issuer pursuant to Section 11.5 of the Indenture, check
the box: [ ]
Date: _______________ Your Signature: ____________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee: ____________________________
AND WHEREAS, all things necessary to make the
Securities, when executed by the Issuer and authenticated
and delivered by the Trustee as in this Indenture provided,
the valid, binding and legal obligations of the Issuer, and
to constitute these presents a valid indenture and agreement
according to its terms, have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases
of the Securities by the holders thereof, the Issuer and the
Trustee mutually covenant and agree for the equal and
proportionate benefit of the respective holders from time to
time of the Securities as follows:
ARTICLE ONE
DEFINITIONS.
SECTION 1.1 Certain Terms Defined. The following
terms (except as otherwise expressly provided or unless the
context otherwise clearly requires) for all purposes of this
Indenture and of any indenture supplemental hereto shall
have the respective meanings specified in this Section. All
other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939 or the definitions of which in
the Securities Act of 1933 are referred to in the Trust
Indenture Act of 1939 (except as herein otherwise expressly
provided or unless the context otherwise clearly requires),
shall have the meanings assigned to such terms in said Trust
Indenture Act and in said Securities Act as in force at the
date of this Indenture. All accounting terms used herein
and not expressly defined shall have the meanings given to
them in accordance with generally accepted accounting
principles, and the term "generally accepted accounting
principles" shall mean such accounting principles which are
generally accepted at the date or time of any computation or
at the date hereof. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article,
Section or other subdivision. The terms defined in this
Article include the plural as well as the singular.
"Acquisition Indebtedness" means Indebtedness of
any person existing at the time such person becomes a
Subsidiary of the Issuer (or at the time such person is
merged with or into a Subsidiary of the Issuer), excluding
Indebtedness of any Subsidiary of the Issuer (other than
such person) incurred in connection with, or in
contemplation of, such person becoming a Subsidiary of the
Issuer.
"Adjusted Consolidated Net Worth" with respect to
the Issuer means, as of any date, the Consolidated Net Worth
of the Issuer plus (i) the respective amounts reported on
the Issuer's most recent consolidated balance sheet with
respect to any preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid
only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash
received by the Issuer upon issuance of such preferred stock
or of securities converted into such preferred stock,
excluding (ii) any amount reflecting any equity adjustment
resulting from a foreign currency translation on a
consolidated balance sheet of the Issuer, but only to the
extent not excluded in calculating Consolidated Net Worth of
the Issuer, plus (iii) any gain realized upon the sale or
other disposition of any Business Segments to the extent
such gains do not exceed the sum of the aggregate amount of
any losses included (on a net after tax basis) in the
computation of Consolidated Net Worth, plus (iv) transaction
fees and expenses related to the Recapitalization and any
related transactions including amortization thereof, but
only to the extent such fees and expenses were included in
calculating Consolidated Net Worth of the Issuer.
"Affiliate" means any person directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Issuer. For the purposes
of this definition, beneficial ownership of 10% or more of
the voting common equity of a person shall be deemed to be
control unless ownership of a lesser amount may be deemed to
be control under the Trust Indenture Act; provided, however,
that neither DLJ Capital nor any of its affiliates shall be
deemed to be an Affiliate for purposes of the covenants in
this Indenture.
"Agent" means any registrar, paying agent or co-
registrar for the Securities.
"Asset Segment" means (i) Denny's Holdings, Inc.,
(ii) Spartan Holdings, Inc., (iii) Canteen Holdings, Inc.,
or (iv) any Subsidiary, group of Subsidiaries or group of
assets (other than inventory held for sale in the ordinary
course of business) of the Issuer or its Subsidiaries which
(A) accounts for at least 20 percent of the total assets of
the Issuer and its Subsidiaries on a consolidated basis as
of the end of the last fiscal quarter immediately preceding
the date for which such determination is being made or (B)
accounts for at least 20 percent of the income from
continuing operations before income taxes, extraordinary
items and cumulative effects of changes in accounting
principles of the Issuer and its Subsidiaries on a
consolidated basis for the four full fiscal quarters
immediately preceding the date for which such calculation is
being made.
"Associates" means TW Associates, L.P. and KKR
Partners II, L.P.
"Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors.
"Board of Directors" means either the Board of
Directors of the Issuer or any committee of such Board duly
authorized to act hereunder.
"Business Day" means a day which in the city (or
in any of the cities, if more than one) where amounts are
payable in respect of the Securities, as specified on the
face of the form of Security recited above, is neither a
legal holiday nor a day on which banking institutions are
authorized by law or regulation to close.
"Business Segment" means: (i) each of the
Issuer's Significant Subsidiaries, (ii) the capital stock of
any of the Issuer's Subsidiaries or (iii) any group of
assets of the Issuer or any Subsidiary whether now owned or
hereafter acquired, provided, in each case, that the sale
(other than the sale of inventory in the ordinary course of
business), lease, conveyance or other disposition of such
Significant Subsidiary, capital stock or group of assets, as
the case may be, either in a single transaction or group of
related transactions that are part of a common plan, results
in Net Proceeds to the Issuer and its Subsidiaries of $50
million or more.
"Capital Stock" means any and all shares,
interests, participations, rights or other equivalents
(however designated) of corporate stock.
"Cash Equivalents" means (i) securities issued or
directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time
deposits and certificates of deposit of any domestic
commercial bank of recognized standing having capital and
surplus in excess of $500,000,000 or a commercial bank
organized under the laws of any other country that is a
member of the OECD and having total assets in excess of
$500,000,000 with a maturity date not more than one year
from the date of acquisition, (iii) repurchase obligations
with a term of not more than 7 days for underlying
securities of the types described in clause (i) above
entered into with any bank meeting the qualifications
specified in clause (ii) above, (iv) commercial paper issued
by the parent corporation of any domestic commercial bank of
recognized standing having capital and surplus in excess of
$500,000,000 and commercial paper issued by others rated at
least A-2 or the equivalent thereof by Standard & Poor's
Corporation or at least P-2 or the equivalent thereof by
Moody's Investors Service, Inc. and in each case maturing
within one year after the date of acquisition and (v)
investments in money market funds substantially all of whose
assets comprise securities of the types described in clauses
(i) through (iv) above.
"Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time.
"Commission" means the Securities and Exchange
Commission.
"Consolidated Fixed Charges" means, with respect
to any person for a given period, consolidated interest
expense of such person and its consolidated Subsidiaries to
the extent deducted in computing Consolidated Net Income
(including, without limitation, amortization of original
issue discount and non-cash interest payments, all net
payments and receipts in respect of Interest Rate Agreements
and the interest component of capital leases, but excluding
deferred financing costs existing immediately after the
closing of the Equity Investment or incurred in connection
with the Recapitalization and amortization thereof) plus the
amount of all cash dividend payments on any series of
preferred stock of such person; provided that if, during
such period (i) such person or any of its Subsidiaries shall
have made any asset sales (other than, in the case of the
Issuer and its Subsidiaries, sales of the Capital Stock of
or any assets of Unrestricted Subsidiaries), Consolidated
Fixed Charges of such person and its Subsidiaries for such
period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to the
assets which are the subject of such asset sales for such
period and (ii) such person or any of its Subsidiaries has
made any acquisition of assets or Capital Stock (occurring
by merger or otherwise), including, without limitation, any
acquisition of assets or Capital Stock occurring in
connection with the transaction causing a calculation to be
made hereunder, Consolidated Fixed Charges of such person
and its Subsidiaries shall be calculated on a pro forma
basis as if such acquisition of assets or Capital Stock
(including the incurrence of any Indebtedness in connection
with any such acquisition and the application of the
proceeds thereof) took place on the first day of such
period; and provided, further, that in the case of the
Issuer, if the closing of any aspect of the Recapitalization
occurred during such period, Consolidated Fixed Charges of
the Issuer and its Subsidiaries for such period shall be
calculated on a pro forma basis as if such closing
(including the incurrence of any Indebtedness in connection
with such closing and the application of the proceeds
thereof) took place on the first day of such period.
"Consolidated Net Income" with respect to any
person (the "Subject Person") means, for a given period, the
aggregate of the Net Income of such Subject Person and its
Subsidiaries for such period, on a consolidated basis,
determined in accordance with generally accepted accounting
principles, provided that (i) the Net Income of any person
that is not a Subsidiary of the Subject Person or is
accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or
distributions paid to the Subject Person and its
Subsidiaries, (ii) the Net Income of any person that is a
Subsidiary (other than a Subsidiary of which at least 80% of
the capital stock having ordinary voting power for the
election of directors or other governing body of such
Subsidiary is owned by the Subject Person directly or
indirectly through one or more Subsidiaries) shall be
included only to the extent of the lesser of (a) the amount
of dividends or distributions paid to the Subject Person and
its Subsidiaries and (b) the Net Income of such person,
(iii) the Net Income of any person acquired by the Subject
Person and its Subsidiaries in a pooling of interests
transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the Net Income (if
positive) of any person that becomes a Subsidiary of the
Issuer after the date hereof shall be included only to the
extent that the declaration or payment of dividends on
Capital Stock or similar distributions by that Subsidiary to
the Issuer or to any other consolidated Subsidiary of the
Issuer of such Net Income is at the time permitted under the
terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental
regulations binding upon or applicable to that Subsidiary,
provided that if the exclusion from an otherwise positive
Net Income of certain amounts pursuant to this clause (iv)
would cause such Net Income to be negative, then such Net
Income shall be deemed to be zero.
"Consolidated Net Worth" means, with respect to
any person, at any date of determination, the sum of the
Capital Stock and additional paid-in capital plus retained
earnings (or minus accumulated deficit) of such person and
its Subsidiaries on a consolidated basis, each item to be
determined in conformity with generally accepted accounting
principles (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52),
except that all effects of the application of Accounting
Principles Board Opinions Nos. 16 and 17 and related
interpretations and all charges related to the
Recapitalization shall be disregarded.
"Controlled Corporation EBITDA Amount" means, for
any Controlled Corporation securities of which have been
distributed in a Section 355 Transaction, the EBITDA of the
Controlled Corporation for the four full fiscal quarters of
the Issuer last preceding the date such Section 355
Transaction is effected.
"Corporate Trust Office" means the office of the
Trustee at which the corporate trust business of the Trustee
shall, at any particular time, be principally administered,
which office is, at the date as of which this Indenture is
dated, located at 600 Peachtree Street, N.E., Suite 900,
Atlanta, Georgia 30308, Attention: Corporate Trust
Administration.
"Credit Agent" means Citibank, N.A., as Managing
Agent under the Credit Agreement, or any successor thereto;
provided that "Credit Agent" shall also mean any person
acting as managing agent (or in a similar capacity) under
any agreement pursuant to which the Credit Agreement is
refunded or refinanced if such person is designated as such
by each person that is at the time of such designation a
Credit Agent; and provided further that if at any time there
shall be more than one Credit Agent, then "Credit Agent"
shall mean each such Credit Agent, and any notice, consent
or waiver to be given by, action to be taken by, or notice
to be given to, the Credit Agent shall be given or taken by,
or given to, each such Credit Agent.
"Credit Agreement" means the Amended and Restated
Credit Agreement dated as of October 26, 1992 among the
Issuer, the lenders party thereto and Citibank, N.A., as
Managing Agent, including any and all related notes,
collateral and security documents, instruments and
agreements executed in connection therewith (including,
without limitation, all Loan Documents (as defined in such
Credit Agreement)) and all obligations of the Issuer and its
Subsidiaries incurred thereunder or in respect thereof, and
in each case as amended, supplemented, restructured or
otherwise modified, extended or renewed and each other
agreement pursuant to which any or all of the foregoing may
be refunded or refinanced, from time to time.
"Default" means any event that is, or after notice
or passage of time would be, an Event of Default.
"Disqualified Stock" means any capital stock that,
by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the maturity
date of the Securities.
"DLJ" means Donaldson, Lufkin & Jenrette
Securities Corporation.
"DLJ Capital" means DLJ Capital Corporation.
"EBITDA" means, with respect to any person and its
consolidated Subsidiaries for a given period, the
Consolidated Net Income of such person for such period plus
(i) an amount equal to any net loss realized upon the sale
or other disposition of any Business Segment (to the extent
such loss was deducted in computing Consolidated Net
Income), (ii) any provision for taxes based on income or
profits deducted in computing Consolidated Net Income and
any provision for taxes utilized in computing net loss under
clause (i) hereof, (iii) consolidated interest expense
(including amortization of original issue discount and non-
cash interest payments, all net payments and receipts in
respect of Interest Rate Agreements and the interest
component of capital leases), and (iv) depreciation and
amortization (including amortization of goodwill, deferred
financing costs existing immediately after the closing of
the Equity Investment or incurred in connection with the
Recapitalization, and other intangibles) to the extent
required under generally accepted accounting principles, all
on a consolidated basis; provided that if, during such
period (A) such person or any of its Subsidiaries shall have
made any asset sales (other than, in the case of the Issuer
and its Subsidiaries, sales of the Capital Stock of or any
assets of Unrestricted Subsidiaries), EBITDA of such person
and its Subsidiaries for such period shall be reduced by an
amount equal to the EBITDA directly attributable to the
assets which are the subject of such asset sales for such
period and (B) such person or any of its Subsidiaries has
made any acquisition of assets or Capital Stock (occurring
by merger or otherwise), including, without limitation, any
acquisition of assets or Capital Stock occurring in
connection with the transaction causing a calculation to be
made hereunder, EBITDA of such person and its Subsidiaries
shall be calculated, excluding any expenses which in the
good faith estimate of management will be eliminated as a
result of such acquisition, on a pro forma basis as if such
acquisition of assets or Capital Stock (including the
incurrence of any Indebtedness in connection with any such
acquisition and the application of the proceeds thereof)
took place on the first day of such period; and provided,
further, that in the case of the Issuer, if the closing of
any aspect of the Recapitalization occurred during such
period, EBITDA of the Issuer and its Subsidiaries for such
period shall be calculated on a pro forma basis as if such
closing (including the incurrence of any Indebtedness in
connection with such closing and the application of the
proceeds thereof) took place on the first day of such
period.
"11.25% Debentures" means the 11.25% Senior
Subordinated Debentures Due 2004 of the Issuer in an
aggregate principal amount not to exceed $738,800,000.
"Equity Interests" means Capital Stock or
warrants, options or other rights to acquire Capital Stock
(but excluding any debt security that is convertible into or
exchangeable for Capital Stock).
"Equity Investment" means the purchase by
Associates of 100 million shares of FCI Common Stock and 75
million warrants to purchase FCI Common Stock on November
16, 1992.
"Event of Default" means any event or condition
specified as such in Section 4.1 which shall have continued
for the period of time, if any, therein designated.
"Excluded Properties" means each of (i) the
Issuer's food distribution and warehouse facility located in
Rancho Cucamonga, California and (ii) the Issuer's corporate
headquarters property in Spartanburg, South Carolina.
"Existing Indebtedness" means Indebtedness of the
Issuer or any subsidiary existing on the date hereof.
"FCI" means Flagstar Companies, Inc. (formerly TW
Holdings, Inc.), a Delaware corporation.
"FCI Common Stock" means the common stock, par
value $.50 per share, of FCI.
"Fixed Charge Coverage Ratio" means, with respect
to any person, for a given period, the ratio of the EBITDA
of such person for such period to the Consolidated Fixed
Charges of such person for such period.
"GTO" means Gollust, Tierney and Oliver, a New
Jersey general partnership, or Gollust, Tierney and Oliver
Incorporated, a New York corporation.
"GTO Fee" means an annual fee of $250,000 payable
to GTO or any of its affiliates for each of 1993 and 1994.
"Holder", "holder of Securities", "Securityholder"
or other similar terms means the registered holder of any
Security.
"Indebtedness" with respect to any person means at
any date, without duplication, (i) all obligations of such
person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other
similar instruments other than Interest Rate Agreements,
(iii) all reimbursement obligations and other liabilities of
such person with respect to letters of credit issued for
such person's account, (iv) all obligations of such person
to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of
business, (v) all obligations of such person as lessee in
respect of capital lease obligations under capital leases
and (vi) all obligations of others of a nature described in
any of clauses (i) through (v) above guaranteed by such
person; provided that in the case of clauses (i) through (v)
above, Indebtedness shall include only obligations reported
as liabilities in the financial statements of such person in
accordance with generally accepted accounting principles.
"Indenture" means this instrument as originally
executed and delivered or, if amended or supplemented as
herein provided, as so amended or supplemented.
"Indentures" means collectively this Indenture,
the Senior Note Indenture and the indentures pursuant to
which the 11.25% Debentures, the 10 7/8% Notes and the 10%
Debentures are issued.
"Interest Rate Agreement" means any interest rate
protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap or other
interest rate hedge arrangement to or under which the Issuer
or any of its subsidiaries is or becomes a party or a
beneficiary.
"Investment" means any direct or indirect advance,
loan (other than advances to customers in the ordinary
course of business, which are recorded as accounts
receivable on the balance sheet of any person or its
subsidiaries) or other extension of credit 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 securities issued by, any other person.
"Issuer" means (except as otherwise provided in
Article Five) Flagstar Corporation, a Delaware corporation,
and, subject to Article Eight, its successors and assigns.
"KKR" means Kohlberg Kravis Roberts & Co., a
Delaware limited partnership, or KKR Associates, a New York
limited partnership.
"Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, whether or
not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention
agreement, any capital lease, any option or other agreement
to sell and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by the
Issuer or a Subsidiary of the Issuer of any Indebtedness
secured by a mortgage or other Lien on real property
acquired or improved by the Issuer or any Subsidiary of the
Issuer after the date hereof.
"Mortgage Financing Proceeds" means, with respect
to any Mortgage Financing, the aggregate amount of cash
proceeds received or receivable by the Issuer or any
Subsidiary of the Issuer in connection with such financing
after deducting therefrom brokerage commissions, legal fees,
finder's fees, closing costs and other expenses incidental
to such Mortgage Financing and the amount of taxes payable
in connection with or as a result of such transaction, to
the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually
paid to a person that is not an Affiliate and are properly
attributable to such transaction or to the asset that is the
subject thereof.
"Mortgage Refinancing" means the incurrence by the
Issuer or a Subsidiary of the Issuer of any Indebtedness
secured by a mortgage or other Lien on real property subject
to a mortgage or other Lien existing on the date hereof or
created or incurred subsequent to the date hereof as
permitted hereby and owned by the Issuer or any Subsidiary
of the Issuer.
"Mortgage Refinancing Proceeds" means, with
respect to any Mortgage Refinancing, the aggregate amount of
cash proceeds received or receivable by the Issuer or any
Subsidiary of the Issuer in connection with such refinancing
after deducting therefrom the original mortgage amount of
the underlying Indebtedness refinanced therewith and
brokerage commissions, legal fees, finder's fees, closing
costs and other expenses incidental to such Mortgage
Refinancing and the amount of taxes payable in connection
with or as a result of such transaction, to the extent, but
only to the extent, that the amounts so deducted are, at the
time of receipt of such cash, actually paid to a person that
is not an Affiliate and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Net Income" of any person shall mean the net
income (loss) of such person, determined in accordance with
generally accepted accounting principles, excluding,
however, (i) any gain or loss, together with any related
provision for taxes on such gain or loss, realized upon the
sale or other disposition (including, without limitation,
dispositions pursuant to sale and leaseback transactions) of
a Business Segment, (ii) any charges arising as a result of
the Recapitalization, and (iii) any gain or loss realized
upon the sale or other disposition by such person of any
capital stock or marketable securities.
"Net Proceeds" with respect to any Asset Sale,
sale and leaseback transaction or sale or other disposition
of a Business Segment, means (i) cash (freely convertible
into U.S. dollars) received by the Issuer or any Subsidiary
from such transaction, after (a) provision for all income or
other taxes measured by or resulting from such transaction,
(b) payment of all brokerage commissions and other expenses
(including, without limitation, the payment of principal,
premium (if any) and interest on Indebtedness required
(other than pursuant to Section 3.13(a)) to be paid as a
result of such transaction) in connection with such
transaction and (c) deduction of appropriate amounts to be
provided by the Issuer as a reserve, in accordance with
generally accepted accounting principles, against any
liabilities associated with the asset disposed of in such
transaction and retained by the Issuer after such sale or
other disposition thereof, including, without limitation,
pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any
indemnification obligations associated with such transaction
and (ii) promissory notes received by the Issuer or any
Subsidiary in connection with such transaction upon the
liquidation or conversion of such notes into cash.
"Obligations" means, with respect to any
Indebtedness or any Interest Rate Agreement, any principal,
premium, interest (including, without limitation, interest,
whether or not allowed, after the filing of a petition
initiating certain bankruptcy proceedings), penalties,
commissions, charges, expenses, fees, indemnifications,
reimbursements and other liabilities or amounts payable
under or in respect of the documentation governing such
Indebtedness or such Interest Rate Agreement.
"OECD" means the Organization for Economic
Cooperation and Development.
"Officers' Certificate" means a certificate signed
by the Chairman of the Board of Directors or the President
or any Vice President (whether or not designated by a number
or numbers or a word or words added before or after the
title "Vice President") and by the Treasurer or the
Secretary or any Assistant Secretary of the Issuer and
delivered to the Trustee. Each such certificate shall
comply with Section 314 of the Trust Indenture Act of 1939
and include the statements provided for in Section 10.5.
"Opinion of Counsel" means an opinion in writing
signed by legal counsel who may be an employee of or counsel
to the Issuer. Each such opinion shall comply with Section
314 of the Trust Indenture Act and include the statements
provided for in Section 10.5, if and to the extent required
hereby.
"Outstanding", when used with reference to
Securities, shall, subject to the provisions of Section 6.4,
mean, as of any particular time, all Securities
authenticated and delivered by the Trustee under this
Indenture, except
(a) Securities theretofore cancelled by the
Trustee or delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the
payment or redemption of which moneys in the necessary
amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the
Issuer) or shall have been set aside, segregated and
held in trust by the Issuer (if the Issuer shall act as
its own paying agent), provided that if such Securities
are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as
herein provided, or provision satisfactory to the
Trustee shall have been made for giving such notice;
and
(c) Securities in substitution for which other
Securities shall have been authenticated and delivered,
or which shall have been paid, pursuant to the terms of
Section 2.6 (unless proof satisfactory to the Trustee
is presented that any of such Securities is held by a
person in whose hands such Security is a legal, valid
and binding obligation of the Issuer).
"Permitted Investments" means (i) cash (including
major foreign currency or currency of a country in which the
Issuer or any of its Subsidiaries has operations) or Cash
Equivalents, (ii) investments that are in persons at least a
majority of whose revenues are derived from food service
operations, ancillary operations or related activities and
that have the purpose of furthering the food service
operations of the Issuer or any of its Subsidiaries, (iii)
advances to employees not in excess of $5,000,000 at any one
time outstanding, (iv) accounts receivable created or
acquired in the ordinary course of business, (v) obligations
or shares of stock received in connection with any good
faith settlement or bankruptcy proceeding involving a claim
relating to a Permitted Investment, (vi) evidences of
Indebtedness, obligations or other investments not exceeding
$5,000,000 in the aggregate held at any one time by the
Issuer or any of its Subsidiaries and (vii) currency swap
agreements and other similar agreements designed to hedge
against fluctuations in foreign exchange rates entered into
in the ordinary course of business in connection with the
operation of the business.
"Preferred Stock" means, with respect to any
person, any and all shares, interests, participations or
other equivalents (however designated) of such person's
preferred or preference stock whether now outstanding or
issued after the date of the Indenture.
"principal" wherever used with reference to the
Securities or any Security or any portion thereof, shall be
deemed to include "and premium, if any".
"Recapitalization" means the recapitalization of
FCI contemplated by the Stock and Warrant Purchase Agreement
dated as of August 11, 1992 between FCI and Associates.
"Remaining Section 355 Amount" means at any time
an amount equal to (i) 30% of the Specified Issuer EBITDA
less (ii) the sum of the Controlled Corporation EBITDA
Amounts for the Controlled Corporations in each Section 355
Transaction effected by the Issuer prior to such time.
"Responsible Officer" when used with respect to
the Trustee means the chairman of the board of directors,
any vice chairman of the board of directors, the chairman of
the trust committee, the chairman of the executive
committee, any vice chairman of the executive committee, the
president, any vice president (whether or not designated by
numbers or words added before or after the title "vice
president"), the cashier, the secretary, the treasurer, any
trust officer, any assistant trust officer, any assistant
vice president, any assistant cashier, any assistant
secretary, any assistant treasurer, or any other officer or
assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at
the time shall be such officers, respectively, or to whom
any corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Investments" means any investments in,
capital contributions, loans or advances to or purchases of
equity interests in, any person that is not a wholly owned
subsidiary, or other transfers of assets to Subsidiaries or
Affiliates that are not wholly owned (other than any such
other transfers of assets to Subsidiaries or Affiliates that
are not wholly owned in transactions the terms of which are
fair and reasonable to the transferor and are at least as
favorable as the terms that could be obtained by the
transferor in a comparable transaction made on an arm's
length basis between unaffiliated parties (as conclusively
determined, for any such transfer involving aggregate
consideration in excess of $5 million, by a majority of the
directors of the Issuer unaffiliated with such Subsidiary or
Affiliate or, if there are no such directors, by a majority
of the directors of the Issuer, and otherwise as
conclusively determined by the Issuer)), except in each case
for Permitted Investments and any such investments existing
on the date hereof.
"Section 355 Percentage" means, for the first
Section 355 Transaction effected after the date hereof, 30%,
and shall thereafter be subject to reduction as follows:
Immediately after the time at which any Section 355
Transaction is effected through a distribution of securities
of a Controlled Corporation pursuant to clause (7) of the
second paragraph of Section 3.9, the Section 355 Percentage
shall equal (i) the Section 355 Percentage immediately prior
to such time less (ii) the percentage of (x) the EBITDA of
the Issuer for the four full fiscal quarters of the Issuer
last preceding the date such Section 355 Transaction is
effected represented by (y) the EBITDA of such Controlled
Corporation for such period.
"Section 355 Transaction" means a transaction that
qualifies for tax-free treatment under Section 355 of the
Code, or any similar taxable transaction, any of which is
effected after the date hereof.
"Security" or "Securities" means any of the
11 3/8% Senior Subordinated Debentures Due 2003
authenticated and delivered under this Indenture.
"Senior Indebtedness" means (i) all obligations of
the Issuer and its Subsidiaries now or hereafter existing
under or in respect of the Credit Agreement, the Senior
Notes and the 10 7/8% Notes whether for principal, interest
(including, without limitation, interest accruing after the
filing of a petition initiating any proceeding referred to
in Section 4.1(6) or Section 4.1(7) hereof, whether or not
such interest is an allowable claim under such proceeding),
penalties, commissions, charges, indemnifications,
liabilities, reimbursement obligations in respect of letters
of credit, fees, expenses or other amounts payable under or
in respect of the Credit Agreement and all obligations and
claims related thereto, (ii) all Obligations of the Issuer
in respect of Interest Rate Agreements and (iii) additional
Indebtedness permitted by Section 3.11(a), Section 3.11(b),
Section 3.11(c) or Section 3.11(e) hereof which is not
expressly by its terms subordinated to, or pari passu with,
the Securities, and all Obligations and claims related
thereto.
Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (x) any
Indebtedness of the Issuer to any of its Subsidiaries or (y)
Indebtedness incurred for the purchase of goods or materials
or for services (other than services provided by the Credit
Agent in connection with the Credit Agreement or any other
party to an agreement evidencing Senior Indebtedness in
connection with such agreement) obtained in the ordinary
course of business. Senior Indebtedness under or in respect
of the Credit Agreement, the Senior Notes and the 10 7/8%
Notes shall continue to constitute Senior Indebtedness for
all purposes of this Indenture, and the provisions of
Article 12 shall continue to apply to such Senior
Indebtedness, notwithstanding that such Senior Indebtedness
or any obligations or claims in respect thereof may be
disallowed, avoided or subordinated pursuant to any
Bankruptcy Law or other applicable insolvency law or
equitable principles.
"Senior Notes" means the 10 3/4% Senior Notes Due
2001 of the Issuer in an aggregate amount not to exceed
$275,000,000.
"Senior Note Indenture" means the indenture
governing the Senior Notes, as the same may be amended,
supplemented or restated from time to time.
"Significant Subsidiary" means any Subsidiary of
the Issuer that would be a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X under the Securities
Act of 1933, as amended (the "Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (as
such Regulation is in effect on the date of the Indenture)
(excluding, except for the purposes of determining an Event
of Default, subparagraph (c) of such definition).
"Specified Issuer EBITDA" means the EBITDA of the
Issuer for the four full fiscal quarters of the Issuer last
preceding the date of the first Section 355 Transaction
effected after the date hereof.
"Specified Senior Indebtedness" means (i) Senior
Indebtedness under or in respect of the Credit Agreement,
(ii) Senior Indebtedness outstanding pursuant to the Senior
Notes, (iii) Senior Indebtedness outstanding pursuant to the
10 7/8% Notes and (iv) any other Senior Indebtedness
designated as Specified Senior Indebtedness by the Issuer.
"Subsidiary" of any person means any entity of
which shares of the capital stock or other equity interests
(including partnership interests) entitled to cast at least
a majority of the votes that may be cast by all shares or
equity interests having ordinary voting power for the
election of directors or other governing body of such entity
is owned by such person directly and/or through one or more
Subsidiaries; provided that, except for purposes of Section
12, each Unrestricted Subsidiary shall be excluded from the
definition of Subsidiary.
"10% Debentures" means the 10% Convertible Junior
Subordinated Debentures Due 2014 of the Issuer in an
aggregate principal amount not to exceed $100,000,000.
"10 7/8% Notes" means the 10 7/8% Senior Notes Due
2002 of the Issuer in an aggregate principal amount not to
exceed $300,000,000.
"Trustee" means the entity identified as "Trustee"
in the first paragraph hereof and, subject to the provisions
of Article Five, shall also include any successor trustee.
"Trust Indenture Act of 1939" (except as otherwise
provided in Sections 7.1 and 7.2) means the Trust Indenture
Act of 1939 as in force at the date as of which this
Indenture was originally executed.
"Unrestricted Subsidiary" means (i) any subsidiary
of the Issuer which at the time of determination is an
Unrestricted Subsidiary (as designated by the Board of
Directors, as provided below) and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may
designate any subsidiary of the Issuer (including any
Subsidiary and any newly acquired or newly formed
subsidiary) to be an Unrestricted Subsidiary unless such
subsidiary owns any Capital Stock of, or owns, or holds any
Lien on, any property of, any Subsidiary of the Issuer
(other than any subsidiary of the subsidiary to be so
designated), provided that (a) any Unrestricted Subsidiary
must be an entity of which shares of the capital stock or
other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may
be cast by all shares or equity interests having ordinary
voting power for the election of directors or other
governing body are owned, directly or indirectly, by the
Issuer, (b) the Issuer certifies that such designation
complies with Section 3.9 and Section 3.18 and (c) each of
(I) the subsidiary to be so designated and (II) its
subsidiaries has not at the time of designation, and does
not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender has
recourse to any of the assets of the Issuer or any of its
Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Subsidiary; provided that
immediately after giving effect to such designation, the
Issuer and its Subsidiaries could incur at least $1 of
additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 3.11(a) on a pro
forma basis taking into account such designation.
"Weighted Average Life to Maturity" means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing (i) the then outstanding aggregate
principal amount of such Indebtedness into (ii) the total of
the product obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or
other required payment of principal, including payment at
final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will
elapse between such date and the making of such payment.
ARTICLE TWO
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES.
SECTION 2.1 Authentication and Delivery of
Securities. Upon the execution and delivery of this
Indenture, or from time to time thereafter, Securities in an
aggregate principal amount not in excess of the amount
specified in the form of Security hereinabove recited
(except as otherwise provided in Section 2.6) may be
executed by the Issuer and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate
and deliver said Securities to or upon the written order of
the Issuer, signed by both (a) its Chairman of the Board of
Directors, or any Vice Chairman of the Board of Directors,
or its President or any Vice President (whether or not
designated by a number or numbers or a word or words added
before or after the title "Vice President") and (b) by its
Treasurer or any Assistant Treasurer without any further
action by the Issuer.
SECTION 2.2 Execution of Securities. The
Securities shall be signed on behalf of the Issuer by both
(a) its Chairman of the Board of Directors or any Vice
Chairman of the Board of Directors or its President or any
Vice President (whether or not designated by a number or
numbers or a word or words added before or after the title
"Vice President") and (b) by its Treasurer or any Assistant
Treasurer or its Secretary or any Assistant Secretary, under
its corporate seal which may, but need not, be attested.
Such signatures may be the manual or facsimile signatures of
the present or any future such officers. The seal of the
Issuer may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the
Securities. Typographical and other minor errors or defects
in any such reproduction of the seal or any such signature
shall not affect the validity or enforceability of any
Security which has been duly authenticated and delivered by
the Trustee.
In case any officer of the Issuer who shall have
signed any of the Securities shall cease to be such officer
before the Security so signed shall be authenticated and
delivered by the Trustee or disposed of by the Issuer, such
Security nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Security
had not ceased to be such officer of the Issuer; and any
Security may be signed on behalf of the Issuer by such
persons as, at the actual date of the execution of such
Security, shall be the proper officers of the Issuer,
although at the date of the execution and delivery of this
Indenture any such person was not such officer.
SECTION 2.3 Certificate of Authentication. Only
such Securities as shall bear thereon a certificate of
authentication substantially in the form hereinbefore
recited, executed by the Trustee by manual signature of one
of its authorized signatories, shall be entitled to the
benefits of this Indenture or be valid or obligatory for any
purpose. Such certificate by the Trustee upon any Security
executed by the Issuer shall be conclusive evidence that the
Security so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of
Securities; Payments of Interest. The Securities and the
Trustee's certificates of authentication shall be
substantially in the form recited above. The Securities
shall be issuable as registered securities without coupons
and in denominations provided for in the form of Security
above recited. The Securities shall be numbered, lettered,
or otherwise distinguished in such manner or in accordance
with such plans as the officers of the Issuer executing the
same may determine with the approval of the Trustee.
Any of the Securities may be issued with
appropriate insertions, omissions, substitutions and
variations, and may have imprinted or otherwise reproduced
thereon such legend or legends, not inconsistent with the
provisions of this Indenture, as may be required to comply
with any law or with any rules or regulations pursuant
thereto, or with the rules of any securities market in which
the Securities are admitted to trading, or to conform to
general usage.
Each Security shall be dated the date of its
authentication, shall bear interest from the applicable date
and shall be payable on the dates and in the manner
specified on the face of the form of Security recited above.
The person in whose name any Security is
registered at the close of business on any record date with
respect to any interest payment date shall be entitled to
receive the interest, if any, payable on such interest
payment date notwithstanding any transfer or exchange of
such Security subsequent to the record date and prior to
such interest payment date, except if and to the extent the
Issuer shall default in the payment of the interest due on
such interest payment date, in which case such defaulted
interest shall be paid to the persons in whose names
outstanding Securities are registered at the close of
business on a subsequent record date (which shall be not
less than five business days prior to the date of payment of
such defaulted interest) established by notice given by mail
by or on behalf of the Issuer to the holders of Securities
not less than 15 days preceding such subsequent record date.
The term "record date" as used with respect to any interest
payment date (except a date for payment of defaulted
interest) shall mean if such interest payment date is the
first day of a calendar month, the fifteenth day of the next
preceding calendar month and shall mean, if such interest
payment date is the fifteenth day of a calendar month, the
first day of such calendar month, whether or not such record
date is a business day. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
SECTION 2.5 Registration, Transfer and Exchange.
The Issuer will keep at each office or agency to be
maintained for the purpose as provided in Section 3.2 a
register or registers in which, subject to such reasonable
regulations as it may prescribe, it will register, and will
register the transfer of, Securities as in this Article
provided. Such register shall be in written form in the
English language or in any other form capable of being
converted into such form within a reasonable time. At all
reasonable times such register or registers shall be open
for inspection by the Trustee.
Upon due presentation for registration of transfer
of any Security at each such office or agency, the Issuer
shall execute and the Trustee shall authenticate and deliver
in the name of the transferee or transferees a new Security
or Securities in authorized denominations for a like
aggregate principal amount.
Any Security or Securities may be exchanged for a
Security or Securities in other authorized denominations, in
an equal aggregate principal amount. Securities to be
exchanged shall be surrendered at each office or agency to
be maintained by the Issuer for the purpose as provided in
Section 3.2, and the Issuer shall execute and the Trustee
shall authenticate and deliver in exchange therefor the
Security or Securities which the Securityholder making the
exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding.
All Securities presented for registration of
transfer, exchange, redemption or payment shall (if so
required by the Issuer or the Trustee) be duly endorsed by,
or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Issuer and the Trustee
duly executed by, the holder or his attorney duly authorized
in writing.
The Issuer may require payment of a sum sufficient
to cover any tax or other governmental charge that may be
imposed in connection with any exchange or registration of
transfer of Securities. No service charge shall be made for
any such transaction.
The Issuer shall not be required to exchange or
register a transfer of (a) any Securities for a period of 15
days next preceding the first mailing of notice of
redemption of Securities to be redeemed, or (b) any
Securities selected, called or being called for redemption
except, in the case of any Security where public notice has
been given that such Security is to be redeemed in part, the
portion thereof not so to be redeemed.
All Securities issued upon any transfer or
exchange of Securities shall be valid obligations of the
Issuer, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Securities surrendered
upon such transfer or exchange.
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost
and Stolen Securities. In case any temporary or definitive
Security shall become mutilated, defaced or be apparently
destroyed, lost or stolen, the Issuer in its discretion may
execute, and upon the written request of any officer of the
Issuer, the Trustee shall authenticate and deliver, a new
Security, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated
or defaced Security, or in lieu of and substitution for the
Security so apparently destroyed, lost or stolen. In every
case the applicant for a substitute Security shall furnish
to the Issuer and to the Trustee and any agent of the Issuer
or the Trustee such security or indemnity as may be required
by them to indemnify and defend and to save each of them
harmless and, in every case of destruction, loss or theft
evidence to their satisfaction of the apparent destruction,
loss or theft of such Security and of the ownership thereof.
Upon the issuance of any substitute Security, the
Issuer may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. In case
any Security which has matured or is about to mature, or has
been called for redemption in full, shall become mutilated
or defaced or be apparently destroyed, lost or stolen, the
Issuer may, instead of issuing a substitute Security, pay or
authorize the payment of the same (without surrender thereof
except in the case of a mutilated or defaced Security), if
the applicant for such payment shall furnish to the Issuer
and to the Trustee and any agent of the Issuer or the
Trustee such security or indemnity as any of them may
require to save each of them harmless from all risks,
however remote, and, in every case of apparent destruction,
loss or theft, the applicant shall also furnish to the
Issuer and the Trustee and any agent of the Issuer or the
Trustee evidence to their satisfaction of the apparent
destruction, loss or theft of such Security and of the
ownership thereof.
Every substitute Security issued pursuant to the
provisions of this Section by virtue of the fact that any
Security is apparently destroyed, lost or stolen shall
constitute an additional contractual obligation of the
Issuer, whether or not the apparently destroyed, lost or
stolen Security shall be at any time enforceable by anyone
and shall be entitled to all the benefits of (but shall be
subject to all the limitations of rights set forth in) this
Indenture equally and proportionately with any and all other
Securities duly authenticated and delivered hereunder. All
Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the
foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, defaced, or apparently
destroyed, lost or stolen Securities and shall preclude any
and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with
respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.7 Cancellation of Securities;
Destruction Thereof. All Securities surrendered for
payment, redemption, registration of transfer or exchange,
if surrendered to the Issuer or any agent of the Issuer or
the Trustee, shall be delivered to the Trustee for
cancellation or, if surrendered to the Trustee, shall be
cancelled by it; and no Securities shall be issued in lieu
thereof except as expressly permitted by any of the
provisions of this Indenture. The Trustee shall destroy
cancelled Securities held by it and deliver a certificate of
destruction to the Issuer. If the Issuer 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 same are delivered
to the Trustee for cancellation.
SECTION 2.8 Temporary Securities. Pending the
preparation of definitive Securities, the Issuer may execute
and the Trustee shall authenticate and deliver temporary
Securities (printed, lithographed, typewritten or otherwise
reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities shall be issuable as
registered Securities without coupons, of any authorized
denomination, and substantially in the form of the
definitive Securities but with such omissions, insertions
and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the
concurrence of the Trustee. Temporary Securities may
contain such reference to any provisions of this Indenture
as may be appropriate. Every temporary Security shall be
executed by the Issuer and be authenticated by the Trustee
upon the same conditions and in substantially the same
manner, and with like effect, as the definitive Securities.
Without unreasonable delay the Issuer shall execute and
shall furnish definitive Securities and thereupon temporary
Securities may be surrendered in exchange therefor without
charge at each office or agency to be maintained by the
Issuer for the purpose pursuant to Section 3.2, and the
Trustee shall authenticate and deliver in exchange for such
temporary Securities a like aggregate principal amount of
definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall be entitled to the
same benefits under this Indenture as definitive Securities.
ARTICLE THREE
COVENANTS
OF
THE ISSUER AND THE TRUSTEE.
SECTION 3.1 Payment of Principal and Interest.
The Issuer covenants and agrees that it will duly and
punctually pay or cause to be paid the principal of, and
interest on, each of the Securities at the place or places,
at the respective times and in the manner provided in the
Securities. Each installment of interest on the Securities
may, at the option of the Issuer, be paid by wire transfer
or by check mailed to the holders of Securities entitled
thereto as they shall appear on the registry books of the
Issuer.
SECTION 3.2 Offices for Payments, etc. So long
as any of the Securities remain outstanding, the Issuer will
maintain the following: (a) an office or agency where the
Securities may be presented for payment, (b) an office or
agency where the Securities may be presented for
registration of transfer and for exchange as in this
Indenture provided and (c) an office or agency where notices
and demands to or upon the Issuer in respect of the
Securities or of this Indenture may be served. The Issuer
will give to the Trustee written notice of the location of
any such office or agency and of any change of location
thereof. The Issuer hereby initially designates the
Corporate Trust Office of the Trustee as the office or
agency for each such purpose. In case the Issuer shall fail
to maintain any such office or agency or shall fail to give
such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices
may be served at the Corporate Trust Office.
SECTION 3.3 Appointment to Fill a Vacancy in
Office of Trustee. The Issuer, whenever necessary to avoid
or fill a vacancy in the office of Trustee, will appoint, in
the manner provided in Section 5.9, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 3.4 Paying Agents. Whenever the Issuer
shall appoint a paying agent other than the Trustee, it will
cause such paying agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provisions of this Section,
(a) that it will hold all sums received by it as
such agent for the payment of the principal of or
interest on the Securities (whether such sums have been
paid to it by the Issuer or by any other obligor on the
Securities) in trust for the benefit of the holders of
the Securities or of the Trustee,
(b) that it will give the Trustee notice of any
failure by the Issuer (or by any other obligor on the
Securities) to make any payment of the principal of or
interest on the Securities when the same shall be due
and payable, and
(c) that it will pay any such sums so held in
trust by it to the Trustee upon the Trustee's written
request at any time during the continuance of the
failure referred to in clause (b) above.
The Issuer will, on or prior to each due date of
the principal of or interest on the Securities, deposit with
the paying agent a sum sufficient to pay such principal or
interest, and (unless such paying agent is the Trustee) the
Issuer will promptly notify the Trustee of any failure to
take such action.
If the Issuer shall act as its own paying agent,
it will, on or before each due date of the principal of or
interest on the Securities, set aside, segregate and hold in
trust for the benefit of the holders of the Securities a sum
sufficient to pay such principal or interest so becoming
due. The Issuer will promptly notify the Trustee of any
failure to take such action.
Anything in this Section to the contrary
notwithstanding, the Issuer may at any time, for the purpose
of obtaining a satisfaction and discharge of this Indenture
or for any other reason, pay or cause to be paid to the
Trustee all sums held in trust by the Issuer or any paying
agent hereunder, as required by this Section, such sums to
be held by the Trustee upon the trusts herein contained.
Anything in this Section to the contrary
notwithstanding, the agreement to hold sums in trust as
provided in this Section are subject to the provisions of
Sections 9.3 and 9.4.
SECTION 3.5 Certificates to Trustee. The Issuer
will, so long as any of the Securities are outstanding:
(a) deliver to the Trustee, forthwith upon
becoming aware of any default or defaults in the
performance of any covenant, agreement or condition
contained in this Indenture (including notice of any
event of default which with the giving of notice and
lapse of time would become an Event of Default under
Section 4.1 hereof), an Officers' Certificate
specifying such default or defaults; and
(b) deliver to the Trustee within 120 days after
the end of each fiscal year of the Issuer beginning
with the fiscal year ending December 31, 1993, an
Officers' Certificate in compliance with Section
314(a)(4) of the Trust Indenture Act of 1939.
SECTION 3.6 Securityholder Lists. If and so long
as the Trustee shall not be the Security registrar, the
Issuer will furnish or cause to be furnished to the Trustee
a list in such form as the Trustee may reasonably require of
the names and addresses of the holders of the Securities
pursuant to Section 312 of the Trust Indenture Act (a)
semi-annually not more than 15 days after each record date
for the payment of semi-annual interest on the Securities,
as hereinabove specified, as of such record date, and (b) at
such other times as the Trustee may request in writing,
within thirty days after receipt by the Issuer of any such
request as of a date not more than 15 days prior to the time
such information is furnished.
SECTION 3.7 Reports by the Issuer. The Issuer
covenants:
(a) to file with the Commission and, within 15
days after the Issuer is required to file the same with
the Commission, with the Trustee copies of the annual
reports and of the information, documents, and other
reports which the Issuer may be required to file with
the Commission pursuant to Section 13 or Section 15(d)
of the Exchange Act and, if the Issuer is not required
to file such information, documents, or reports with
the Commission, to file with the Commission and the
Trustee the same such information, documents or reports
as if the Issuer were so subject;
(b) to file with the Trustee and the Commission,
in accordance with rules and regulations prescribed
from time to time by the Commission, such additional
information, documents, and reports with respect to
compliance by the Issuer with the conditions and
covenants provided for in this Indenture as may be
required from time to time by such rules and
regulations; and
(c) to transmit by mail to the Holders of
Securities, within 30 days after the filing thereof
with the Trustee, any information, documents and
reports required to be filed by the Issuer with the
Trustee pursuant to (a) and (b) of this Section 3.7.
SECTION 3.8 Reports by the Trustee. Within 60
days after May 15 of each year beginning May 15, 1994, for
so long as any Securities are outstanding hereunder, the
Trustee shall transmit by mail to all Securityholders, as
their names and addresses appear in the registry books, in
the manner and to the extent provided in Section 313(c) of
the Trust Indenture Act of 1939, a brief report dated as of
such May 15 if required by and in compliance with Section
313(a) of the Trust Indenture Act of 1939.
SECTION 3.9 Limitation on Restricted Payments.
Subject to the other provisions of this Section 3.9, the
Issuer shall not and shall not permit any of its
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any
distribution on account of the Issuer's or any
Subsidiary's capital stock or other Equity Interests
(other than (i) dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the
Issuer or such Subsidiary and (ii) dividends or
distributions payable by a Subsidiary so long as, in
the case of any dividend or distribution payable on any
class or series of securities issued by a Subsidiary
other than a wholly owned Subsidiary, the Issuer or a
Subsidiary of the Issuer receives at least its pro rata
basis share of such dividend or distribution in
accordance with its Equity Interest in such class or
series of securities); or
(b) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Issuer or
any Subsidiary of the Issuer (other than any such
Equity Interests owned by the Issuer or any Subsidiary
of the Issuer); or
(c) voluntarily prepay Indebtedness that is
subordinated to the Securities other than in connection
with any (i) refinancing of such Indebtedness
specifically permitted pursuant to Section 3.11(c) or
Section 3.11(e) hereof, (ii) Indebtedness between the
Issuer and a Subsidiary of the Issuer or between
Subsidiaries of the Issuer or (iii) Mortgage Financing
or Mortgage Refinancing; or
(d) make any Restricted Investments (other than
an Investment in any Unrestricted Subsidiary)
(all of the foregoing dividends, distributions,
purchases, redemptions or other acquisitions,
retirements, prepayments or Restricted Investments set
forth in clauses (a) through (d) above being
collectively referred to as "Restricted Payments"), if
at the time of such Restricted Payment:
(i) a Default or Event of Default shall have
occurred and be continuing or shall occur as a
consequence thereof,
(ii) immediately after such Restricted
Payment and after giving effect thereto on a pro
forma basis, the Issuer would not be able to incur
$1 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in
Section 3.11(a), or
(iii) such Restricted Payment, together with
(A) the aggregate of all other Restricted Payments
(in each case valued, where other than cash, at
their fair market value as of the date such
Restricted Payments are made) made after the date
hereof and (B) the amount by which the aggregate
of all then outstanding Investments in
Unrestricted Subsidiaries exceeds $75 million, is
greater than the sum of: (v) 50% of the aggregate
Consolidated Net Income of the Issuer for the
period (taken as one accounting period) from the
beginning of the first quarter immediately after
the date hereof to the end of the Issuer's most
recently ended fiscal quarter at the time of such
Restricted Payment (provided that if Consolidated
Net Income for such period is less than zero, then
minus 100% of the amount of such loss) plus (w)
50% of the aggregate amortization of goodwill for
the period specified in (v) above, plus (x) 100%
of the aggregate net cash proceeds and the fair
market value of marketable securities received by
the Issuer from the issue or sale, after the date
hereof, of capital stock of the Issuer (other than
capital stock issued and sold to a Subsidiary of
the Issuer and other than Disqualified Stock), or
any Indebtedness or other security convertible
into any such capital stock that has been so
converted plus (y) 100% of the aggregate amounts
contributed to the capital of the Issuer plus (z)
100% of the aggregate amounts received in cash and
the fair market value of marketable securities
(other than Restricted Investments) received from
(I) the sale or other disposition of Restricted
Investments made by the Issuer and its
Subsidiaries or (II) the sale of the stock of an
Unrestricted Subsidiary or the sale of all or
substantially all of the assets of an Unrestricted
Subsidiary to the extent that a liquidating
dividend is paid to the Issuer or any Subsidiary
from the proceeds of such sale.
For purposes of clause (iii) above, the fair market value of
property other than cash may be conclusively determined in
good faith by the Board of Directors.
The provisions of this Section 3.9 shall not
prohibit:
(1) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date
of declaration such payment would have complied with
the provisions hereof;
(2)(A) the retirement of any shares of the Capital
Stock of the Issuer (the "Retired Capital Stock") in
exchange for, or out of the net proceeds of the
substantially concurrent sale (other than to a
Subsidiary of the Issuer) of, other shares of the
Capital Stock of the Issuer (the "Refunding Capital
Stock"), other than any Disqualified Stock, and (B) if
immediately prior to such retirement of such Retired
Capital Stock the declaration and payment of dividends
thereon was permitted under clause (5) of this
paragraph, the declaration and payment of dividends on
the Refunding Capital Stock in an aggregate amount per
year no greater than the aggregate amount of dividends
per year that was declarable and payable on such
Retired Capital Stock immediately prior to such
retirement;
(3) the payment of dividends or the making of
distributions for the purpose of (A) financing the
repurchase, redemption or other acquisition or
retirement for value of any Equity Interests in FCI
issued to present and former members of management of
the Issuer and its subsidiaries pursuant to
subscription and option agreements in effect on the
date hereof and Equity Interests in FCI issued to
future members of management pursuant to subscription
agreements executed subsequent to the date hereof,
containing provisions for the repurchase of such Equity
Interests upon death, disability or termination of
employment of such persons which are substantially
identical to those contained in the subscription
agreements in effect on the date hereof, provided that
the amount of such dividends or distributions, after
the date hereof, in the aggregate will not exceed the
sum of (I) $30 million plus (II) the cash proceeds from
any reissuance of such Equity Interests by FCI to
members of management of the Issuer and its
subsidiaries, to the extent such proceeds are
contributed to the Issuer, (B) enabling FCI to pay
accounting and legal fees and expenses and any other
fees and expenses of FCI (such as financing and
underwriting costs) incurred in the ordinary course of
business as a holding company for the Issuer and (C)
financing the repurchase by FCI of FCI Common Stock
from GTO and its affiliates or DLJ and its affiliates,
provided that the aggregate amount of such dividends or
distributions made pursuant to this clause (C), after
the date hereof, will not exceed $50 million;
(4) the repurchase, redemption or other
acquisition or retirement for value of Indebtedness of
the Issuer which is subordinated in right of payment to
the Securities in exchange for or with the proceeds of
the issuance of shares of the Issuer's Equity Interests
(other than Disqualified Stock);
(5) the declaration and payment of dividends to
holders of any class or series of the Issuer's
Preferred Stock (other than Disqualified Stock) issued
after the date hereof (including, without limitation,
the declaration and payment of dividends on Refunding
Capital Stock in excess of the dividends declarable and
payable thereon pursuant to clause (2) of this
paragraph), provided that at the time of such issuance
the Fixed Charge Coverage Ratio of the Issuer, after
giving effect to such issuance, would be greater than
1.25 to 1;
(6) the redemption, repurchase or retirement of
any Indebtedness that is subordinated to the Securities
(A) with the proceeds of, or in exchange for,
Indebtedness incurred pursuant to Section 3.11(c) or
Section 3.11(e) or (B) if, after giving effect to such
redemption, repurchase or retirement, the Issuer could
incur at least $1 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in
Section 3.11(a);
(7) the distribution to stockholders of
securities of a corporation controlled by the Issuer (a
"Controlled Corporation") in a Section 355 Transaction,
but only if (a) the EBITDA of the Controlled
Corporation for the four full fiscal quarters of the
Issuer last preceding the date the Section 355
Transaction is effected is no greater than (I) in the
case of the first Section 355 Transaction effected
after the date hereof, a percentage of the Specified
Issuer EBITDA equal to the Section 355 Percentage at
the time such first Section 355 Transaction is effected
and (II) in the case of any subsequent Section 355
Transaction, the lesser of (A) the Remaining Section
355 Amount at the time of such Section 355 Transaction
and (B) the Section 355 Percentage at the time such
Section 355 Transaction is effected multiplied by the
EBITDA of the Issuer for the four full fiscal quarters
of the Issuer last preceding the date such Section 355
Transaction is effected, (b) the Issuer's Fixed Charge
Coverage Ratio for its four full fiscal quarters last
preceding the date the Section 355 Transaction is
effected would have been at least 2:1, determined on a
pro forma basis as if the Section 355 Transaction had
been effected at the beginning of such four-quarter
period and (c) the ratio of the Indebtedness of the
Issuer and its Subsidiaries on a consolidated basis
immediately after the Section 355 Transaction to EBITDA
of the Issuer for its four full fiscal quarters last
preceding the date the Section 355 Transaction is
effected, determined on a pro forma basis as if such
transaction had occurred at the beginning of such four
quarter period, would be no greater than the ratio of
the Indebtedness of the Issuer and its Subsidiaries on
a consolidated basis immediately prior to the Section
355 Transaction to EBITDA of the Issuer for its four
full fiscal quarters last preceding the date the
Section 355 Transaction is effected;
(8) the declaration and payment, following the
first public offering of FCI Common Stock to occur
after the date hereof, of dividends on the common stock
of the Issuer of up to 6% per annum of the net proceeds
received by FCI in such public offering and any
subsequent public offerings of FCI Common Stock;
(9) any redemption, repurchase or repayment of
any outstanding Obligations under the 10% Debentures,
including any premium or fee incurred in connection
therewith;
(10) payments by the Issuer or any Subsidiary of
the Issuer in respect of its obligations pursuant to
any tax sharing agreement with FCI, the Issuer or any
Subsidiary of FCI; or
(11) the purchase, redemption or other
acquisition or retirement for value of Equity Interests
of any Subsidiary of the Issuer (other than any such
Equity Interests owned by the Issuer or any Subsidiary
of the Issuer) in an amount of (a) up to $5 million for
the first year following the date hereof and (b) for
each year thereafter, up to $5 million plus the unused
portion of the amount permitted to be expended for such
purpose in all preceding years;
provided that in determining the aggregate amount expended
for Restricted Payments in accordance with clause (iii) of
the first paragraph of this Section 3.9, (i) no amounts
expended under clauses (2)(A), (3)(B), (4), (6), (7), (9)
and (10) of this paragraph shall be included, (ii) 100% of
the amounts expended under clauses (2)(B), (3)(A), (3)(C),
(5), (8) and (11) of this paragraph shall be included, and
(iii) 100% of the amounts expended under clause (1), to the
extent not included under subclauses (i) or (ii) of this
proviso, shall be included.
SECTION 3.10 Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries. The Issuer
shall not, and shall not permit any of its Subsidiaries
(other than unconsolidated Subsidiaries) to, directly or
indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction
on the ability of any such Subsidiary to (a) pay dividends
or make any other distributions on its capital stock or any
other interest or participation in, or measured by, its
profits, owned by the Issuer or any Subsidiary of the
Issuer, or pay any Indebtedness owed to, the Issuer or a
Subsidiary of the Issuer, (b) make loans or advances to the
Issuer or a Subsidiary of the Issuer or (c) transfer any of
its properties or assets to the Issuer or a Subsidiary of
the Issuer, except in each case for such encumbrances or
restrictions existing under or by reason of (i) applicable
law, (ii) the Indentures, (iii) the Credit Agreement or any
other agreement entered into in connection therewith or as
contemplated thereby, (iv) customary provisions restricting
subletting or assignment of any lease governing a leasehold
interest of the Issuer or a Subsidiary of the Issuer, (v)
any instrument governing Indebtedness of a Person acquired
by the Issuer or any Subsidiary of the Issuer at the time of
such acquisition, (vi) Existing Indebtedness, or additional
Indebtedness in an aggregate principal amount of up to
$250,000,000 at any one time outstanding or other
contractual obligation of the Issuer or any of its
Subsidiaries existing on the date hereof or any amendment,
modification, renewal, extension, replacement, refinancing
or refunding, provided, that the restrictions contained in
any such amendment, modification, renewal, extension,
replacement, refinancing or refunding are no less favorable
in all material respects to the Holders, (vii) any Mortgage
Financing or Mortgage Refinancing, (viii) any Permitted
Investment or (ix) contracts for the sale of assets.
SECTION 3.11 Limitation on Additional
Indebtedness and Issuance of Disqualified Stock.
(a) Subject to the other provisions of this
Section 3.11,
(x) the Issuer shall not and shall not permit any
of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume or guarantee any Indebtedness
(other than Indebtedness between the Issuer and a
Subsidiary of the Issuer or between Subsidiaries of the
Issuer, or guarantees by any Subsidiary of Indebtedness
of a Subsidiary or the Issuer) and
(y) the Issuer shall not issue any Disqualified
Stock,
unless such Indebtedness or Disqualified Stock is either
Acquisition Indebtedness or is created, incurred, issued,
assumed or guaranteed by the Issuer and not a Subsidiary of
the Issuer and the Issuer's Fixed Charge Coverage Ratio for
its four full fiscal quarters last preceding the date such
additional Indebtedness is created, incurred, assumed or
guaranteed, or such additional stock is issued, would have
been (I) if such date is prior to November 1, 1994, at least
1.75:1 and (II) if such date is on or after November 1,
1994, at least 2:1, determined in each case on a pro forma
basis (including a pro forma application of the net proceeds
of such Indebtedness or such issuance of stock) as if the
additional Indebtedness had been created, incurred, assumed
or guaranteed, or such additional stock had been issued, at
the beginning of such four-quarter period; provided,
however, that the limitations of this Section 3.11(a) shall
not apply to the incurrence by the Issuer or any of its
Subsidiaries of (A) any Indebtedness pursuant to the Credit
Agreement; provided, however, that the principal amount of
such Indebtedness incurred pursuant to the Credit Agreement
for the purposes of this Clause (A) shall not exceed the
aggregate amount of the commitments under the Credit
Agreement on the date hereof; and (B) any Indebtedness
represented by the Securities or the Senior Notes.
(b) The limitations of Section 3.11(a) hereof
notwithstanding, the Issuer or any Subsidiary may create,
incur, issue, assume or guarantee Indebtedness pursuant
to the Credit Agreement or otherwise (i) in connection with
or arising out of Mortgage Financings relating to real
property acquired after the date hereof or improvements on
such property, Mortgage Refinancings or sale and lease-back
transactions, provided the Mortgage Financing Proceeds,
Mortgage Refinancing Proceeds (excluding any Mortgage
Refinancing Proceeds received in connection with any
refinancing of any Indebtedness secured by a mortgage or
Lien on either or both of the Excluded Properties) or Net
Proceeds, as the case may be, incurred, assumed or created
in connection therewith are used to pay any outstanding
Senior Indebtedness, (ii) constituting purchase money
obligations for property acquired in the ordinary course of
business or other similar financing transactions (including,
without limitation, in connection with Mortgage Financings),
provided that in the case of Indebtedness exceeding $2
million for any such obligation or transaction, such
Indebtedness exists at the date of the purchase or
transaction or is created within 180 days thereafter, (iii)
in connection with capital expenditures (iv) constituting
capital lease obligations, (v) constituting reimbursement
obligations with respect to letters of credit, including,
without limitation, letters of credit in respect of workers'
compensation claims, issued for the account of the Issuer or
a Subsidiary in the ordinary course of its business or other
Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims, (vi) constituting
additional Indebtedness in an aggregate principal amount of
up to $250,000,000 at any one time outstanding, whether
incurred under the Credit Agreement or otherwise, (vii)
constituting Indebtedness secured by either or both of the
Excluded Properties and (viii) constituting Existing
Indebtedness and permitted refinancings thereof in
accordance with Section 3.11(c) or Section 3.11(e).
(c) The limitations of Section 3.11(a) hereof
notwithstanding, the Issuer or any Subsidiary may create,
incur, issue, assume or guarantee any Indebtedness which
serves to refund, refinance or restructure its Existing
Indebtedness or any other Indebtedness incurred as permitted
under this Indenture or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness,
including additional Indebtedness incurred to pay premiums
and fees in connection therewith (the "Refinancing
Indebtedness"), prior to its respective maturity; provided,
however, that such Refinancing Indebtedness (i) bears an
interest rate per annum which is equal to or less than the
interest rate per annum then payable under such Indebtedness
being refunded or refinanced (calculated in accordance with
any formula set forth in the documents evidencing any such
Indebtedness) unless such Refinancing Indebtedness is
incurred, created or assumed within twelve months of the
scheduled maturity of the Indebtedness being refinanced,
(ii) has a Weighted Average Life to Maturity at the time
such Refinancing Indebtedness is incurred which is not less
than the remaining Weighted Average Life to Maturity of such
Indebtedness being refunded or refinanced, and (iii) to the
extent such Refinancing Indebtedness refinances Indebtedness
subordinated to the Securities, such Refinancing
Indebtedness is subordinated to the Securities at least to
the same extent as the Indebtedness being refinanced or
refunded; provided, further, however, that clauses (i), (ii)
and (iii) above shall not apply to any refunding or
refinancing of any Senior Indebtedness.
(d) The foregoing limitations notwithstanding,
any unconsolidated Subsidiary of the Issuer created after
the date of this Indenture may create, incur, issue, assume,
guarantee or otherwise become liable with respect to any
additional Indebtedness, provided that such Indebtedness is
nonrecourse to the Issuer and its consolidated Subsidiaries,
and the Issuer and its consolidated Subsidiaries have no
liability with respect to such additional Indebtedness.
(e) The foregoing limitations notwithstanding,
the Issuer or any Subsidiary may create, incur, issue,
assume or guarantee any Indebtedness which serves to refund,
refinance or restructure the 10% Debentures, including any
premium or fee incurred in connection therewith.
SECTION 3.12 Limitation on Transactions with
Affiliates. The Issuer shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, enter into
any transaction (including, without limitation, the
purchase, sale, lease or exchange of any property or the
rendering of any service) involving aggregate consideration
in excess of $5,000,000 for any one transaction with any
Affiliate, except for (a) transactions (including any
investments or loans or advances by or to any Affiliate) in
good faith the terms of which are fair and reasonable to the
Issuer or such Subsidiary, as the case may be, and are at
least as favorable as the terms which could be obtained by
the Issuer or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's length basis between
unaffiliated parties (in each case as conclusively
determined by a majority of the directors of the Issuer
unaffiliated with such Affiliate or, if there are no such
directors, as conclusively determined by a majority of the
Board of Directors), (b) payments by the Issuer or any of
its Subsidiaries to KKR or any Affiliate thereof made
pursuant to any financial advisory, financing, underwriting
or placement agreement, (c) transactions in which the Issuer
or any of its Subsidiaries, as the case may be, delivers to
the Holders a written opinion of a nationally recognized
investment banking firm stating that such transaction is
fair to the Issuer or such Subsidiary from a financial point
of view, (d) transactions between the Issuer and its
Subsidiaries or between Subsidiaries of the Issuer which are
not otherwise prohibited under Section 3.9 of this
Indenture, (e) payments or loans to employees or consultants
pursuant to employment or consultancy contracts which are
approved by the Board of Directors in good faith, (f)
payments to FCI which are not otherwise prohibited by
Section 3.9 of this Indenture and (g) the payment by the
Issuer of management fees to KKR and/or its affiliates and
the payment by the Issuer of the GTO Fee.
SECTION 3.13 Sale of Assets.
(a) Neither the Issuer nor any of its
Subsidiaries (other than unconsolidated Subsidiaries) shall
(A) (I) sell, lease, convey or otherwise dispose of in any
transaction or group of transactions that are part of a
common plan all or substantially all of the assets or
capital stock of any Asset Segment (provided that the sale,
lease, conveyance or other disposition of all or
substantially all of the Issuer's assets shall not be
subject to this Section 3.13 but shall be governed by the
provisions of Section 8.1 hereof) or (II) issue or sell
equity securities of any Asset Segment (each of the
foregoing, an "Asset Sale") or (B) sell, lease, convey or
otherwise dispose of any Business Segment, unless in each
case the Issuer shall apply the Net Proceeds from such Asset
Sale or such sale, lease, conveyance or other disposition of
a Business Segment to one or more of the following in such
combination as the Issuer may choose: (i) an investment in
another asset or business in the same line of business as,
or a line of business similar to that of, the line of
business of the Issuer and its Subsidiaries and such
investment occurs within 366 days of such Asset Sale or such
sale, lease, conveyance or other disposition of a Business
Segment, (ii) a Net Proceeds Offer (as defined below)
expiring within 366 days of such Asset Sale or such sale,
lease, conveyance or other disposition of a Business Segment
or (iii) the purchase, redemption or other prepayment or
repayment of outstanding Senior Indebtedness within 366 days
of such Asset Sale or such sale, lease, conveyance or other
disposition of a Business Segment; provided, however, if the
net amount not invested pursuant to clause (i) above or
applied pursuant to clause (iii) above is less than
$25,000,000 the Issuer shall not be further obligated to
offer to redeem Securities pursuant to clause (ii) above.
Notwithstanding the foregoing, (i) the receipt of all
proceeds of insurance paid on account of the loss of or
damage to any Business Segment and awards of compensation
for any such Business Segment taken by condemnation or
eminent domain which result in Net Proceeds to the Issuer
and its Subsidiaries of $50 million or more (excluding
proceeds to be used for replacement of such Business
Segment, provided the Trustee has received notice from the
Issuer, within 90 days of such receipt, of its intention to
use such proceeds for such purpose) will be deemed an "Asset
Sale" and (ii) Permitted Investments and sales, leases,
conveyances or other dispositions of assets by the Issuer or
any Subsidiary to the Issuer or any wholly owned Subsidiary
of the Issuer will not be deemed an "Asset Sale" or a sale
or other disposition of a Business Segment.
(b) For purposes of subsection (ii) of clause (a)
of this Section, the Issuer shall apply the Net Proceeds of
the Asset Sale or the sale, lease, conveyance or other
disposition of a Business Segment to make a tender offer in
accordance with applicable law (a "Net Proceeds Offer") to
repurchase the Securities at a price not less than 100% of
the principal amount of the Securities plus accrued and
unpaid interest thereon. Any Net Proceeds Offer shall be
made by the Issuer only if and to the extent permitted
under, and subject to prior compliance with, the terms of
any agreement governing Senior Indebtedness. If on the date
any Net Proceeds Offer is commenced securities of the Issuer
ranking pari passu in right of payment with the Securities
are outstanding and the terms of such securities provide
that an offer to repurchase such securities similar to the
Net Proceeds Offer is to be made with respect thereto, then
the Net Proceeds Offer shall be made concurrently with such
other offer, and securities of each issue shall be accepted
on a pro rata basis, in proportion to the principal or face
amount, as the case may be, of securities of each issue
which the holders thereof elect to have redeemed. After the
last date on which holders of the Securities are permitted
to tender their Securities in a Net Proceeds Offer, the
Issuer shall not be restricted under this Section 3.13 as to
its use of any Net Proceeds available to make such Net
Proceeds Offer (up to the amount of Net Proceeds that would
have been used to redeem Securities assuming 100% acceptance
of the Net Proceeds Offer) but not used to redeem Securities
pursuant thereto.
(c) Notwithstanding any other provision hereof to
the contrary, for a period of 120 days after the last date
on which holders of the Securities are permitted to elect to
have their Securities redeemed in the Net Proceeds Offer,
the Issuer may use any Net Proceeds available to make such
Net Proceeds Offer but not used to redeem Securities
pursuant thereto to purchase, redeem or otherwise acquire or
retire for value any securities of the Issuer ranking junior
in right of payment to the Securities at a price, stated as
a percentage of the principal or face amount of such junior
securities, not greater than the price, stated as a
percentage of the principal amount of the Securities,
offered in the Net Proceeds Offer; provided that if the Net
Proceeds Offer is for a principal amount (the "Net Proceeds
Offer Amount") of the Securities less than the aggregate
principal amount of the Securities then outstanding, then
the Net Proceeds available for use by the Issuer for such a
purchase, redemption or other acquisition or retirement for
value of junior securities shall not exceed the Net Proceeds
Offer Amount.
(d) An offer to redeem Securities pursuant to
this Section 3.13 shall be made pursuant to the provisions
of Section 11.5 hereof. Simultaneously with the
notification of such offer of redemption to the Trustee as
required by Section 11.5 hereof, the Issuer shall provide
the Trustee with an Officers' Certificate setting forth the
information required to be included therein by Section 11.5
hereof and, in addition, setting forth the calculations used
in determining the amount of Net Proceeds to be applied to
the redemption of Securities.
(e) In the event that the Issuer shall make any
payment of Net Proceeds to the Trustee which, to the actual
knowledge of a trust officer of the Trustee, should properly
have been made to holders or to the Representative of the
holders of any Senior Indebtedness for the prepayment or
repayment of such Senior Indebtedness pursuant to the
provisions of this Section 3.13, such payment shall be held
by the Trustee for the benefit of, and, upon written request
of the holders of such Senior Indebtedness or their
Representative, shall be paid forthwith over and delivered
to, the holders of such Senior Indebtedness or their
Representative for application in accordance with the
provisions of this Section 3.13. With respect to the
holders of such Senior Indebtedness, the Trustee undertakes
to perform only such obligations on the part of the Trustee
as are specifically set forth in this Section 3.13(e), and
no implied covenants or obligations with respect to the
holders of such Senior Indebtedness shall be read into this
Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such
Senior Indebtedness. If Net Proceeds are received by
Holders which, pursuant to the provisions of this Section
3.13, should properly have been received by the holders of
such Senior Indebtedness or their Representative for the
prepayment or repayment of such Senior Indebtedness, the
Holders who receive such Net Proceeds shall hold such Net
Proceeds in trust for, and pay such Net Proceeds over to,
the holders of such Senior Indebtedness or their
Representative.
(f) Notwithstanding the foregoing, Permitted
Investments and sales, leases, conveyances or other
dispositions of assets by the Issuer or any Subsidiary to
the Issuer or any wholly owned Subsidiary of the Issuer
shall not be deemed an Asset Sale or a sale or other
disposition of a Business Segment.
SECTION 3.14 Corporate Existence. Subject to
Article 8 hereof and other than as permitted by the Credit
Agreement, the Issuer 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 Significant
Subsidiary in accordance with the respective organizational
documents as they may be from time to time amended of the
Issuer and each such Subsidiary and the rights (charter and
statutory), governmental licenses and governmental
franchises of the Issuer and its Subsidiaries; provided,
however, that the Issuer shall not be required to preserve
any such right, license or franchise, or the corporate,
partnership or other existence of any such Subsidiary, if
the preservation thereof is no longer necessary in the
conduct of the business of the Issuer and its Subsidiaries
taken as a whole and the loss thereof is not adverse in any
material respect to the Holders (which determination, if
made in good faith by the Board of Directors, shall be
conclusive).
SECTION 3.15 Limitation on Liens. (a)The Issuer
shall not, and shall not permit any of its Subsidiaries to,
create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by the Issuer or any
such Subsidiary, except:
(i) Liens existing on the date hereof, Liens
securing or arising under or in connection with any
Indebtedness of the Issuer not expressly by its terms
subordinate or junior in right of payment to any other
Indebtedness of the Issuer (including, without
limitation, Liens permitted by or required pursuant to
the Credit Agreement), Liens arising under or in
connection with Section 9.1 hereof and Liens relating
to judgments to the extent such judgments do not give
rise to an Event of Default pursuant to Section 4.1(5)
hereof;
(ii) Liens for taxes or assessments and similar
charges either (x) not delinquent or (y) contested in
good faith by appropriate proceedings and as to which
the Issuer or a Subsidiary shall have set aside on its
books such reserves as may be required pursuant to
generally accepted accounting principles;
(iii) Liens incurred or pledges and deposits in
connection with workers' compensation, unemployment
insurance and other social security benefits, or
securing performance bids, tenders, leases, contracts
(other than for the repayment of borrowed money),
statutory obligations, progress payments, surety and
appeal bonds and other obligations of like nature,
incurred in the ordinary course of business;
(iv) Liens imposed by law, such as mechanics',
carriers', warehousemen's, materialmen's and vendors'
Liens, incurred in good faith in the ordinary course of
business;
(v) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of
real property or minor irregularities of title incident
thereto which do not in the aggregate materially
detract from the value of the property or assets of the
Issuer and its Subsidiaries, taken as a whole, or
materially impair the operation of the business of the
Issuer and its Subsidiaries, taken as a whole;
(vi) Liens created by Subsidiaries to secure
Indebtedness of such Subsidiaries to the Issuer or its
Subsidiaries;
(vii) pledges of or Liens on raw materials or on
manufactured products as security for any drafts or
bills of exchange in connection with the importation of
such raw materials or manufactured products in the
ordinary course of business;
(viii) a Lien on any assets (x) securing
Indebtedness incurred or assumed pursuant to Section
3.11(b) hereof for the purpose of financing all or any
part of the cost of acquiring such asset or
construction thereof or thereon or (y) existing on
assets or businesses at the time of the acquisition
thereof;
(ix) the Lien granted to the Trustee pursuant to
Section 5.6 hereof and any substantially equivalent
Lien granted to the respective trustees under the
indentures for other debt securities of the issuer;
(x) Liens arising in connection with any Mortgage
Financing or Mortgage Refinancing by the Issuer or any
of its Subsidiaries;
(xi) Liens securing reimbursement obligations with
respect to letters of credit issued for the account of
the Issuer or any of its Subsidiaries in the ordinary
course of business;
(xii) any Lien on either or both of the Excluded
Properties;
(xiii) Liens securing an interest of a landlord in
real property leases;
(xiv) all other Liens incurred in the ordinary
course of business; provided that the aggregate amount
of Indebtedness secured by such Liens shall not exceed
$5,000,000 at any one time outstanding; or
(xv) Liens created in connection with the
refinancing of any Indebtedness secured by Liens
permitted to be incurred or to exist pursuant to the
foregoing clauses; provided, however, that no
additional assets are encumbered by such Liens in
connection with such refinancing, unless permitted by
clause (i) above or Section 3.15(b).
(b) Notwithstanding the provisions of paragraph
(a) above, the Issuer or any Subsidiary may create or assume
any Lien upon any of its properties or assets, whether now
owned or hereafter acquired, if the Issuer makes or causes
to be made effective provision whereby the Securities will
be equally and ratably secured with any and all other
Indebtedness secured by such Lien as long as any such other
Indebtedness shall be so secured, provided that if such Lien
ceases to exist, such equal and ratable Lien shall thereupon
automatically cease to exist.
SECTION 3.16 Issuer to Cause Certain
Subsidiaries to Become Guarantors. The Issuer shall not
permit any of its Subsidiaries to guarantee the payment of
any Indebtedness of the Issuer that is expressly by its
terms subordinate or junior in right of payment to any other
Indebtedness of the Issuer (a "Subordinated Indebtedness
Guarantee") unless (i) such Subsidiary executes and delivers
a supplemental indenture evidencing its guarantee of the
Issuer's Obligations hereunder and under the Securities on a
substantially similar basis (the "Securities Guarantee"),
(ii) if the Securities are senior in right of payment to
such junior Indebtedness of the Issuer, then the Securities
Guarantee is senior in right of payment to such Subordinated
Indebtedness Guarantee to the same extent as the Securities
are senior in right of payment to such junior Indebtedness
of the Issuer and (iii) if the Securities are pari passu in
right of payment with such junior Indebtedness of the
Issuer, then the Securities Guarantee is pari passu in right
of payment with such Subordinated Indebtedness Guarantee;
provided that if such Subordinated Indebtedness Guarantee
ceases to exist for any reason, then the Securities
Guarantee shall thereupon automatically cease to exist.
SECTION 3.17 Limitation on Senior Subordinated
Debt. Notwithstanding the provisions of Section 3.11
hereof, the Issuer shall not create, incur, assume,
guarantee or otherwise become liable for any Indebtedness
that is expressly by its terms subordinate or junior in
right of payment to any Senior Indebtedness and senior in
any respect in right of payment to the Securities, it being
understood that Indebtedness shall not be deemed junior in
right of payment to any Senior Indebtedness solely because
it is unsecured or senior in right of payment to the
Securities solely because it is secured.
SECTION 3.18 Investments in Unrestricted
Subsidiaries. The Issuer will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make any
Investment in any Unrestricted Subsidiary unless (i) the
amount of such Investment does not exceed the amount then
permitted to be used to make a Restricted Payment pursuant
to clause (iii) of the first paragraph of Section 3.9 and
(ii) immediately after such Investment, and after giving
effect thereto on a pro forma basis deducting from net
income the amount of any Investment the Issuer or any
Subsidiary of the Issuer has made in an Unrestricted
Subsidiary during the four full fiscal quarters last
preceding the date of such Investment, the Issuer and its
Subsidiaries would be able to incur $1 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in Section 3.11(a). Notwithstanding clause
(i) and (ii) of this Section or any other provisions hereof
to the contrary, the Issuer and its Subsidiaries shall be
permitted to make Investments in Unrestricted Subsidiaries
in an aggregate amount not to exceed $75 million at any one
time outstanding. The amount by which the aggregate of all
Investments in Unrestricted Subsidiaries exceeds $75 million
shall be counted in determining the permissible amount of
Restricted Payments pursuant to clause (iii) of the first
paragraph of Section 3.9. The Issuer will not permit any
Unrestricted Subsidiary to become a Subsidiary except
pursuant to the last sentence of the definition of
Unrestricted Subsidiary set forth in Section 1.1.
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
SECTION 4.1 Events of Default. An "Event of
Default" occurs if:
(1) the Issuer defaults in the payment of
interest on any Security when the same becomes due and
payable and the Default continues for a period of 30
days whether or not payment is prohibited by Article 12
hereof;
(2) the Issuer defaults in the payment of the
principal of any Security when the same becomes due and
payable at maturity, upon redemption or otherwise
whether or not payment is prohibited by Article 12
hereof;
(3) the Issuer fails to comply with any of its
other agreements or covenants in, or any other
provisions of, the Securities or this Indenture and the
Default continues for the period and after the notice
specified in this Section 4.1;
(4) a default occurs under any mortgage,
indenture or instrument under which there may be issued
or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Issuer or any of
its Subsidiaries (or the payment of which is guaranteed
by the Issuer or any of its Subsidiaries) other than
(i) Indebtedness of the Issuer or any Subsidiary of the
Issuer to the Issuer or any Subsidiary of the Issuer or
(ii) Indebtedness permitted pursuant to Section 3.11(d)
hereof, whether such Indebtedness or guarantee now
exists or shall be created hereafter, if (a) either (x)
such default results from the failure to pay principal
upon the final maturity of such Indebtedness (after the
expiration of any applicable grace period) or (y) as a
result of such default the maturity of such
Indebtedness has been accelerated prior to its final
maturity and (b) the principal amount of such
Indebtedness, together with the principal amount of any
such Indebtedness with respect to which the principal
amount remains unpaid upon its final maturity (after
the expiration of any applicable grace period), or the
maturity of which has been so accelerated, aggregates
$30,000,000 or more and (c) such default does not
result from compliance with any applicable law or any
court order or governmental decree to which the Issuer
or any of its Subsidiaries is subject;
(5) a final judgment or final judgments for the
payment of money are entered by a court or courts of
competent jurisdiction against the Issuer or any of its
Subsidiaries and such judgment or judgments remain
undischarged for a period (during which execution shall
not be effectively stayed) of 60 days, provided that
the aggregate of all such judgments (net of amounts
covered by insurance, treating any deductibles, self-
insurance or retention as not so covered) exceeds
$10,000,000;
(6) the Issuer or any Significant Subsidiary of
the Issuer pursuant to or within the meaning of any
Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for
relief against it in an involuntary case,
(c) consents to the appointment of a
Custodian of it or for all or substantially all of
its property, or
(d) makes a general assignment for the
benefit of its creditors; or
(7) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(a) is for relief against the Issuer or any
Significant Subsidiary of the Issuer in an
involuntary case,
(b) appoints a Custodian of the Issuer or
any Significant Subsidiary of the Issuer or for
all or substantially all of its property, or
(c) orders the liquidation of the Issuer or
any Significant Subsidiary of the Issuer,
and the order or decree remains unstayed and in effect
for 60 days.
The term "Custodian" means any receiver, trustee,
assignee, liquidator or similar official under any
Bankruptcy Law.
An Event of Default shall not be deemed to have
occurred under clause (4) or (5) until the Issuer shall have
received written notice from the Trustee or the Holders of
at least 30% in principal amount of the then outstanding
Securities. A Default under clause (3) is not an Event of
Default until the Trustee notifies the Issuer, or the
Holders of at least 30% in principal amount of the then
outstanding Securities notify the Issuer and the Trustee, of
the Default and the Issuer does not cure the Default within
30 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state
that the notice is a "Notice of Default".
In the case of any Event of Default pursuant to
the provisions of this Section 4.1 occurring by reason of
any willful action (or inaction) taken (or not taken) by or
on behalf of the Issuer with the intention of avoiding
payment of the premium which the Issuer would have to pay if
the Issuer then had elected to redeem the Securities
pursuant to Section 11.1, an equivalent premium shall also
become and be immediately due and payable to the extent
permitted by law, anything in this Indenture or in the
Securities contained to the contrary notwithstanding.
SECTION 4.2 Acceleration. If an Event of Default
(other than an Event of Default specified in clause (6) or
(7) of Section 4.1) occurs and is continuing, the Trustee
may, by written notice to the Issuer, or the Holders of at
least 30% (or 25% in the case of an Event of Default
specified in Section 4.1(1) or 4.1(2)) in principal amount
of the then outstanding Securities may, by written notice to
the Issuer and the Trustee, and the Trustee shall, upon the
request of such Holders, declare the unpaid principal of and
any accrued but unpaid interest on all the Securities to be
due and payable. Upon such declaration the principal and
interest shall be due and payable immediately; provided,
however, that if any Senior Indebtedness is outstanding
pursuant to the Credit Agreement, upon a declaration of
acceleration, such principal and interest shall be due and
payable upon the earlier of (x) the day that is five
Business Days after the provision to the Issuer and the
Credit Agent of such written notice, unless such Event of
Default is cured or waived prior to such date and (y) the
date of acceleration of any Senior Indebtedness under the
Credit Agreement. In the event of a declaration of
acceleration because an Event of Default specified in
Section 4.1(4) has occurred and is continuing, such
declaration of acceleration shall be automatically annulled
if such payment default is cured or waived or the holders of
the Indebtedness which is the subject of such Event of
Default have rescinded their declaration of acceleration in
respect of such Indebtedness within 60 days thereof and the
Trustee has received written notice of such cure, waiver or
rescission and no other Event of Default under Section
4.1(4) has occurred and is continuing with respect to which
60 days have elapsed since the declaration of acceleration
of the Indebtedness which is the subject of such other event
of default (without rescission of the declaration of
acceleration of such Indebtedness). If an Event of Default
specified in clause (6) or (7) of Section 4.1 occurs, the
unpaid principal of and any accrued but unpaid interest on
all the Securities shall ipso facto become and be
immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the then outstanding
Securities by written notice to the Trustee may rescind an
acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or
interest that has become due solely because of the
acceleration) have been cured or waived. No such rescission
shall affect any subsequent Default or Event of Default or
impair any right consequent thereto.
SECTION 4.3 Other Remedies. If an Event of
Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal of or
interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it
does not possess any of the Securities or does not produce
any of them in the proceeding. A delay or omission by the
Trustee or any Holder 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. Except as set forth in Section 2.6
hereof, all remedies are cumulative to the extent permitted
by law.
SECTION 4.4 Waiver of Defaults. Subject to
Section 7.2 hereof, the Holders of a majority in principal
amount of the then outstanding Securities by notice to the
Trustee may waive any past Default or Event of Default and
its consequences except a continuing Default or Event of
Default in the payment of the principal of or interest on
any Security. Upon any such waiver, such Default or Event
of Default shall cease to exist and together with any Event
of Default arising therefrom, shall be deemed to have been
cured for every purpose of this Indenture, but no such
waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 4.5 Control by Majority. The Holders of
a majority in principal amount of the then 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.
However, the Trustee may (i) refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee
reasonably determines may be unduly prejudicial to the
rights of other Holders or that may subject the Trustee to
personal liability or (ii) take any other action that it
deems proper that is not inconsistent with such decision.
The Trustee shall be entitled to indemnification reasonably
satisfactory to it against losses or expenses caused by the
taking or not taking of such action.
SECTION 4.6 Limitation on Suits. A Holder may
pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee written
notice of a continuing Event of Default;
(2) the Holders of at least 30% (or 25% in the
case of an Event of Default specified in Section 4.1(1)
or 4.2(2) hereof) in principal amount of the then
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 Holders of a
majority in principal amount of the then outstanding
Securities do not give the Trustee a direction which,
in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights
of another Holder or to obtain a preference or priority over
another Holder.
SECTION 4.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, but
subject to Article 12 hereof, the right of any Holder to
receive payment of principal of and interest on the
Security, on or after the respective due dates expressed in
the 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 4.8 Collection Suit by Trustee. If an
Event of Default specified in Section 4.1(1) or (2) occurs
and is continuing, the Trustee is authorized to recover
judgment in its own name and as trustee of an express trust
against the Issuer for the whole amount of principal and
interest remaining unpaid on the Securities and interest on
overdue principal and, to the extent lawful, interest 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.
SECTION 4.9 Trustee May File Proofs of Claim.
The Trustee is authorized to 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 the Holders allowed in any judicial proceedings
relative to the Issuer (or any other obligor upon the
Securities), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any
such claims and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 5.6 hereof. To
the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee
under Section 5.6 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out
of, any and all distributions, dividends, money, securities
and other properties which the Holders may be entitled to
receive in such proceeding whether in liquidation or under
any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the
Securities or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any
such proceeding. If the Trustee does not file a proper
claim or proof of debt in the form required in any such
proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the Credit Agent
shall have the right to file and is hereby authorized to
file an appropriate claim for and on behalf of the Holders.
SECTION 4.10 Priorities. If the Trustee collects
any money pursuant to this Article, it shall, subject to the
provisions of Article 12 hereof, pay out the money in the
following order:
First: to the Trustee, its agents and attorneys
for amounts due under Section 5.6, including payment of
all compensation, expense and liabilities incurred, and
all advances made, by the Trustee and the costs and
expenses of collection;
Second: to the holders of Senior Indebtedness to
the extent required by Article 12;
Third: to the Holders for amounts due and unpaid
on the Securities for principal and interest, ratably,
without preference or priority of any kind, according
to the amounts due and payable on the Securities for
principal and interest, respectively; and
Fourth: to the Issuer.
The Trustee may fix a record date and payment date
for any payment to Holders.
SECTION 4.11 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 a 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 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 4.7, or a
suit by Holders of more than 10% in principal amount of the
then outstanding Securities.
ARTICLE FIVE
CONCERNING THE TRUSTEE.
SECTION 5.1 Duties and Responsibilities of the
Trustee; During Default; Prior to Default. The Trustee,
prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have
occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. In
case an Event of Default has occurred (which has not been
cured or waived) 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 man would exercise or use under the circumstances in
the conduct of his own affairs.
No provision of this Indenture shall be construed
to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act or its own wilful
misconduct, except that
(a) prior to the occurrence of an Event of
Default and after the curing or waiving of all such
Events of Default which may have occurred:
(i) the duties and obligations of the
Trustee shall be determined solely by the
express provisions of this Indenture, and the
Trustee shall not be liable except for the
performance of such duties and obligations as
are specifically set forth in this Indenture,
and no implied covenants or obligations shall
be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on the
part of the Trustee, the Trustee may
conclusively rely, as to the truth of the
statements and the correctness of the
opinions expressed therein, upon any
statements, certificates or opinions
furnished to the Trustee and conforming to
the requirements of this Indenture; but in
the case of any such statements, certificates
or opinions which by any provision hereof are
specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not
they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error
of judgment made in good faith by a responsible officer
or responsible officers of the Trustee, unless it shall
be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the
holders of not less than a majority in principal amount
of the Securities at the time outstanding relating to
the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under
this Indenture.
None of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any
of its rights or powers, if there shall be reasonable ground
for believing that the repayment of such funds or adequate
indemnity against such liability is not reasonably assured
to it.
This Section 5.1 is in furtherance of and subject
to Sections 315 and 316 of the Trust Indenture Act of 1939.
SECTION 5.2 Certain Rights of the Trustee. In
furtherance of and subject to the Trust Indenture Act of
1939, and subject to Section 5.1:
(a) the Trustee may rely and shall be protected
in acting or refraining from acting upon any
resolution, Officers' Certificate or any other
certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, note,
coupon, security or other paper or document believed by
it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request, direction, order or demand of
the Issuer mentioned herein shall be sufficiently
evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of
Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant
secretary of the Issuer;
(c) the Trustee may consult with counsel and any
advice or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action
taken, suffered or omitted to be taken by it hereunder
in good faith and in accordance with such advice or
Opinion of Counsel;
(d) the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by
this Indenture at the request, order or direction of
any of the Securityholders pursuant to the provisions
of this Indenture, unless such Securityholders shall
have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities
which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any
action taken or omitted by it in good faith and
believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this
Indenture;
(f) prior to the occurrence of an Event of
Default hereunder and after the curing or waiving of
all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters
stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent,
order, approval, appraisal, bond, debenture, note,
coupon, security, or other paper or document unless
requested in writing so to do by the holders of not
less than a majority in aggregate principal amount of
the Securities then outstanding; provided that, if the
payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable
indemnity against such expenses or liabilities as a
condition to proceeding; the reasonable expenses of
every such examination shall be paid by the Issuer or,
if paid by the Trustee or any predecessor trustee,
shall be repaid by the Issuer upon demand; and
(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys not
regularly in its employ and the Trustee shall not be
responsible for any misconduct or negligence on the
part of any such agent or attorney appointed with due
care by it hereunder.
SECTION 5.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application of Proceeds
Thereof. The recitals contained herein and in the
Securities, except the Trustee's certificates of
authentication, shall be taken as the statements of the
Issuer, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no
representation as to the validity or sufficiency of this
Indenture or of the Securities or as to the adequacy of any
disclosure document used in connection with the sale of the
Securities. The Trustee shall not be accountable for the
use or application by the Issuer of any of the Securities or
of the proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold
Securities; Collections, etc. The Trustee or any agent of
the Issuer or the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities with
the same rights it would have if it were not the Trustee or
such agent and may otherwise deal with the Issuer and
receive, collect, hold and retain collections from the
Issuer with the same rights it would have if it were not the
Trustee or such agent.
SECTION 5.5 Moneys Held by Trustee. Subject to
the provisions of Section 9.4 hereof, all moneys received by
the Trustee shall, until used or applied as herein provided,
be held in trust for the purposes for which they were
received, but need not be segregated from other funds except
to the extent required by mandatory provisions of law.
Neither the Trustee nor any agent of the Issuer or the
Trustee shall be under any liability for interest on any
moneys received by it hereunder.
SECTION 5.6 Compensation and Indemnification of
Trustee and Its Prior Claim. The Issuer covenants and
agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) and the
Issuer covenants and agrees to pay or reimburse the Trustee
and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or
made by or on behalf of it in accordance with any of the
provisions of this Indenture (including the reasonable
compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in
its employ) except any such expense, disbursement or advance
as may arise from its negligence or bad faith. The Issuer
also covenants to indemnify the Trustee and each predecessor
Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including the costs and
expenses of defending itself against or investigating any
claim of liability in the premises. The obligations of the
Issuer under this Section to compensate and indemnify the
Trustee and each predecessor Trustee and to pay or reimburse
the Trustee and each predecessor Trustee for expenses,
disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional
indebtedness shall be a senior claim to that of the
Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the
benefit of the holders of particular Securities, and the
Securities are hereby subordinated to such senior claim. If
the Trustee incurs expenses or renders services after an
Event of Default specified in clause (6) or (7) of Section
4.1 occurs, such expenses and the compensation for such
services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 5.7 Right of Trustee to Rely on Officers'
Certificate, etc. Subject to Sections 5.1 and 5.2, whenever
in the administration of the trusts of this Indenture the
Trustee shall deem it necessary or desirable that a matter
be proved or established prior to taking or suffering or
omitting any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers' Certificate delivered
to the Trustee, and such certificate, in the absence of
negligence or bad faith on the part of the Trustee, shall be
full warrant to the Trustee for any action taken, suffered
or omitted by it under the provisions of this Indenture upon
the faith thereof.
SECTION 5.8 Persons Eligible for Appointment as
Trustee. The Trustee hereunder shall at all times be a
corporation having a combined capital and surplus of at
least $5,000,000, and which is eligible in accordance with
the provisions of Section 310(a) of the Trust Indenture Act
of 1939. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of
a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published.
SECTION 5.9 Resignation and Removal; Appointment
of Successor Trustee. (a) The Trustee may at any time
resign by giving written notice of resignation to the Issuer
and by mailing notice thereof by first-class mail to holders
of Securities at their last addresses as they shall appear
on the Security register. Upon receiving such notice of
resignation, the Issuer shall promptly appoint a successor
trustee by written instrument in duplicate, executed by
authority of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and
one copy to the successor trustee. If no successor trustee
shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide
holder of a Security or Securities for at least six months
may, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any of the following
shall occur:
(i) the Trustee shall fail to comply with the
provisions of Section 310(b) of the Trust Indenture Act
of 1939, after written request therefor by the Issuer
or by any Securityholder who has been a bona fide
holder of a Security or Securities for at least six
months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 5.8 and shall
fail to resign after written request therefor by the
Issuer or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting,
or shall be adjudged a bankrupt or insolvent, or a
receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee
and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors of
the Issuer, one copy of which instrument shall be delivered
to the Trustee so removed and one copy to the successor
trustee, or, subject to Section 315(e) of the Trust
Indenture Act of 1939, any Securityholder who has been a
bona fide holder of a Security or Securities for at least
six months may on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove
the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate
principal amount of the Securities at the time outstanding
may at any time remove the Trustee and appoint a successor
trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Issuer the
evidence provided for in Section 6.1 of the action in that
regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and
any appointment of a successor trustee pursuant to any of
the provisions of this Section 5.9 shall become effective
upon acceptance of appointment by the successor trustee as
provided in Section 5.10.
SECTION 5.10 Acceptance of Appointment by
Successor Trustee. Any successor trustee appointed as
provided in Section 5.9 shall execute and deliver to the
Issuer and to its predecessor trustee an instrument
accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall
become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with
all rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally
named as trustee herein; but, nevertheless, on the written
request of the Issuer or of the successor trustee, upon
payment of its charges then unpaid, the trustee ceasing to
act shall, subject to Section 9.4, pay over to the successor
trustee all moneys at the time held by it hereunder and
shall execute and deliver an instrument transferring to such
successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee,
the Issuer shall execute any and all instruments in writing
for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any
trustee ceasing to act shall, nevertheless, retain a prior
claim upon all property or funds held or collected by such
trustee to secure any amounts then due it pursuant to the
provisions of Section 5.6.
Upon acceptance of appointment by a successor
trustee as provided in this Section 5.10, the Issuer shall
mail notice thereof by first-class mail to the holders of
Securities at their last addresses as they shall appear in
the Security register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the
notice called for by the preceding sentence may be combined
with the notice called for by Section 5.9. If the Issuer
fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of the
Issuer.
SECTION 5.11 Merger, Conversion, Consolidation or
Succession to Business of Trustee. Any corporation into
which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from
any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to the
corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such
corporation shall be eligible under the provisions of
Section 5.8, without the execution or filing of any paper or
any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee
shall succeed to the trusts created by this Indenture any of
the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and
deliver such Securities so authenticated; and, in case at
that time any of the Securities shall not have been
authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in
all such cases such certificate shall have the full force
which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have;
provided, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall
apply only to its successor or successors by merger,
conversion or consolidation.
SECTION 5.12 Indenture Not Creating Potential
Conflicting Interests for Trustee. The following indenture
is hereby specifically described for the purposes of Section
310(b) of the Trust Indenture Act of 1939: the indenture
dated as of November 16, 1992 between the Issuer and
NationsBank of Georgia, National Association, as trustee,
relating to the 11.25% Debentures.
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS.
SECTION 6.1 Evidence of Action Taken by
Securityholders. Any request, demand, authorization,
direction, notice, consent, waiver or other action provided
by this Indenture to be given or taken by Securityholders
may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such
Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or
instruments are delivered to the Trustee. Proof of
execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this
Indenture and (subject to Sections 5.1 and 5.2) conclusive
in favor of the Trustee and the Issuer, if made in the
manner provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and
of Holding of Securities; Record Date. Subject to Sections
5.1 and 5.2, the execution of any instrument by a
Securityholder or his agent or proxy may be proved in
accordance with such reasonable rules and regulations as may
be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee. The holding of Securities
shall be proved by the Security register or by a certificate
of the registrar thereof. The Issuer may set a record date
for purposes of determining the identity of holders of
Securities entitled to vote or consent to any action
referred to in Section 6.1, which record date may be set at
any time or from time to time by notice to the Trustee, for
any date or dates (in the case of any adjournment or
resolicitation) not more than 60 days nor less than five
days prior to the proposed date of such vote or consent, and
thereafter, notwithstanding any other provisions hereof,
only holders of Securities of record on such record date
shall be entitled to so vote or give such consent or to
withdraw such vote or consent.
SECTION 6.3 Holders to Be Treated as Owners. The
Issuer, the Trustee and any agent of the Issuer or the
Trustee may deem and treat the person in whose name any
Security shall be registered upon the Security register as
the absolute owner of such Security (whether or not such
Security shall be overdue and notwithstanding any notation
of ownership or other writing thereon) for the purpose of
receiving payment of or on account of the principal of and,
subject to the provisions of this Indenture, interest on
such Security and for all other purposes; and neither the
Issuer nor the Trustee nor any agent of the Issuer or the
Trustee shall be affected by any notice to the contrary.
All such payments so made to any such person, or upon his
order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability
for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Issuer Deemed Not
Outstanding. In determining whether the holders of the
requisite aggregate principal amount of Securities have
concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Issuer or any
other obligor on the Securities or by any person directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor
on the Securities shall be disregarded and deemed not to be
outstanding for the purpose of any such determination,
except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction,
consent or waiver only Securities which the Trustee knows
are so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Issuer or
any other obligor upon the Securities or any person directly
or indirectly controlling or controlled by or under direct
or indirect common control with the Issuer or any other
obligor on the Securities. In case of a dispute as to such
right, the advice of counsel shall be full protection in
respect of any decision made by the Trustee in accordance
with such advice. Upon request of the Trustee, the Issuer
shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Securities, if any,
known by the Issuer to be owned or held by or for the
account of any of the above-described persons; and, subject
to Sections 5.1 and 5.2, the Trustee shall be entitled to
accept such Officers' Certificate as conclusive evidence of
the facts therein set forth and of the fact that all
Securities not listed therein are outstanding for the
purpose of any such determination.
SECTION 6.5 Right of Revocation of Action Taken.
At any time prior to (but not after) the evidencing to the
Trustee, as provided in Section 6.1, of the taking of any
action by the holders of the percentage in aggregate
principal amount of the Securities specified in this
Indenture in connection with such action, any holder of a
Security the certificate number of which is shown by the
evidence to be included among the certificate numbers of the
Securities the holders of which have consented to such
action may, by filing written notice at the Corporate Trust
Office and upon proof of holding as provided in this
Article, revoke such action so far as concerns such
Security. Except as aforesaid any such action taken by the
holder of any Security shall be conclusive and binding upon
such holder and upon all future holders and owners of such
Security and of any Securities issued in exchange or
substitution therefor, irrespective of whether or not any
notation in regard thereto is made upon any such Security.
Any action taken by the holders of the percentage in
aggregate principal amount of the Securities specified in
this Indenture in connection with such action shall be
conclusively binding upon the Issuer, the Trustee and the
holders of all the Securities.
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES.
SECTION 7.1 Supplemental Indentures Without
Consent of Securityholders. The Issuer, when authorized by
a resolution of its Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the
following purposes:
(a) to evidence the succession of another
corporation to the Issuer, or successive successions,
and the assumption by the successor corporation of the
covenants, agreements and obligations of the Issuer
pursuant to Article Eight;
(b) to add to the covenants of the Issuer such
further covenants, restrictions, conditions or
provisions as its Board of Directors and the Trustee
shall consider to be for the protection of the holders
of Securities, and to make the occurrence, or the
occurrence and continuance, of a default in any such
additional covenants, restrictions, conditions or
provisions an Event of Default permitting the
enforcement of all or any of the several remedies
provided in this Indenture as herein set forth;
provided, that in respect of any such additional
covenant, restriction, condition or provision such
supplemental indenture may provide for a particular
period of grace after default (which period may be
shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit
the remedies available to the Trustee upon such an
Event of Default or may limit the right of the holders
of a majority in aggregate principal amount of the
Securities to waive such an Event of Default;
(c) to cure any ambiguity or to correct or
supplement any provision contained herein or in any
supplemental indenture which may be defective or
inconsistent with any other provision contained herein
or in any supplemental indenture; or to make such other
provisions in regard to matters or questions arising
under this Indenture or under any supplemental
indenture as the Board of Directors may deem necessary
or desirable and which shall not materially and
adversely affect the interests of the holders of the
Securities; and
(d) to provide for the issuance under this
Indenture of Securities in coupon form (including
Securities registrable as to principal only) and to
provide for exchangeability of such Securities with
Securities issued hereunder in fully registered form,
and to make all appropriate changes for such purpose.
The Trustee is hereby authorized to join in the
execution of any such supplemental indenture, to make any
further appropriate agreements and stipulations which may be
therein contained and to accept the conveyance, transfer,
assignment, mortgage or pledge of any property thereunder,
but the Trustee shall not be obligated to enter into any
such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or
otherwise.
Any supplemental indenture authorized by the
provisions of this Section may be executed without the
consent of the holders of any of the Securities at the time
outstanding, notwithstanding any of the provisions of
Section 7.2.
SECTION 7.2 Supplemental Indentures With Consent
of Securityholders. With the consent (evidenced as provided
in Article Six) of the holders of not less than a majority
in aggregate principal amount of the Securities at the time
outstanding, the Issuer, when authorized by a resolution of
its Board of Directors, and the Trustee may, from time to
time and at any time, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions
to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental
indenture or of modifying in any manner the rights of the
holders of the Securities; provided, that no such
supplemental indenture shall (a) extend the final maturity
of any Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest
thereon, or reduce the premium, if any, payable thereon, or
reduce any amount payable on redemption thereof, or impair
or affect the right of any Securityholder to institute suit
for the payment thereof, or waive a default in the payment
of principal of, premium, if any, or interest on any
Security, change the currency of payment of principal of,
premium, if any, or interest on any Security, or modify any
provision of this Indenture with respect to the priority of
the Securities in right of payment without the consent of
the holder of each Security so affected, or (b) reduce the
aforesaid percentage of Securities, the consent of the
holders of which is required for any such supplemental
indenture, without the consent of the holders of all
Securities then outstanding.
Upon the request of the Issuer, accompanied by a
copy of a resolution of the Board of Directors certified by
the Secretary or an Assistant Secretary of the Issuer
authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence
of the consent of Securityholders and other documents, if
any, required by Section 6.1, the Trustee shall join with
the Issuer in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own
rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the
Securityholders under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance
thereof.
Promptly after the execution by the Issuer and the
Trustee of any supplemental indenture pursuant to the
provisions of this Section, the Issuer shall mail a notice
thereof by first-class mail to the holders of Securities at
their addresses as they shall appear on the registry books
of the Issuer, setting forth in general terms the substance
of such supplemental indenture. Any failure of the Issuer
to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any
such supplemental indenture.
No supplemental indenture or waiver under this
Section 7.2 or Section 7.1 hereof shall make any change that
adversely affects the rights under Article 12 of any holder
of an issue of Senior Indebtedness unless the holders of the
issue, pursuant to the terms of such Senior Indebtedness,
consent to the change. No amendment or waiver under this
Section 7.2 or Section 7.1 hereof shall make any change that
adversely affects the rights under this Indenture of the
Credit Agent or the parties to the Credit Agreement unless
the Credit Agent consents to the change.
SECTION 7.3 Effect of Supplemental Indenture.
Upon the execution of any supplemental indenture pursuant to
the provisions hereof, this Indenture shall be and be deemed
to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations,
duties and immunities under this Indenture of the Trustee,
the Issuer and the holders of Securities shall thereafter be
determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the
terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 7.4 Documents to Be Given to Trustee.
The Trustee, subject to the provisions of Sections 5.1 and
5.2, may receive an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that any such supplemental
indenture complies with the applicable provisions of this
Indenture.
SECTION 7.5 Notation on Securities in Respect of
Supplemental Indentures. Securities authenticated and
delivered after the execution of any supplemental indenture
pursuant to the provisions of this Article may bear a
notation in form approved by the Trustee as to any matter
provided for by such supplemental indenture or as to any
action taken at any such meeting. If the Issuer or the
Trustee shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained
in any such supplemental indenture may be prepared by the
Issuer, authenticated by the Trustee and delivered in
exchange for the Securities then outstanding.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE.
SECTION 8.1 When Issuer May Merge, etc. The
Issuer shall not consolidate or merge with or into, or sell,
transfer, lease or convey all or substantially all of its
assets to, any person unless:
(1)the person formed by or surviving any
such consolidation or merger (if other than the
Issuer), or to which such sale, transfer, lease or
conveyance shall have been made, is a corporation
organized and existing under the laws of the
United States, any state thereof or the District
of Columbia;
(2)the corporation formed by or surviving
any such consolidation or merger (if other than
the Issuer), or to which such sale, transfer,
lease or conveyance shall have been made, assumes
by supplemental indenture in a form reasonably
satisfactory to the Trustee all the obligations of
the Issuer under the Securities and this
Indenture;
(3)immediately after the transaction no
Default or Event of Default exists;
(4)the Issuer or any corporation formed by
or surviving any such consolidation or merger, or
to which such sale, transfer, lease or conveyance
shall have been made, shall have an Adjusted
Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal
to or greater than the Adjusted Consolidated Net
Worth of the Issuer immediately preceding the
transaction; provided, however, that this clause
(4) shall not apply to any transaction where the
consideration consists solely of common stock or
other Equity Interests of the Issuer or any
surviving corporation and any liabilities of such
other person are not assumed by and are
specifically non-recourse to the Issuer or such
surviving corporation; and
(5)after giving effect to such transaction
and immediately thereafter, the Issuer or any
corporation formed by or surviving any such
consolidation or merger, or to which such sale,
transfer, lease or conveyance shall have been
made, shall be permitted to incur at least $1.00
of additional Indebtedness pursuant to Section
3.11(a), provided that, if the Fixed Charge
Coverage Ratio of the Issuer immediately prior to
such transaction is within the range set forth in
Column A below, then the pro forma Fixed Charge
Coverage Ratio of the Issuer or the surviving
entity, as the case may be, immediately after such
transaction, shall be at least equal to the lesser
of (1) the ratio determined by multiplying the
percentage set forth in column (B) below by the
Fixed Charge Coverage Ratio of the Issuer prior to
such transaction and (2) the ratio set forth in
column (C) below:
(A) (B) (C)
1.11:1 to 1.99:1 90%1.5:1
2.00:1 to 2.99:1 80%2.1:1
3.00:1 to 3.99:1 70%2.4:1
4.00:1 or more 60%2.5:1
and provided, further, that if, immediately after
giving effect to such transaction on a pro forma
basis, the Fixed Charge Coverage Ratio of the
Issuer or the surviving entity, as the case may
be, is 2.5:1 or more, the calculation in the
preceding proviso shall be inapplicable and such
transaction shall be deemed to have complied with
the requirements of this clause (5).
The Issuer shall deliver to the Trustee prior to
the consummation of the proposed transaction an Officers'
Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transaction and such
supplemental Indenture comply with this Section 8.1. The
Trustee shall be entitled to rely conclusively upon such
Officers' Certificate and Opinion of Counsel.
SECTION 8.2 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, transfer,
lease, conveyance or other disposition of all or
substantially all of the assets of the Issuer in accordance
with Section 8.1, the successor corporation formed by such
consolidation or into or with which the Issuer is merged or
to which such sale, lease, conveyance or other disposition
is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this
Indenture with the same effect as if such successor person
has been named as the Issuer herein and thereafter, except
in the case of a lease, the predecessor corporation shall be
relieved of all obligations and covenants under this
Indenture and the Securities.
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS; DEFEASANCE.
SECTION 9.1 Satisfaction and Discharge of
Indenture. If at any time (a) the Issuer shall have paid or
caused to be paid the principal of and interest on all the
Securities outstanding hereunder, as and when the same shall
have become due and payable, or (b) the Issuer shall have
delivered to the Trustee for cancellation all Securities
theretofore authenticated (other than any Securities which
shall have been destroyed, lost or stolen and which shall
have been replaced or paid as provided in Section 2.6) or
(c) all Securities not theretofore cancelled or delivered to
the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable
within 1 year or are to be called for redemption within 1
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption, and the Issuer shall deposit
with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption of all the Securities (other
than any Securities which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as
provided in Section 2.6) not theretofore cancelled or
delivered to the Trustee for cancellation, including
principal and interest due or to become due to such date of
maturity or redemption date, as the case may be, but
excluding, however, the amount of any moneys for the payment
of principal of or interest on the Securities theretofore
repaid to the Issuer in accordance with the provisions of
Section 9.4 or paid to any State or the District of Columbia
pursuant to its unclaimed property or similar laws, and if
the Issuer shall also pay or cause to be paid all other sums
payable hereunder by the Issuer (and if the payment of such
other sums and, in the case of a satisfaction and discharge
pursuant to clause (c), the making of such deposit shall not
at such time be prohibited by the Credit Agreement or the
provisions of Article 12), then this Indenture shall cease
to be of further effect (except as to (i) rights of
registration of transfer and exchange, and the Issuer's
right of optional redemption, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen
Securities, (iii) rights of holders to receive payments of
principal thereof and interest thereon, (iv) the rights,
obligations and immunities of the Trustee hereunder, (v) the
rights of the Securityholders as beneficiaries hereof with
respect to the property so deposited with the Trustee
payable to all or any of them and (vi) the obligation of the
Issuer to maintain an office or agency as provided in
Section 3.2) and the Trustee, on demand of the Issuer
accompanied by an Officers' Certificate and an Opinion of
Counsel and at the cost and expense of the Issuer, shall
execute proper instruments acknowledging such satisfaction
of and discharging this Indenture. The Issuer agrees to
reimburse the Trustee for any costs or expenses thereafter
reasonably and properly incurred and to compensate the
Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture or
the Securities.
SECTION 9.2 Application by Trustee of Funds
Deposited for Payment of Securities. Subject to Section 9.4
and to the subordination provisions of this Indenture, all
moneys deposited with the Trustee pursuant to Section 9.1 or
9.5 shall be held in trust and applied by it to the payment,
either directly or through any paying agent (including the
Issuer acting as its own paying agent), to the holders of
the particular Securities for the payment or redemption of
which such moneys have been deposited with the Trustee, of
all sums due and to become due thereon for principal and
interest; but such money need not be segregated from other
funds except to the extent required by law.
SECTION 9.3 Repayment of Moneys Held by Paying
Agent. In connection with the satisfaction and discharge of
this Indenture all moneys then held by any paying agent
under the provisions of this Indenture shall, upon demand of
the Issuer, be repaid to it or paid to the Trustee and
thereupon such paying agent shall be released from all
further liability with respect to such moneys.
SECTION 9.4 Return of Moneys Held by Trustee and
Paying Agent Unclaimed for Three Years. Any moneys
deposited with or paid to the Trustee or any paying agent
for the payment of the principal of or interest on any
Security and not applied but remaining unclaimed for three
years after the date upon which such principal or interest
shall have become due and payable, shall, upon the written
request of the Issuer and unless otherwise required by
mandatory provisions of applicable escheat or abandoned or
unclaimed property law, be repaid to the Issuer by the
Trustee or such paying agent, and the holder of such
Security shall, unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed
property laws, thereafter look only to the Issuer for any
payment which such holder may be entitled to collect, and
all liability of the Trustee or any paying agent with
respect to such moneys shall thereupon cease.
SECTION 9.5 Defeasance. At the Issuer's option,
either (a) the Issuer shall be deemed to have been Dis-
charged (as defined below) from its respective obligations
under the Securities on the 91st day after the applicable
conditions set forth below have been satisfied or (b) the
Issuer shall cease to be under any obligation to comply with
any term, provision or condition set forth in Sections 3.9
through 3.18, 8.1 and 8.2 with respect to the Securities at
any time after the applicable conditions set forth below
have been satisfied:
(1) the Issuer shall have deposited or caused to
be deposited irrevocably with the Trustee as funds in
trust, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of the
Securities, (i) funds in an amount sufficient to pay
the principal amount of the Securities in full on the
date of maturity of the Securities or a selected date
of redemption of the Securities as permitted under this
Indenture (if such Securities are to be called for
redemption and satisfactory arrangements have been made
with the Trustee for the giving of notice of
redemption) and the interest on such aggregate
principal amount to the date of maturity of the
Securities or such date of redemption, taking into
account all intervening interest payment dates, for the
period from the date through which interest on the
Securities has been paid to the date of maturity of the
Securities or such date of redemption and all other
sums payable hereunder by the Issuer; and provided that
such funds, if invested, shall be invested only in U.S.
Government Obligations maturing prior to the date of
maturity of the Securities or, to the extent
applicable, such date of redemption and such
intervening interest payment dates; and, provided
further, however, that the Trustee shall have no
obligation to invest such funds; or (ii) U.S.
Government Obligations in such aggregate principal
amount and maturity on such dates as will, together
with the income or increment to accrue thereon, but
without consideration of any reinvestment of such
income or increment, be sufficient to pay when due
(including any intervening interest payment dates) the
amounts set forth in the foregoing clauses (A) and (B);
or (iii) a combination of (i) and (ii), sufficient (in
the cases of deposits made pursuant to (ii) or (iii)),
in the opinion of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay
and discharge each installment of principal of, and
interest on, the outstanding Securities on the dates
such installments of principal or interest are due;
(2) no Event of Default or event which with
notice or lapse of time would become an Event of
Default with respect to the Securities shall have
occurred and be continuing on the date of such deposit;
(3) the Issuer shall have delivered to the
Trustee (A) an Opinion of Counsel to the effect that
the deposit of such funds or investments or both to
defease the Issuer's obligations in respect of the
Securities is in accordance with the provisions of this
Indenture and (B) either (i) an Opinion of Counsel to
the effect that Holders of the Securities will not
recognize income, gain or loss for United States
federal income tax purposes as a result of the exercise
of the option under this Section 9.5 and will be
subject to United States Federal income tax on the same
amount and in the same manner and at the same time as
would have been the case if such option had not been
exercised, or (ii) a private letter ruling to that
effect directed to the Trustee received from the United
States Internal Revenue Service; and
(4)the deposit of such funds or investments
shall not at such time be prohibited by the Credit
Agreement or the provisions of Article 12 and shall not
contravene applicable law.
"Discharged" means that the Issuer shall be deemed
to have paid and discharged the entire indebtedness
represented by, and obligations under, the Securities and to
have satisfied all the obligations under this Indenture and
the Securities (and the Trustee, at the request and the
expense of the Issuer, shall execute proper instruments
acknowledging the same), except (i) the rights of Holders of
Securities to receive, from the trust fund described in
clause (1) above, payment of the Principal of and the
interest on the Securities when such payments are due; (ii)
the Issuer's obligations with respect to the Securities
under Section 2.5, 2.6, and 9.4; (iii) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, and
(iv) the obligation of the Issuer to maintain an office or
agency as provided in Section 3.2.
ARTICLE TEN
MISCELLANEOUS PROVISIONS.
SECTION 10.1 Incorporators, Stockholders,
Officers and Directors of Issuer Exempt from Individual
Liability. No recourse under or upon any obligation,
covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby,
shall be had against any incorporator, as such, or against
any past, present or future stockholder, officer or
director, as such, of the Issuer or of any successor, either
directly or through the Issuer or any successor, under any
rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly
waived and released by the acceptance of the Securities by
the holders thereof and as part of the consideration for the
issue of the Securities.
SECTION 10.2 Provisions of Indenture for the Sole
Benefit of Parties and Securityholders. Nothing in this
Indenture or in the Securities, expressed or implied, shall
give or be construed to give to any person, firm or
corporation, other than the parties hereto and their
successors and the holders of Senior Indebtedness and the
holders of the Securities, any legal or equitable right,
remedy or claim under this Indenture or under any covenant
or provision herein contained, all such covenants and
provisions being for the sole benefit of the parties hereto
and their successors and of the holders of Senior
Indebtedness and the holders of the Securities.
SECTION 10.3 Successors and Assigns of Issuer
Bound by Indenture. All the covenants, stipulations,
promises and agreements in this Indenture contained by or in
behalf of the Issuer shall bind its successors and assigns,
whether so expressed or not.
SECTION 10.4 Notices and Demands on Issuer,
Trustee and Securityholders. Any notice or demand which by
any provision of this Indenture is required or permitted to
be given or served by the Trustee or by the holders of
Securities to or on the Issuer may be given or served by
hand delivery, by overnight courier or by being deposited
postage prepaid, first-class mail (except, in each case, as
otherwise specifically provided herein), in each case
addressed (until another address of the Issuer is filed by
the Issuer with the Trustee) to Flagstar Corporation, 203
East Main Street, Spartanburg, South Carolina 29319,
Attention: Chief Financial Officer. Any notice, direction,
request or demand by the Issuer or any Securityholder to or
upon the Trustee shall be deemed to have been sufficiently
given or made, for all purposes, if given or made at the
Corporate Trust Office.
Where this Indenture provides for notice to
holders, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and
delivered by hand, delivered by overnight courier or mailed,
first-class postage prepaid, to each holder entitled
thereto, at his last address as it appears in the Security
register. In any case where notice to holders is given by
any of the foregoing means, neither the failure to give such
notice by such means, nor any defect in any notice so given,
to any particular holder shall affect the sufficiency of
such notice with respect to other holders. Where this
Indenture provides for notice in any manner, such notice may
be waived in writing by the person entitled to receive such
notice, either before or after the event, and such waiver
shall be the equivalent of such notice. Waivers of notice
by holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
In case, by reason of the suspension of or
irregularities in regular mail service, it shall be
impracticable to mail notice to the Issuer and
Securityholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner
of giving such notice as shall be satisfactory to the
Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 10.5 Officers' Certificates and Opinions
of Counsel; Statements to Be Contained Therein. Upon any
application or demand by the Issuer to the Trustee to take
any action under any of the provisions of this Indenture,
the Issuer shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent provided
for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in
the opinion of such counsel all such conditions precedent
have been complied with, except that in the case of any such
application or demand as to which the furnishing of such
documents is specifically required by any provision of this
Indenture relating to such particular application or demand,
no additional certificate or opinion need be furnished.
Each certificate or opinion provided for in this
Indenture and delivered to the Trustee with respect to
compliance with a condition or covenant provided for in this
Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or
condition, (b) a brief statement as to the nature and scope
of the examination or investigation upon which the
statements or opinions contained in such certificate or
opinion are based, (c) a statement that, in the opinion of
such person, he has made such examination or investigation
as is necessary to enable him to express an informed opinion
as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in
the opinion of such person, such condition or covenant has
been complied with.
Any certificate, statement or opinion of an
officer of the Issuer may be based, insofar as it relates to
legal matters, upon a certificate or opinion of or
representations by counsel, unless such officer knows that
the certificate or opinion or representations with respect
to the matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the
exercise of reasonable care should know that the same are
erroneous. Any certificate, statement or opinion of counsel
may be based, insofar as it relates to factual matters
information with respect to which is in the possession of
the Issuer, upon the certificate, statement or opinion of or
representations by an officer or officers of the Issuer,
unless such counsel knows that the certificate, statement or
opinion or representations with respect to the matters upon
which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable
care should know that the same are erroneous.
Any certificate, statement or opinion of an
officer of the Issuer or of counsel may be based, insofar as
it relates to accounting matters, upon a certificate or
opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer
or counsel, as the case may be, knows that the certificate
or opinion or representations with respect to the accounting
matters upon which his certificate, statement or opinion may
be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm
of public accountants filed with the Trustee shall contain a
statement that such firm is independent.
SECTION 10.6 Payments Due on Saturdays, Sundays
and Holidays. If the date of maturity of interest on or
principal of the Securities or the date fixed for redemption
of any Security shall not be a Business Day, then payment of
interest or principal need not be made on such date, but may
be made on the next succeeding Business Day with the same
force and effect as if made on the date of maturity or the
date fixed for redemption, and no interest shall accrue for
the period after such date.
SECTION 10.7 Conflict of Any Provision of
Indenture with Trust Indenture Act of 1939. If and to the
extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in
this Indenture by operation of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939 (an
"incorporated provision"), such incorporated provision shall
control.
SECTION 10.8 New York Law to Govern. This
Indenture and each Security shall be deemed to be a contract
under the laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of
said State, except as may otherwise be required by mandatory
provisions of law.
SECTION 10.9 Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall
be an original; but such counterparts shall together
constitute but one and the same instrument.
SECTION 10.10 Effect of Headings. The Article
and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction
hereof.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES.
SECTION 11.1 Right of Optional Redemption. (a)
Except as provided in Section 11.1(b), the Securities may
not be redeemed at the option of the Issuer prior to
September 15, 1998. On and after such date, the Issuer at
its option may, at any time, redeem all, or from time to
time any part of, the Securities upon payment of the
optional redemption prices set forth in the form of Security
hereinabove recited, together with accrued interest to the
date fixed for redemption.
(b) The Securities may be redeemed in part at the
option of the Issuer prior to September 15, 1996 upon the
terms and subject to the conditions set forth in the form of
Security hereinabove recited.
SECTION 11.2 Notice of Redemption; Partial
Redemptions. Notice of redemption to the holders of
Securities to be redeemed as a whole or in part shall be
given by mailing notice of such redemption by first class
mail, postage prepaid, at least 30 days and not more than 60
days prior to the date fixed for redemption to such holders
of Securities at their last addresses as they shall appear
upon the registry books. Any notice which is mailed in the
manner herein provided shall be conclusively presumed to
have been duly given, whether or not the holder receives the
notice. Failure to give notice by mail, or any defect in
the notice to the holder of any Security designated for
redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other
Security.
The notice of redemption to each such holder shall
specify the principal amount of each Security held by such
holder to be redeemed, the date fixed for redemption, the
redemption price, the place or places of payment, that
payment will be made upon presentation and surrender of such
Securities, that interest accrued to the date fixed for
redemption will be paid as specified in said notice and that
on and after said date interest thereon or on the portions
thereof to be redeemed will cease to accrue. In case any
Security is to be redeemed in part only the notice of
redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such Security,
a new Security or Securities in principal amount equal to
the unredeemed portion thereof will be issued.
The notice of redemption of Securities to be
redeemed at the option of the Issuer shall be given by the
Issuer or, at the Issuer's request, by the Trustee in the
name and at the expense of the Issuer.
On or prior to the redemption date specified in
the notice of redemption given as provided in this Section,
the Issuer will deposit with the Trustee or with one or more
paying agents (or, if the Issuer is acting as its own paying
agent, set aside, segregate and hold in trust as provided in
Section 3.4) an amount of money sufficient to redeem on the
redemption date all the Securities so called for redemption
at the appropriate redemption price, together with accrued
interest to the date fixed for redemption. If less than all
the outstanding Securities are to be redeemed the Issuer
will deliver to the Trustee at least 70 days prior to the
date fixed for redemption an Officers' Certificate stating
the aggregate principal amount of Securities to be redeemed.
If less than all the Securities are to be
redeemed, the Trustee shall select, in such manner as it
shall deem appropriate and fair but generally pro rata or by
lot, Securities to be redeemed in whole or in part.
Securities may be redeemed in part in multiples of $1,000
only. The Trustee shall promptly notify the Issuer in
writing of the Securities selected for redemption and, in
the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Security
redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is
to be redeemed.
SECTION 11.3 Payment of Securities Called for
Redemption. If notice of redemption has been given as above
provided, the Securities or portions of Securities specified
in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable
redemption price, together with interest accrued to the date
fixed for redemption, and on and after said date (unless the
Issuer shall default in the payment of such Securities at
the redemption price, together with interest accrued to said
date) interest on the Securities or portions of Securities
so called for redemption shall cease to accrue and, except
as provided in Sections 5.5 and 9.4, such Securities shall
cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture,
and the holders thereof shall have no right in respect of
such Securities except the right to receive the redemption
price thereof and unpaid interest to the date fixed for
redemption. On presentation and surrender of such
Securities at a place of payment specified in said notice,
said Securities or the specified portions thereof shall be
paid and redeemed by the Issuer at the applicable redemption
price, together with interest accrued thereon to the date
fixed for redemption; provided that any semi-annual payment
of interest becoming due on the date fixed for redemption
shall be payable to the holders of such Securities
registered as such on the relevant record date subject to
the terms and provisions of Section 2.4 hereof.
If any Security called for redemption shall not be
so paid upon surrender thereof for redemption, the principal
shall, until paid or duly provided for, bear interest from
the date fixed for redemption at the rate borne by the
Security.
Upon presentation of any Security redeemed in part
only, the Issuer shall execute and the Trustee shall
authenticate and deliver to or on the order of the holder
thereof, at the expense of the Issuer, a new Security or
Securities, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so
presented.
SECTION 11.4 Exclusion of Certain Securities from
Eligibility for Selection for Redemption. Securities shall
be excluded from eligibility for selection for redemption if
they are identified by registration and certificate number
in a written statement signed by an authorized officer of
the Issuer and delivered to the Trustee at least 40 days
prior to the last date on which notice of redemption may be
given as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Issuer or (b) an
entity specifically identified in such written statement
directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer.
SECTION 11.5 Offer to Redeem by Application of
Net Proceeds. At such time as the Issuer determines to make
a Net Proceeds Offer pursuant to the provisions of Section
3.13 hereof, the Issuer shall deliver to the Trustee a
notice to such effect specifying the aggregate principal
amount of the Securities for which the Net Proceeds Offer
will be made. Within 15 days thereafter, the Trustee shall
select the Securities to be offered to be redeemed in
accordance with Section 11.2 hereof. Within 10 days
thereafter the Issuer shall mail or cause the Trustee to
mail (in the Issuer's name and at its expense and pursuant
to an Officer's Certificate as required by Section 3.13
hereof) a Net Proceeds Offer to redeem to each Holder of
Securities whose Securities are to be offered to be
redeemed. The Net Proceeds Offer shall identify the
Securities to which it relates and shall contain the
information required by the second paragraph of Section 11.2
hereof and shall provide for a redemption date no earlier
than 65 days after the mailing of the Net Proceeds Offer.
A Holder receiving a Net Proceeds Offer may elect
to have redeemed the Securities to which the Net Proceeds
Offer relates by providing written notice thereof to the
Trustee and the Issuer on or before 35 days preceding the
redemption date and shall thereafter complete the form
entitled "Option of Holder to Elect to Have Security
Redeemed" on the reverse of the Security and surrender the
Security to the Issuer, or depositary, if appointed by the
Issuer, or a paying agent at least three days prior to the
redemption date. A Holder may not elect to have redeemed
less than all of the Securities to which the Net Proceeds
Offer relates.
Other than as specifically provided in this
Section 11.5, any redemption pursuant to this Section 11.5
shall be made pursuant to the provisions of Sections 11.2
through 11.4 hereof and shall, in any event, be subject to
Article 12.
ARTICLE TWELVE
SUBORDINATION OF SECURITIES.
SECTION 12.1 Agreement to Subordinate. The
Issuer agrees, and each Holder by accepting a Security
consents and agrees, that the Indebtedness evidenced by the
Security and all Obligations of the Issuer under this
Indenture and the payment of any Claims are subordinated in
right of payment, to the extent and in the manner provided
in this Article 12, to the prior payment in full of all
Senior Indebtedness, and that the subordination is for the
benefit of the holders of Senior Indebtedness and they
and/or each of them may enforce such subordination.
SECTION 12.2 Certain Definitions.
"Claim" means any claim arising for the rescission
of the purchase of the Securities, for damages arising from
the purchase of the Securities or for reimbursement or
contribution on account of such a claim.
"Representative" means the indenture trustee or
other trustee, agent or representative for any Senior
Indebtedness and, in the case of Senior Indebtedness under
the Credit Agreement, the Credit Agent.
A distribution may consist of cash, securities or
other property, by set-off or otherwise, and a payment or
distribution on account of any Obligations or any Claims
with respect to the Securities shall include any redemption,
purchase or other acquisition of the Securities, whether
pursuant to a Net Proceeds Offer or otherwise.
For the purposes of this Article 12, all Senior
Indebtedness now or hereafter existing under the Credit
Agreement shall not be deemed to have been paid in full
unless the holders or owners thereof shall have received
payment in full in cash of such Senior Indebtedness and all
obligations and claims relating thereto.
SECTION 12.3 Liquidation; Dissolution;
Bankruptcy. Upon any distribution to creditors of the
Issuer in a total or partial liquidation or dissolution of
the Issuer or in bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuer or
its property or in an assignment for the benefit of
creditors, or an arrangement, adjustment, composition or
relief of the Issuer or its debts or any marshalling of the
assets and liabilities of the Issuer:
(1) holders of Senior Indebtedness shall be
entitled to receive payment in full of all obligations
due or to become due with respect to the Senior
Indebtedness (including interest after the commencement
of any such proceeding at the rate specified in the
applicable Senior Indebtedness whether or not such
interest is an allowable claim under each such
proceeding) and all claims relating thereto before
Holders shall be entitled to receive any payment or
distribution on account of any obligations with respect
to the Securities or on account of any Claim; and
(2) until all obligations with respect to Senior
Indebtedness (as provided in subsection (1) above) and
all claims relating thereto are paid in full, any
payment or distribution, including, without limitation,
any payment or distribution which may be payable or
deliverable by reason of the payment of any other
Indebtedness of the Issuer being subordinated to the
payment of the Securities to which Holders would be
entitled but for this Article shall be made to holders
of Senior Indebtedness, as their interests may appear,
for application (in the case of cash) to, or as
collateral (in the case of non-cash property or
securities) for the payment or prepayment of, the
Senior Indebtedness to the extent necessary to pay in
full all such Senior Indebtedness and all obligations
and claims relating thereto in accordance with the
terms thereof, after giving effect to any concurrent
payment or distribution to or for the holders of such
Senior Indebtedness, except that pursuant to a plan of
reorganization under an applicable Bankruptcy Law and,
if any Indebtedness is outstanding pursuant to the
Credit Agreement, notice to the Issuer from the Credit
Agent that such plan of reorganization is reasonably
satisfactory to the Required Lenders (as defined in the
Credit Agreement), Holders may receive securities that
are subordinated to at least the same extent as the
Securities to (a) Senior Indebtedness and (b) any
securities issued in exchange for Senior Indebtedness;
provided; however, that if any Indebtedness is
outstanding pursuant to the Credit Agreement, the terms
(including, without limitation, terms in respect of
maturities, covenants, defaults, acceleration and
remedies) of any securities issued to Holders pursuant
to this Section 12.3 must be reasonably satisfactory to
the Required Lenders as evidenced by a notice to such
effect from the Credit Agent to the Issuer.
SECTION 12.4 Default on Senior Indebtedness.
(a) In the event that any default in the payment
of any Senior Indebtedness or any obligation or claim
relating thereto shall have occurred and be continuing,
whether at maturity (by lapse of time, acceleration or
otherwise), upon redemption or otherwise (a "Payment
Default"), unless and until such Payment Default shall
have been cured or waived in writing by the holders of
such Senior Indebtedness, no direct or indirect payment
or distribution (including, without limitation, any
payment or distribution which may be payable or
deliverable by reason of the payment of any other
Indebtedness of the Issuer being subordinated to
payment of the Securities) shall be made by or on
behalf of the Issuer for or on account of any
Obligations with respect to the Securities or on
account of any Claim, and neither the Trustee nor any
Holders shall receive from the Issuer directly or
indirectly, any payment or distribution, including,
without limitation, from or by way of collateral, on
account of any Obligations with respect to the
Securities or on account of any Claim.
(b) Upon receipt by the Issuer and the Trustee of
written notice from the Credit Agent of any default
(including an unmatured event of default) under the
Credit Agreement, other than a Payment Default, or that
a payment or distribution by the Issuer with respect to
any Security would, immediately after giving effect
thereto, result in such a default, and unless such
default shall have been cured or waived in writing in
accordance with the terms of the Credit Agreement and
written notice thereof is delivered to the Trustee, no
direct or indirect payment or distribution (including,
without limitation, any payment or distribution which
may be payable or deliverable by reason of the payment
of any other Indebtedness of the Issuer being
subordinated to payment of the Securities) may be made
by or on behalf of the Issuer for or on account of the
Obligations with respect to the Securities or on
account of any Claim and neither the Trustee nor any
Holder shall receive from the Issuer, directly or
indirectly, any payment or distribution, including,
without limitation, from or by way of collateral, in
respect of the Obligations with respect to the
Securities or on account of any Claim during a period
(the "Payment Blockage Period") commencing on the
receipt by the Issuer and the Trustee of such notice
and ending on the earliest of (i) 179 days thereafter,
(ii) the date on which such default shall have been
waived in writing or cured or (iii) the date on which
the benefits of this clause (b) shall have been waived
in writing by the Credit Agent.
(c) Upon receipt by the Issuer and the Trustee of
written notice from the Representative of Specified
Senior Indebtedness (other than the Credit Agent under
the Credit Agreement) of any default thereunder
(including an unmatured event of default) other than a
Payment Default, or that a payment or distribution by
the Issuer with respect to any Security would,
immediately after giving effect thereto, result in such
a default, and unless such default shall have been
cured or waived in writing in accordance with the terms
of the instrument governing such Specified Senior
Indebtedness and written notice thereto is delivered to
the Trustee, no direct or indirect payment or
distribution (including, without limitation, any
payment or distribution which may be payable or
deliverable by reason of the payment of any other
Indebtedness of the Issuer being subordinated to
payment of the Securities) may be made by or on behalf
of the Issuer for or on account of the Obligations with
respect to the Securities or on account of any Claim
and neither the Trustee nor any Holder shall receive
from the Issuer, directly or indirectly, any payment or
distribution, including without limitation, from or by
way of collateral, in respect of the Obligations with
respect to the Securities or on account of any Claim
during the Payment Blockage Period commencing on the
receipt by the Issuer and the Trustee of such notice
and ending on the earliest of (i) 179 days thereafter,
(ii) the date on which such default shall have been
waived in writing or cured or (iii) the date on which
the benefits of this clause (c) shall have been waived
in writing by such Representative of Specified Senior
Indebtedness. Only one such Payment Blockage Period
may commence within any 360 consecutive day period,
whether pursuant to clause (b) above or this clause
(c); provided that the commencement of a Payment
Blockage Period pursuant to this clause (c) shall not
bar the commencement of another Payment Blockage Period
by the Credit Agent within such period of 360
consecutive days. Notwithstanding anything in clause
(b) above or this clause (c) to the contrary, (x) in no
event will a Payment Blockage Period extend beyond 179
days from the date the payment on the Securities was
due and (y) there must be 180 days in any 360 day
period in which no Payment Blockage Period is in
effect.
(d) For all purposes of Section 12.4(b) and (c),
no default which, to the knowledge of the
Representative of Specified Senior Indebtedness existed
or was continuing on the date of the commencement of
any Payment Blockage Period by such Representative
shall be, or be made, the basis for the commencement of
a second Payment Blockage Period by such
Representative, whether or not within a period of 360
consecutive days, unless such default shall have been
waived in writing or cured, or the benefits of clause
(b) or (c), as the case may be, shall have been waived
in writing by such Representative for a period of not
less than 90 consecutive days.
SECTION 12.5 Acceleration of Securities. If
payment of the Securities is accelerated because of an Event
of Default, the Issuer shall promptly notify holders of
Senior Indebtedness of the acceleration.
SECTION 12.6 When Distribution Must be Paid Over.
If a distribution is made to the Trustee, any paying agent
or any Holder that because of this Article 12 should not
have been made to it, the Trustee, such paying agent or such
Holder who receives the distribution shall segregate such
distribution from its other funds and property and hold it
in trust for the benefit of, and, upon written request, pay
it over (in the same form as received, with any necessary
endorsement) to, the holders of Senior Indebtedness as their
interests may appear, or their agent or representative or
the trustee under the indenture or other agreement (if any)
pursuant to which Senior Indebtedness may have been issued,
as their respective interests may appear, for application
(in the case of cash) to, or as collateral (in the case of
non-cash property or securities) for the payment or
prepayment of, Senior Indebtedness remaining unpaid to the
extent necessary to pay in full such Senior Indebtedness and
all obligations and claims relating thereto in accordance
with the terms thereof, after giving effect to any
concurrent payment or distribution to or for the holders of
Senior Indebtedness (it being understood, in the event such
a distribution is made to the Trustee, that the Trustee's
obligation so to segregate such distribution and hold it in
trust shall be subject to the Trustee's knowledge determined
in accordance with Section 12.12 hereof). In the event the
Trustee is uncertain as to whom payment should be made
pursuant to this paragraph, the Trustee shall be permitted
to bring an interpleader action.
With respect to the holders of Senior
Indebtedness, the Trustee undertakes to perform only such
obligations on the part of the Trustee as are specifically
set forth in this Article 12, and no implied covenants or
obligations with respect to the holders of Senior
Indebtedness 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 Indebtedness, and
shall not be liable to any such holders if the Trustee shall
pay over or distribute to or on behalf of Holders or the
Issuer or any other person money or assets to which any
holders of Senior Indebtedness are entitled by virtue of
this Article 12, except if such payment is made as a result
of the negligence or willful misconduct of the Trustee.
SECTION 12.7 Notice by Issuer. The Issuer shall
promptly notify the Trustee and any paying agent of any
facts known to the Issuer that would cause a payment of any
Obligations with respect to the Securities or of any Claim
to violate this Article, but failure to give such notice
shall not affect the subordination of the Securities and all
Claims to the Senior Indebtedness provided in this Article.
SECTION 12.8 Subrogation. After all Senior
Indebtedness and all such obligations and claims relating
thereto are paid in full and until the Securities are paid
in full, Holders shall be subrogated (equally and ratably
with all other Indebtedness pari passu with the Securities)
to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders
have been applied to the payment of Senior Indebtedness. A
distribution made under this Article 12 to holders of Senior
Indebtedness which otherwise would have been made to Holders
is not, as between the Issuer and Holders, a payment by the
Issuer on the Securities.
SECTION 12.9 Relative Rights. This Article
defines the relative rights of Holders and holders of Senior
Indebtedness. Nothing in this Indenture shall:
(1)impair, as between the Issuer and Holders,
the obligation of the Issuer, which is absolute and
unconditional, to pay principal of and interest on the
Securities in accordance with their terms;
(2)affect the relative rights of Holders and
creditors of the Issuer other than their rights in
relation to holders of Senior Indebtedness; or
(3)prevent the Trustee or any Holder from
exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders and
owners of Senior Indebtedness to receive distributions
and payments otherwise payable to Holders.
If the Issuer fails because of this Article 12, to
pay principal of or interest on a Security on the due date,
the failure may still become a Default or Event of Default.
SECTION 12.10 Subordination May Not Be Impaired.
No right of any present or future holder of any Senior
Indebtedness or any obligation or claims relating thereto to
enforce subordination as herein provided shall at any time
in any way be prejudiced or impaired by any act or failure
to act in good faith by any such holder, or by any act,
failure to act or noncompliance by the Issuer, the Trustee
or any Agent with the terms and provisions and covenants
herein, regardless of any knowledge thereof any such holder
may have or otherwise be charged with.
Without in any way limiting the generality of the
foregoing paragraph, the holders or owners of Senior
Indebtedness or any obligation or claim relating thereto may
at any time and from time to time, without the consent of or
notice to the Trustee or any Holder, without incurring
responsibility to any Holder and without impairing or
releasing the subordination provided in this Article 12 or
the obligations hereunder of the Holders to the holders of
Senior Indebtedness, 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, all or any of the
Senior Indebtedness (including any change in the rate of
interest thereon), or otherwise amend or supplement in any
manner, or grant any waiver or release with respect to,
Senior Indebtedness or any obligation or claim relating
thereto or any instrument evidencing the same or any
agreement under which Senior Indebtedness or any obligation
or claim relating thereto is outstanding; (ii) sell,
exchange, release, not perfect or otherwise deal with any
property at any time pledged, assigned or mortgaged to
secure or otherwise securing, Senior Indebtedness or any
obligation or claim relating thereto, or amend, or grant any
waiver or release with respect to, or consent to any
departure from any guarantee for all or any of the Senior
Indebtedness or any obligation or claim relating thereto;
(iii) release any person liable in any manner under or in
respect of Senior Indebtedness or any obligation or claim
relating thereto; (iv) exercise or refrain from exercising
any rights against and release from obligations of any type,
the Issuer and any other person; and (v) apply any sums from
time to time received to the Senior Indebtedness or any
obligation or claim relating thereto.
All rights and interests under this Indenture of
the Credit Agent and the other holders of Senior
Indebtedness or any obligation or claim relating thereto,
and all agreements and obligations of the Trustee, the
Holders, and the Issuer under Sections 4.2, 4.3 and 4.9
hereof and under this Article 12 shall remain in full force
and effect irrespective of (i) any lack of validity or
enforceability of the Credit Agreement, any promissory notes
evidencing the Senior Indebtedness thereunder, or any other
agreement or instrument relating thereto or to any other
Senior Indebtedness or any obligation or claim relating
thereto, including, without limitation, any agreement
referred to in the definition of Credit Agreement, or (ii)
any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Trustee, any
Holder or the Issuer.
The provisions set forth in Sections 4.2, 4.3 and
4.9 hereof and in this Article 12 constitute a continuing
agreement and shall (i) be and remain in full force and
effect until payment in full of all Senior Indebtedness and
all obligations and claims relating thereto at such time as
no lender shall have any commitment to make any advances in
respect of Senior Indebtedness, (ii) be binding upon the
Trustee, the Holders and the Issuer and their respective
successors, transferees and assigns, and (iii) inure to the
benefit of, and be enforceable directly by, each of the
Holders and their respective successors, transferees and
assigns.
The Credit Agent is hereby authorized to demand
specific performance of the provisions of this Article 12,
whether or not the Issuer shall have complied with any of
the provisions of Article 12 applicable to it, at any time
when the Trustee or any Holder shall have failed to comply
with any of these provisions. The Trustee and the Holders
hereby irrevocably waive any defense based on the adequacy
of a remedy at law that might be asserted as a bar to such
remedy of specific performance.
SECTION 12.11 Distribution or Notice to
Representative. Whenever a distribution is to be made or a
notice given to holders of Senior Indebtedness, the
distribution may be made and the notice given to their
Representative, if any.
Upon any payment or distribution of assets of the
Issuer referred to in this Article 12, the Trustee and the
Holders shall be entitled to rely in good faith upon any
order or decree made by any court of competent jurisdiction
or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any
distribution to the Trustee or to the Holders for the
purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness
and other Indebtedness of the Issuer, the amount thereof or
payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this
Article 12.
SECTION 12.12 Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 12 or any
other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which
would prohibit the making of any payment or distribution by
the Trustee, or the taking of any action by the Trustee
pursuant to this Article 12, and the Trustee or paying agent
may continue to make payments on the Securities unless it
shall have received at its Corporate Trust Office at least
two Business Days prior to the date of such payment written
notice of facts that would cause the payment of any
obligations with respect to the Securities to violate this
Article. Only the Issuer, a Representative or a holder of
an issue of Senior Indebtedness that has no Representative
may give the notice. Nothing in this Article 12 shall apply
to amounts due to, or impair the claims of, or payments to,
the Trustee under or pursuant to Section 5.6 hereof.
The Trustee in its individual or any other
capacity may hold Senior Indebtedness with the same rights
it would have if it were not Trustee. Any Agent may do the
same with like rights.
SECTION 12.13 Authorization to Effect
Subordination. Each Holder of a Security by his acceptance
thereof authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate to
effectuate as between the Holders of the Securities and the
holders of Senior Indebtedness the subordination as provided
in this Article 12, and appoints the Trustee his attorney-
in-fact for any and all such purposes.
SECTION 12.14 Miscellaneous.
(a) Each Holder and the Issuer hereby waives
promptness, diligence, notice of acceptance and any
other notice with respect to any of the Senior
Indebtedness and any obligation or claim relating
thereto, and any requirement that the Credit Agent or
any other holder of Senior Indebtedness and any
obligation or claim relating thereto protect, secure,
perfect or insure any security interest or Lien or any
property subject thereto or exhaust any right or take
any action against the Issuer or any other person or
entity or any collateral.
(b) The agreement contained in this Article 12
shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the
Senior Indebtedness or any obligation or claim relating
thereto is rescinded or must otherwise be returned by
any holder of Senior Indebtedness or any obligation or
claim relating thereto upon the insolvency, bankruptcy
or reorganization of the Issuer or otherwise, all as
though such payment had not been made.
(c)Unless and until written notice shall be
given by the Issuer and the Credit Agent to the Trustee
at its Corporate Trust Office notifying the Trustee
that Senior Indebtedness is no longer outstanding under
the Credit Agreement, the Trustee shall assume that
such Senior Indebtedness is outstanding. The Issuer
agrees to give, and to cause the Credit Agent to give,
such notice to the Trustee promptly after the first
date on which no Senior Indebtedness shall be
outstanding under the Credit Agreement. For the
purposes of this Indenture, Senior Indebtedness shall
be outstanding under the Credit Agreement whenever
either (i) such Senior Indebtedness and all obligations
and claims relating thereto shall not have been paid in
full or (ii) commitments to lend or to issue letters of
credit under the Credit Agreement shall not have
expired or been cancelled or terminated.
IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed and attested, all as of
the date first above written.
FLAGSTAR CORPORATION
By /s/ Karl H. Sedlarz
Title: Vice President
and Treasurer
Attest:
By /s/ George E. Moseley
Title: Secretary
NATIONSBANK OF GEORGIA,
NATIONAL ASSOCIATION, as
Trustee
By /s/ Harry G. Evans
Title: Vice President
Attest:
By /s/
Title: Trust Officer
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 23rd day of September, 1993, before me
personally came Karl H. Sedlarz, to me known, who being by me
personally sworn, did depose and say that he is the
Vice President and Treasurer of Flagstar Corporation, the corporation
described in and on behalf of which he has executed the
above instrument, and that he is authorized by said
corporation to execute the same.
/s/ Kate Kamish
Notary Public
STATE OF GEORGIA )
: ss.:
COUNTY OF FULTON )
On this 23rd day of September, 1993, before me
personally came Harry G. Evans, to me known, who being by
me personally sworn, did depose and say that he is the
Vice President of NationsBank of Georgia, National
Association, the corporation described in and on behalf of
which he has executed the above instrument, and that he is
authorized by said corporation to execute the same.
/s/ Jeanette S. Belt
Notary Public
<PAGE>
EXHIBIT 10.6
CONFORMED COPY
EMPLOYMENT AGREEMENT
TW SERVICES, INC
-AND-
A. RAY BIGGS
AGREEMENT, dated as of February 10, 1992, by and between TW SERVICES, INC.,
a Delaware corporation (the "Company") and A. RAY BIGGS, (the "Executive"),
presently residing at 205 Barrington Park Drive, Greer, South Carolina 29650;
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed to provide his services to the Company, all on the terms
and subject to the conditions, as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Executive during the
Employment Term (as defined in Section 3) and the Executive hereby accepts such
employment and agrees to serve the Company subject to the general supervision,
advice and direction of the Chief Executive Officer o the Company (the "CEO")
and upon the terms and conditions set forth in this Agreement.
2. DUTIES. During the Employment Term, the Executive shall perform such
services and duties as the CEO may from time to time designate.
The Executive shall devote the Executive's full time and best efforts to
the business affair of the Company; however, the Executive may devote reasonable
time and attention to:
(i) serving as a director or member of a committee of any
not-for-profit organization or engaging in other charitable or community
activities;
(ii) upon approval of the CEO, serving as a director of a corporation
or as a member of a committee of any organization;
(iii) managing his personal investments;
provided, that the Executive agrees to be bound by the conflict of interests
policy of the Company and may not accept employment or any engagement with any
other individual or other entity, or engage in any other venture which is in
conflict with the business of the Company.
3. EMPLOYMENT TERM. The Executive shall be employed under this Agreement
commencing on the date hereof for a term of three (3) years (the "Employment
Term"); such term shall be automatically extended for an additional year on each
anniversary date of the Agreement unless terminated as provided in Section 6
hereof.
4. COMPENSATION.
4.(a) BASE COMPENSATION. During the Employment Term, the Company will pay
the Executive an annual base salary as compensation for his services hereunder
of $190,000.00 (the "Base Salary"), payable in equal installments not less often
than once in each calendar month. The Base Salary shall be reviewed from time to
time, but no less frequently than annually, and may be increased in the
Company's discretion. In additional, the Base Salary shall be increased on
January 1 in each calendar year during the Employment Term commencing on or
after January 1, 1993, by an amount determined by multiplying the Base Salary by
the Adjustment Percentage. The "Adjustment Percentage" shall mean the percentage
equal to a fraction, the numerator of which shall be the excess of the Index (as
herein defined) published during the immediately preceding month of December
over the Base Index (as herein defined), and the denominator of which shall be
the Base Index. "Index" shall mean the consumer Price Index or Urban wage
Earners and Clerical Workers (1967=100 specified for "All Items") relating to
the area where the Executive is employed and published by the Bureau of Labor
1
<PAGE>
Statistics of the United States Department of Labor, or if no such index shall
be published, the most comparable index, and "Base Index" shall be the Index
published during January 1992.
4.(b) BONUS. The Board of Directors of the Company shall from time to time
develop an incentive compensation plan that will provide for the establishment
of a cash bonus pool from which cash bonuses shall be paid to senior management
provided certain performance targets are met. The Executive shall be entitled to
participate in the management incentive compensation plan and, assuming the
prescribed performance targets are achieved, to receive an annual cash bonus
from the bonus pool in an amount as determined under the terms of the bonus
plan.
4.(c) VACATION. During each calendar year of the Employment Term, the
Executive shall be entitled to take a paid vacation for such length of time as
determined by the Company.
4.(d) BENEFITS. During the Employment Term, the Executive shall be
entitled to participate in all pension, profit sharing, and other retirement
plans, all incentive compensation plans, and all group health, hospitalization,
and disability insurance plans, and other employee welfare benefit plans in
which other senior executives of the Company may participate on terms and
conditions no less favorable than those which apply to such other senior
executives of the Company.
5. REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT. In
addition to the compensation provided for under Section 4 hereof, upon
submission of proper vouchers, the Company shall pay or reimburse the Executive
for all normal and reasonable expenses, including travel expenses, incurred by
the Executive prior to the termination of the Employment Term in connection with
the Executive's responsibilities to the Company.
6. TERMINATION.
6.(a) Notwithstanding Section 3 hereof, the Employment Term shall terminate
upon the occurrence of any of the following events:
(i) Immediately upon the death of the Executive; provided, however,
that in such event and in addition to any other death benefits, the
Executive's surviving spouse shall be paid the Base Salary in monthly
installments for a period of one (1) year commencing immediately upon the
death of Executive, together with such accrued, but unpaid, bonus as shall
then be owed to the Executive;
(ii) Upon the close of business on the 180th day following the date on
which the Company gives the Executive written notice of the termination of
his employment hereunder as a result of a Permanent Disability; provided,
however, that the Executive shall be paid one-half of the Base Salary for a
period of two (2) years after the termination of the Executive's
employment, together with such accrued, but unpaid, bonus as shall be owed
to Executive at the time of termination of employment;
(iii) Upon the close of business on the effective date of a "Voluntary
Termination" (as defined hereafter) by the Executive of his employment with
the Company; provided that the Executive shall have given the Company at
least 120 days' prior written notice of such effective date; or
(iv) Upon the close of business on the date on which the Company gives
the Executive written notice of "Termination for Cause" (as defined
hereafter) of his employment.
6.(b) In the event of the termination of the Employment Term pursuant to
Section 6.(a) hereof, the Company will pay the Executive (or, in the case of the
death of the Executive, his estate or other legal representative), not later
than 90 days after such termination, in a lump sum [except for additional
payments due under clause (i)and (ii) above], the balance due under this
Agreement together with all accrued but unpaid Base Salary and Bonus pursuant to
Section 4 through the date of the Executive's termination.
6.(c) For purposes of this Agreement:
(1) "Permanent Disability" shall mean the Executive is unable to
perform the duties contemplated by this Agreement by reason of a physical
or mental disability or infirmity which has continued for more than 90
consecutive days. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the
Company.
(2) "Termination for Cause" shall mean any termination of the
employment of the Executive for "cause." For purposes of this Agreement,
the termination of the Executive's employment shall be deemed to have been
for cause only if termination of his employment shall have been the result
of (i) an act or acts by him, or any omission by him, constituting a
felony, and the Executive has entered a guilty plea or confession to, or
has been convicted of, such
2
<PAGE>
felony, or as a result of any proven act of fraud or dishonesty by the
Executive which results or is intended to result in any material financial
or economic harm to the Company, or (ii) failure to comply with the
directives and policies of this Company, or (iii) breach of a material
provision of this Agreement by the Executive, or (iv) failure to discharge
duties in a manner deemed appropriate by the CEO and Senior Executives. If
the Executive is discharged for cause under (iv), the Executive will be
paid within ninety (90) days after such discharge the Base Salary for one
(1) year, together with such accrued but unpaid bonus as shall then be owed
to the Executive.
(3) "Voluntary Termination" shall mean any voluntary termination by
the Executive of his employment by the Company.
7. ACCELERATION OF BENEFITS; NO MITIGATION. In the event that the
Executive's employment is terminated for any reason other than as set forth in
Section 6, then all remaining Base Salary, Bonus and other benefits for the
remaining Employment Term of this Agreement shall be immediately due, owing, and
payable in a lump sum to the Executive without mitigation.
8. PROTECTED INFORMATION; PROHIBITED SOLICITATION.
8. (a) The Executive hereby recognizes and acknowledges that during the
course of his employment by the Company, the Company has disclosed and will
furnish, disclose, or make available to the Executive confidential or
proprietary information related to the Company's business including, without
limitation, customer lists, ideas, processes, inventions, and devices, that such
confidential or proprietary information has been developed and will be developed
through the expenditure by the Company of substantial time and money and that
all such confidential information could be used by the Executive and others to
compete with the Company. The Executive hereby agrees that all such confidential
or proprietary information shall constitute trade secrets, and further agrees to
use such confidential or proprietary information only for the purpose of
carrying out his duties with the Company and not otherwise to disclose such
information. No information otherwise in the public domain shall be considered
confidential.
8.(b) The Executive hereby agrees, in consideration of his employment
hereunder and in view of the confidential position to be held by the Executive
hereunder, that during the Employment Term and for the period ending on the date
which is one (1) year after the later of (A) the termination of the Employment
Term and (B) the date on which the Company is no longer required to provide the
payments and benefits described in Section 4, the Executive shall not, without
the written consent of the Company, knowingly solicit, entice, or persuade any
other employees of the Company or any affiliate of the Company to leave the
services of the Company or such affiliate for any reason.
8.(c) The Executive further agrees that, in the event of Termination For
Cause or Voluntary Termination of his employment hereunder with the Company, he
will not (except as to the activities described in Section 2) or a period of one
(1) year following such termination enter into any relationship whatsoever,
either directly or indirectly, alone or in a partnership, or as an officer,
director, employer or stockholder (beneficially owning the stock or options to
acquire stock totalling more than five percent of the outstanding shares) of any
corporation (other than the Company), or otherwise acquire or agree to acquire a
significant present or future equity or other proprietorship interest, whether
as a stockholder, partner, proprietor, or otherwise, with any enterprise,
business, or division thereof (other than the Company), which is engaged in the
restaurant or food service business in those states within the United States in
which the Company is at the time of such termination of employment conducting
its business.
8.(d) So long as the Executive is employed by the Company and so long as
the restrictions of this Section 8 apply, prior to accepting any engagement to
act as an employee, officer, director, trustee, principal, agent or
representative of any type of business or service (other than as an employee of
the Company), the Executive shall (A) disclose such engagement in writing to the
Company, and (B) disclose to the other entity to which he has agreed to act as
an employee, officer, director, trustee, agent or representative, or to other
principals together with whom he proposes to act as a principal in such business
or service, the existence of the covenants set forth in this Section 8 and the
provisions of Section 9 hereof.
8.(e) The restrictions of this Section 8 shall survive the termination of
this Agreement and shall be in addition to any restrictions imposed upon the
Executive by statute or at common law.
9. INJUNCTIVE RELIEF. The Executive hereby expressly acknowledges that any
breach or threatened breach by the Executive of any of the terms set forth in
Sections 2 and 8 of this Agreement may result in significant and continuing
injury to the Company, the monetary value of which would be impossible to
establish. Therefore, the Executive agrees that the Company shall be entitled to
apply for injunctive relief in a court of appropriate jurisdiction. The
provisions of this Section 9 shall survive the Employment Term.
3
<PAGE>
10. PARTIES BENEFITTED; ASSIGNMENTS. This Agreement shall be binding upon
the Executive, the heirs and personal representative or representatives of the
Executive and upon the Company and its successors and assigns. Neither this
Agreement nor any rights or obligations hereunder may be assigned by the
Executive.
11. NOTICES. Any notice required or permitted by this Agreement shall be
in writing, sent by personal delivery, or by registered or certified mail,
return receipt requested, addressed to the CEO and the Company at its then
principal office, or to the Executive at the address set forth in the preamble,
as the case may be, or to such other address or addresses as any party hereto
may from time to time specify in writing or the purpose of a notice given to the
other parties in compliance with this Section 11. Notices shall be deemed given
when received.
12. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without regard to
conflict of law principles.
13. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES. The Company will
indemnify the Executive to the fullest extent permitted by the laws of the State
of Delaware, as in effect at the time of the subject act or omission, and the
Executive shall be entitled to the protection of any insurance policies the
Company may elect to maintain generally for the benefit of it directors and
officers insuring against all costs, charges, and expenses whatsoever incurred
or sustained by the Executive in connection with any action, suit, or
proceedings to which the Executive may be made a part by reason of being or
having been an officer or employee of the Company or any of its subsidiaries or
serving or having served any other enterprises at the request of the Company
(other than any dispute, claim, or controversy described in Section 9 of this
Agreement except that the Executive shall be entitled to reimbursement of
reasonable attorneys' fees and expenses if the Executive is the prevailing
party).
14. MISCELLANEOUS. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof. This Agreement supersedes any
prior written or oral agreements or understandings between the parties relating
to the subject matter hereto. No modification or amendment of this Agreement
shall be valid unless in writing and signed by or on behalf of the parties
hereto. A waiver of the breach of any term or condition of this Agreement shall
not be deemed to constitute a waiver of any subsequent breach of the same or any
other term or condition. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent, be held invalid or unenforceable, such invalidity and
unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable to the Executive hereunder after the death of the Executive shall be
paid to the Executive's estate or legal representative.
The headings in this Agreement are inserted for convenience of reference
only and shall not be part of or control or affect the meaning of any provision
hereof.
IN WITNESS WHEREOF the parties have duly executed and delivered this
Agreement as of the day and year first above written.
TW SERVICES, INC.
By: /s/ Jerome J. Richardson
PRESIDENT AND CEO
/s/ A. RAY BIGGS
A. RAY BIGGS
4
Exhibit 10.41
Conformed Copy
EMPLOYMENT AGREEMENT
TW SERVICES, INC.
-and-
DAVID F. HURWITT
AGREEMENT, dated as of March 16, 1992, by and between TW
Services, Inc., a
Delaware corporation (the "Company") and David F. Hurwitt, (the
"Executive") presently
residing at 71 Arrowhead Way, Darien, Connecticut 06820;
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the
Executive desires to
be employed to provide his services to the Company, all on the terms
and subject to the
conditions, as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
convenants and
obligations hereinafter set forth, the parties agree as follows:
1. Employment. The Company agrees to employ the Executive
during the Employment
Term (as defined in Section 3) and the Executive hereby accepts such
employment and agrees to
serve the Company subject to the general supervision, advice and
direction of the Chief Executive
Officer of the Company (the "CEO") and upon the terms and conditions
set forth in this
Agreement.
2. Duties. During the Employment Term, the Executive shall
perform such services and
duties as the CEO may from time to time designate.
The Executive shall devote the Executive's full time and best
efforts to the business affairs
of the Company; however, the Executive may devote reasonable time and
attention to:
(i) serving as a director or member of a committee of any not
for profit organization
or engaging in other charitable or community activities;
(ii) upon approval of the CEO, serving as a director of a
corporation or as a member
of a committee of any organization;
(iii) managing his personal investments;
provided, that the Executive agrees to be bound by the conflict of
interests policy of the Company
and may not accept employment or any engagement with any other
individual or other entity, or
engage in any other venture which is in conflict with the business of
the Company.
3. Employment Term. The Executive shall be employed under this
Agreement for a term
(the "Employment Term") commencing on the date hereof and terminating
on the close of
business on March 15, 1995, unless sooner terminated as provided in
Section 6.
4. Compensation.
4.(a) Base Compensation. During the Employment Term, the
Company will pay
the Executive an annual base salary as compensation for his services
hereunder of $ 225,000.00
(the "Base Salary"), payable in equal installments not less often than
once in each calendar month.
The Base Salary shall be reviewed from time to time, but no less
frequently than annually, and
may be increased in the Company's discretion. In addition, the Base
Salary shall be increased on
January 1 in each calendar year during the Employment Term commencing
on or after January
1, 1993, by an amount determined by multiplying the Base Salary by the
Adjustment Percentage.
The "Adjustment Percentage" shall mean the percentage equal to a
fraction, the numerator of
which shall be the excess of the Index (as herein defined) published
during the immediately
preceding month of December over the Base Index (as herein defined),
and the denominator of
which shall be the Base Index. "Index" shall mean the Consumer Price
Index for Urban Wage
Earners and Clerical Workers (1967=100 specified for "All Items")
relating to the area where the
Executive is employed and published by the Bureau of Labor Statistics
of the United States
Department of Labor, or if no such index shall be published, the most
comparable index, and
"Base Index" shall be the Index published during March, 1992.
4. (b) Bonus. The Board of Directors of the Company shall from
time to time
develop an incentive compensation plan that will provide for the
establishment of a cash bonus
pool from which cash bonuses shall be paid to senior management
provided certain performance
targets are met. The Executive shall be entitled to participate in
the management incentive
compensation plan and, assuming the prescribed performance targets are
achieved, to receive an
annual cash bonus from the bonus pool in an amount as determined under
the terms of the bonus
plan.
4. (c) Vacation. During each calendar year of the Employment
Term, the Executive
shall be entitled to take a paid vacation for such length of time as
determined by the Company.
4. (d) Benefits. During the Employment Term, the Executive
shall be entitled to
participate in all pension, profit sharing, and other retirement
plans, all incentive compensation
plans, and all group health, hospitalization, and disability insurance
plans, and other employee
welfare benefit plans in which other senior executives of the Company
may participate on terms
and conditions no less favorable than those which apply to such other
senior executives of the
Company.
5. Reimbursement of Expenses Incurred in Performance of
Employment. In
addition to the compensation provided for under Section 4 hereof, upon
submission of proper
vouchers, the Company shall pay or reimburse the Executive for all
normal and reasonable
expenses, including travel expenses, incurred by the Executive prior
to the termination of the
Employment Term in connection with the Executive's responsibilities to
the Company.
6. Termination.
6. (a) Notwithstanding Section 3 hereof, the Employment Term
shall terminate upon the
occurrence of any of the following events:
(i) Immediately upon the death of the Executive;
provided, however, that
in such event and in addition to any other death benefits, the
Executive's surviving spouse
shall be paid the Base Salary in monthly installments for a
period of one (1) year
commencing immediately upon the death of Executive, together with
such accrued, but
unpaid, bonus as shall then be owed to the Executive;
(ii) Upon the close of business on the 180th day
following the date on
which the Company gives the Executive written notice of
termination of his employment
hereunder as a result of a Permanent Disability; provided,
however, that the Executive
shall be paid one-half of the Base Salary for a period of two (2)
years after the termination
of the Executive's employment, together with such accrued, but
unpaid, bonus as shall be
owed to Executive at the time of termination of employment;
(iii) Upon the close of business on the effective
date of a "Voluntary
Termination" (as defined hereafter) by the Executive of his
employment with the
Company; provided that the Executive shall have given the
Company at least 120 days'
prior written notice of such effective date; or
(iv) Upon the close of business on the date on which the
Company gives
the Executive written notice of "Termination for Cause" (as
defined hereafter) of his
employment.
6. (b) In the event of the termination of the Employment Term
pursuant to Section
6.(a) hereof, the Company will pay the Executive (or, in the case of
the death of the Executive,
his estate or other legal representative), not later than 90 days
after such termination, in a lump
sum [except for additional payments due under clauses (i) and (ii)
above], the balance due under
this Agreement together will all accrued but unpaid Base Salary and
Bonus pursuant to Section 4
through the date of the Executive's termination.
6. (c) For purposes of this Agreement:
(1) "Permanent Disability" shall mean the Executive is unable
to perform the
duties contemplated by this Agreement by reason of a physical or
mental disability or
infirmity which has continued for more than 90 consecutive days.
The Executive agrees
to submit such medical evidence regarding such disability or
infirmity as is reasonably
requested by the Company.
(2) "Termination for Cause" shall mean any termination of the
employment of the
Executive for "cause." For purposes of this Agreement, the
termination of the Executive's
employment shall be deemed to have been for cause only if
termination of his employment
shall have been the result of (i) an act or acts by him, or any
omission by him, constituting
a felony, and the Executive has entered a guilty plea or
confession to, or has been
convicted of, such felony, or as a result of any proven act of
fraud or dishonesty by the
Executive which results or is intended to result in any material
financial or economic harm
to the Company, or (ii) failure to comply with the directives and
policies of the Company,
or (iii) breach of a material provision of this Agreement by the
Executive.
(3) "Voluntary Termination" shall mean any voluntary
termination by the
Executive of his employment by the Company.
7. Acceleration of Benefits; No Mitigation. In the event that
the Executive's
employment is terminated for any reason other than as set forth in
Section 6, then all remaining
Base Salary, Bonus and other benefits for the remaining Employment
Term of this Agreement
shall be immediately due, owing, and payable in a lump sum to the
Executive without mitigation.
8. Protected Information; Prohibited Solicitation.
8. (a) The Executive hereby recognizes and acknowledges that
during the course of
his employment by the Company, the Company has disclosed and will
furnish, disclose, or make
available to the Executive confidential or proprietary information
related to the Company's
business including, without limitation, customer lists, ideas,
processes, inventions, and devices,
that such confidential or proprietary information has been developed
and will be developed
through the expenditure by the Company of substantial time and money
and that all such
confidential information could be used by the Executive an others to
compete with the Company.
The Executive hereby agrees that all such confidential proprietary
information shall constitute
trade secrets, and further agrees to use such confidential or
proprietary information only for the
purpose of carrying out his duties with the Company and not otherwise
to disclose such
information. No information otherwise in the public domain shall be
considered confidential.
8. (b) The Executive hereby agrees, in consideration of his
employment hereunder
and in view of the confidential position to be held by the Executive
hereunder, that during the
Employment Term and for the period ending on the date which is one (1)
year after the later of
(A) the termination to the Employment Term and (B) the date on which
the Company is no longer
required to provide the payments and benefits described in Section 4,
the Executive shall not,
without the written consent of the Company, knowingly solicit, entice,
or persuade any other
empliyees of the Company or any affiliate of the Company to leave the
services of the Company
or such affiliate for any reason.
8. (c ) The Executive further agrees that, in the event of
Termination For Cause or
Voluntary Termination of his employment hereunder with the Company, he
will not (except as
to the activities described in Section 2) for a period of one (1) year
following such termination
enter into any relationship whatsoever, either directly or indirectly,
alone or in a partnership, or
as an officer, director, employee or stockholder (beneficially owing
the stock or options to acquire
stock totalling more than five percent of the outstanding shares) of
any corporation (other than the
Company), or otherwise acquire or agree to acquire a significant
present or future equity or other
proprietorship interest, whether as a stockholder, partner,
proprietor, or otherwise, with any
enterprise, business, or division thereof (other than the Company),
which is engaged in the
restaurant or food services business in those states within the United
States in which the Company
is at the time of such termination of employment conducting its
business.
8. (d) So long as the Executive is employed by the Company and
so long as the
restrictions of this Section 8 apply, prior to accepting any
engagement to act as an employee,
officer, director, trustee, principal, agent or representative of any
type of business or service
(other than as an employee of the Company), the Executive shall (A)
disclose such engagement
in writing to the Company, and (B) disclose to the other entity to
which he has agreed to act as
an employee, officer, director, trustee, agent or representative, or
to other principals together with
whom he proposes to act as a principal in such business or service,
the existence of the convenants
set forth in this Section 8 and the provisions of Section 9 hereof.
8. (e) The restrictions of this Section 8 shall survive the
termination of this
Agreement and shall be in addition to any restrictions imposed upon
the Executive by statute or
at common law.
9. Injunctive Relief. The Executive hereby expressly
acknowledges that any breach or
threatened breach of the Executive of any of the terms set forth in
Sections 2 and 8 of this
Agreement may result in significant and continuing injury to the
Company, the monetary value
of which would be impossible to establish. Therefore, the Executive
agrees that the Company
shall be entitled to apply for injunctive relief in a court of
appropriate jurisdiction. The provisions
of this Section 9 shall survive the Employment Term.
10. Parties Benefitted; Assignments. This Agreement shall be
binding upon the
Executive, the heirs and personal representative or representatives of
the Executive and upon the
Company and its successors and assigns. Neither this Agreement nor
any rights or obligations
hereunder may be assigned by the Executive.
11. Notices. Any notice required or permitted by this
Agreement shall be in writing,
sent by personal delivery, or by registered or certified mail, return
receipt requested, addressed
to the CEO and the Company at is then principal office, or to the
Executive at the address set forth
in the preamble, as the case may be, or to such other address or
addresses as any party hereto may
from time to time specify in writing for the purpose of a notice given
to the other parties in
compliance with this Section 11. Notice shall be deemed given when
received.
12. Governing Law. This Agreement shall be governed by and
construed and
enforced in accordance with the laws of the State of New York without
regard to conflict of law
principles.
13. Indemnification and Insurance; Legal Expenses. The
Company will indemnify the
Executive to the fullest extent permitted by the laws of the State of
Delaware, as in effect at the
time of the subject act or omission, and the Executive shall be
entitled to the protection of any
insurance policies the Company may elect to maintain generally for the
benefit of its directors and
officers insuring against all costs, charges, and expenses whatsoever
incurred or sustained by the
Executive in connection with any action, suit, or proceedings to which
the Executive may be made
a part by reason of being or having been an officer or employee of the
Company or any of its
subsidiaries or serving or having served any other enterprises at the
request of the Company (other
than any dispute, claim, or controversy described in Section 9 of this
Agreement except that the
Executive shall be entitled to reimbursement of reasonable attorneys'
fees and expenses if the
Executive is the prevailing party).
14. Miscellaneous. This Agreement contains the entire
agreement of the parties relating
to the subject matter hereof. This Agreement supersedes any prior
written or oral agreements or
understanding between the parties relating the subject matter hereto.
No modification or
amendment of this Agreement shall be valid unless in writing and
signed by or on behalf of the
parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be
deemed to constitute a waiver of any subsequent breach of the same or
any other term or
condition. This Agreement is intended to be performed in accordance
with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations.
If any provision of this
Agreement, or the application thereof to any person or circumstance,
shall, for any reason and to
any extent, be held invalid or unenforceable, such invalidity and
uneforceability shall not affect
the remaining provisions hereof and the application of such provisions
to other persons or
circumstances, all of which shall be enforced to the greatest extent
permitted by law. The
compensation provided to the Executive pursuant to this Agreement
shall be subject to any
withholdings and deductions required by any applicable tax laws. Any
amounts payable to the
Executive hereunder after the death of the Executive shall be paid to
the Executive's estate or legal
representative.
The headings in this Agreement are inserted for convenience of
reference only and shall
not be part of or control or affect the meaning of any provision
hereof.
IN WITNESS WHEREOF the parties have duly executed and delivered
this Agreement
as of the day and year first above written.
TW SERVICES, INC.
By: /s/ Jerome J. Richardson
President and CEO
/s/ David F. Hurwitt
David F. Hurwitt
<PAGE>
EXHIBIT 11
FLAGSTAR COMPANIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT RATIOS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
JANUARY 1 JULY 21 TO YEAR ENDED
TO JULY 20, DECEMBER 31, DECEMBER 31,
1989 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Adjustment of common and equivalent shares:
Average number of common shares outstanding before
adjustments...................................... 48,861 22,000 22,000 22,212 24,883 42,370
Assumed exercise of stock warrant options........... -- -- -- -- -- --
Total average outstanding and equivalent common
shares...................................... 48,861 22,000 22,000 22,212 24,883 42,370
Adjustment of net income (loss):
Income (loss) from continuing operations............ $20,777 $(77,150) $(67,813) $(67,575) $ (51,775) $(1,648,235)
Income (loss) from discontinued operations.......... (918) -- -- -- -- --
Adjusted income (loss) before extraordinary item and
cumulative effect of change in accounting
principle........................................ 19,859 (77,150) (67,813) (67,575) (51,775) (1,648,235)
Extraordinary items, net of income tax benefits:
1992 -- $85,053; 1993 -- $196.................... -- -- -- -- (155,401) (26,405)
Adjusted income (loss) before cumulative effect of
change in accounting principle................... 19,859 (77,150) (67,813) (67,575) (207,176) (1,674,640)
Cumulative effect of change in accounting principle,
net of income tax benefits: 1992 -- $8,785;
1993 -- $90...................................... -- -- -- -- (17,834) (12,010)
Adjusted net income (loss).......................... 19,859 (77,150) (67,813) (67,575) (225,010) (1,686,650)
Dividends on preferred stock........................ -- -- -- -- (6,064) (14,175)
Adjusted net income (loss) applicable to common
shareholders..................................... $19,859 $(77,150) $(67,813) $(67,575) $(231,074) $(1,700,825)
Earnings (loss) per share applicable to common
shareholders:
On continuing operations............................ $ 0.43 $ (3.51) $ (3.08) $ (3.04) $ (2.32) $ (39.23)
On discontinued operations.......................... (0.02) -- -- -- -- --
On income (loss) before extraordinary items and
cumulative effect of change in accounting
principle........................................ 0.41 (3.51) (3.08) (3.04) (2.32) (39.23)
On extraordinary items,net.......................... -- -- -- -- (6.25) (0.62)
On income (loss) before cumulative effect of change
in accounting principle.......................... 0.41 (3.51) (3.08) (3.04) (8.57) (39.85)
On cumulative effect of change in accounting
principle, net................................... -- -- -- -- (0.72) (0.29)
On net income (loss)................................ $ 0.41 $ (3.51) $ (3.08) $ (3.04) $ (9.29) $ (40.14)
</TABLE>
<PAGE>
EXHIBIT 12
FLAGSTAR COMPANIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS EXCEPT RATIOS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
JANUARY 1 JULY 21 TO YEAR ENDED
TO JULY 20, DECEMBER 31, DECEMBER 31,
1989 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Pretax earnings (losses).................... $ 38,421 $(85,333) $(77,808) $(85,674) $(58,358) $(1,729,384)
Add:
Net interest expense after capitalized
interest............................... 62,031 113,851 290,507 294,927 291,910 254,352
Amortization of debt expense.............. 499 3,692 23,807 13,910 11,998 11,815
Interest factor in rents.................. 8,635 6,539 16,424 16,371 17,124 18,900
Total earnings (losses).............. $ 109,586 $ 38,749 $252,930 $239,534 $262,674 $(1,444,317)
Fixed charges:
Gross interest expense before capitalized
interest............................... $ 62,340 $114,232 $290,993 $295,157 $292,200 $ 254,630
Amortization of debt expense.............. 499 3,692 23,807 13,910 11,998 11,815
Interest factor in rents.................. 8,635 6,539 16,424 16,371 17,124 18,900
Total fixed charges.................. $ 71,474 $124,463 $331,224 $325,438 $321,322 $ 285,345
Ratio of earnings to fixed charges.......... 1.53 -- -- -- -- --
Deficiency in the coverage of fixed charges
by earnings before fixed charges.......... $ 85,714 $ 78,294 $ 85,904 $ 58,648 $ 1,729,662
</TABLE>
For purposes of these computations, the ratio of earnings to fixed charges
has been calculated by dividing pretax earnings by fixed charges. Earnings, as
used to compute the ratio, equals the sum of income before income taxes and
fixed charges excluding capitalized interest. Fixed charges are the total
interest expenses including capitalized interest, amortization of debt expenses
and a rental factor that is representative of an interest factor (estimated to
be one third) on operating leases.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-35098 and 33-35099 of Flagstar Companies, Inc. on Form S-8 of our report
dated March 25, 1994 appearing in this Annual Report on Form 10-K of Flagstar
Companies, Inc. for the year ended December 31, 1993.
DELOITTE & TOUCHE
Greenville, South Carolina
April 12, 1994
