<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30,
1995, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
____________ to _____________
Commission file number 0-18051
FLAGSTAR COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
203 East Main Street
Spartanburg, South Carolina 29319-9966
(Address of principal executive offices)
(Zip Code)
(803) 597-8000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
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 [ ]
As of November 14, 1995 42,434,408 shares of the registrant's Common Stock, par
value $0.50 per share, were outstanding.
1
<PAGE>
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Flagstar Companies, Inc.
Statements of Consolidated Operations
For the Three Months and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues............................................ $676,899 $700,589 $1,994,826 $2,006,425
Operating Expenses:
Product costs............................................... 229,446 239,479 686,206 691,856
Payroll & benefits.......................................... 229,368 238,075 696,940 706,812
Depreciation & amortization expense......................... 32,802 32,866 99,800 96,346
Utilities expense........................................... 27,361 27,370 73,771 75,811
Other....................................................... 101,634 100,684 294,349 289,296
620,611 638,474 1,851,066 1,860,121
Operating Income.............................................. 56,288 62,115 143,760 146,304
Other Charges:
Interest and debt expense................................... 58,555 59,259 173,982 167,863
Other non-operating expenses - net.......................... 497 715 884 1,393
59,052 59,974 174,866 169,256
Income(Loss) From Continuing Operations
Before Income Taxes......................................... (2,764) 2,141 (31,106) (22,952)
Provision For(Benefit From) Income Taxes...................... 5 (2,109) 400 (1,663)
Income(Loss)From Continuing Operations........................ (2,769) 4,250 (31,506) (21,289)
Gain on Sale of Discontinued Operation,
Net of Income Taxes of $7,056............................... --- --- --- 383,944
Income(Loss) From Discontinued
Operations.................................................. 16,625 17,614 517 (1,473)
Provision For (Benefit From) Income
Taxes On Discontinued Operations............................ 91 (1,655) (140) (884)
Income From Discontinued
Operations, Net............................................. 16,534 19,269 657 383,355
Extraordinary Item, Net of Income Tax
Provision (Benefit) of $25 for the
three months of 1995 and $25 and
($1,111) for the nine months of
1995 and 1994, respectively................................. 466 --- 466 (10,822)
Net Income (Loss)............................................. 14,231 23,519 (30,383) 351,244
Dividends on Preferred Stock.................................. (3,543) (3,543) (10,631) (10,631)
Net Income(Loss) Applicable to Common
Stockholders................................................ $ 10,688 $ 19,976 $ (41,014) $ 340,613
</TABLE>
2
<PAGE>
FORM 10-Q
Flagstar Companies, Inc.
Statements of Consolidated Operations (Continued)
For the Three Months and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Income (Loss) Per Share Applicable to Common
Stockholders:
Primary
Income (Loss) From Continuing
Operations................................................. $ (0.15) $ 0.02 $ (0.99) $ (0.27)
Income From Discontinued
Operations, Net............................................. 0.39 0.45 0.01 7.33
Extraordinary Item, Net...................................... 0.01 --- 0.01 (0.21)
Net Income(Loss)............................................. $ 0.25 $ 0.47 $ (0.97) $ 6.85
Average Outstanding and Equivalent
Common Shares............................................... 42,434 42,369 42,429 52,283
Fully Diluted
Income (Loss) From Continuing
Operations................................................ $ (0.15) $ 0.02 $ (0.99) $ 0.06
Income From Discontinued
Operations, Net........................................... 0.39 0.45 0.01 5.90
Extraordinary Item, Net..................................... 0.01 --- 0.01 (0.17)
Net Income.................................................. $ 0.25 $ 0.47 $ (0.97) $ 5.79
Average Outstanding and Equivalent
Common Shares.............................................. 42,434 42,369 42,429 64,981
</TABLE>
3
<PAGE>
FORM 10-Q
Flagstar Companies, Inc.
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(In thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........................................... $ 86,636 $ 66,720
Receivables, less allowance for doubtful
accounts of:
1995 - $3,843; 1994 - $4,561..................................... 22,700 37,381
Merchandise and supply inventories.................................. 37,693 62,293
Net assets held for sale............................................ 71,029 77,320
Other............................................................... 23,406 14,344
241,464 258,058
Property:
Property owned (at cost):
Land............................................................. 265,420 273,411
Buildings and improvements....................................... 837,800 813,305
Other property and equipment..................................... 484,946 462,421
Total property owned................................................ 1,588,166 1,549,137
Less accumulated depreciation....................................... 547,692 477,176
Property owned - net................................................ 1,040,474 1,071,961
Buildings and improvements, vehicles, and
other equipment held under capital
leases............................................................ 180,860 194,348
Less accumulated amortization....................................... 76,537 69,958
Property held under capital leases - net............................ 104,323 124,390
1,144,797 1,196,351
Other Assets:
Other intangible assets - net....................................... 22,208 25,009
Deferred financing costs............................................ 66,159 71,955
Other............................................................... 32,087 30,762
120,454 127,726
Total Assets $1,506,715 $1,582,135
</TABLE>
4
<PAGE>
FORM 10-Q
Flagstar Companies, Inc.
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(In thousands)
<S> <C> <C>
Liabilities
Current Liabilities:
Current maturities of long-term debt................................ $ 29,549 $ 31,408
Accounts payable.................................................... 62,418 102,464
Accrued salaries and vacations...................................... 51,934 56,159
Accrued insurance................................................... 49,375 45,165
Accrued taxes....................................................... 22,799 21,795
Accrued interest and dividends...................................... 68,468 47,568
Other............................................................... 57,434 81,757
341,977 386,316
Long-Term Liabilities:
Debt, less current maturities....................................... 2,012,193 2,067,648
Deferred income taxes............................................... 20,577 21,679
Liability for self-insured claims................................... 51,185 58,128
Other non-current liabilities and
deferred credits.................................................. 184,297 110,864
2,268,252 2,258,319
Total Liabilities 2,610,229 2,644,635
Stockholders' Deficit (1,103,514) (1,062,500)
Total Liabilities & Stockholders' Deficit $1,506,715 $ 1,582,135
</TABLE>
5
<PAGE>
FORM 10-Q
Flagstar Companies, Inc.
Statements of Consolidated Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income(loss) $ (30,383) $ 351,244
Adjustments to reconcile net income(loss)
to cash flows from operating
activities:
Depreciation and amortization
of property 94,940 91,285
Amortization of other
intangible assets 4,860 5,061
Amortization of deferred
financing costs 4,844 4,935
Deferred income tax benefit (1,102) (1,354)
Extraordinary items, net (466) 10,822
Gain on sale of discontinued operation, net --- (383,944)
Equity in (income) loss from discontinued
operations, net (657) 589
Other (19,198) 9,806
Decrease (increase) in assets (net of accounts relating to sold subsidiary):
Receivables 1,137 444
Inventories (6,382) (3,246)
Other current assets (9,736) (14,395)
Other assets (2,585) (450)
Increase (decrease) in
liabilities (net of accounts relating to
sold subsidiary):
Accounts payable (26,975) (10,354)
Accrued salary and vacations (2,198) 9,692
Accrued taxes 11,162 3,993
Other accrued liabilities 7,973 (28,218)
Other non-current liabilities
and deferred credits (12,430) (5,575)
Total adjustments 43,187 (310,909)
Net cash flows from operating activities 12,804 40,335
Cash Flows From (Used In) Investing Activities:
Purchases of property (78,464) (83,499)
Proceeds from disposition of
property 24,142 10,817
Proceeds from sale of distribution subsidiary 122,500 ---
Proceeds from sale of discontinued operation --- 450,000
Receipts from discontinued operations 6,948 1,139
Other long-term assets, net (1,664) (2,280)
Net cash flows from
investing activities 73,462 376,177
</TABLE>
6
<PAGE>
FORM 10-Q
Flagstar Companies, Inc.
Statements of Consolidated Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
(In thousands)
<S> <C> <C>
Cash Flows From (Used in) Financing Activities:
Net short-term borrowings(repayments)
under credit agreement $ --- $ (93,000)
Deferred financing costs --- (20)
Long-term debt payments (55,719) (193,789)
Cash dividends on preferred stock (10,631) (10,631)
Net cash flows used in financing activities (66,350) (297,440)
Increase in cash and
cash equivalents 19,916 119,072
Cash and Cash Equivalents at:
Beginning of period 66,720 24,174
End of period $ 86,636 $ 143,246
Supplemental Cash Flow Information:
Income taxes paid $ 1,710 $ 4,340
Interest paid $ 151,452 $ 159,781
Non-cash financing activities:
Capital lease obligations $ 4,211 $ 14,856
Dividends declared but not paid $ 3,543 $ 3,543
</TABLE>
7
<PAGE>
FORM 10-Q
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
Note 1. Introduction.
Flagstar Companies, Inc. ("FCI" or, together with its subsidiaries, the
"Company") is the parent holding company of Flagstar Corporation ("Flagstar").
Flagstar, through its wholly-owned subsidiaries, Denny's Holdings, Inc. and
Spartan Holdings, Inc. (and their respective subsidiaries), operates four
restaurant chains.
Note 2. Interim Period Presentation.
The Statements of Consolidated Operations of FCI and its subsidiaries
for the three months and nine months ended September 30, 1995 and 1994,
respectively, include all adjustments management believes are necessary for a
fair presentation of the results of operations for such interim periods. All
such adjustments are of a normal and recurring nature.
Note 3. Divestiture of Canteen Holdings, Inc.
During the second quarter of 1994, the Company sold its food and
vending subsidiary for approximately $450.0 million and adopted a plan to
dispose of the remaining concession and recreation services businesses of its
subsidiary, Canteen Holdings, Inc. The accompanying Consolidated Balance Sheets
and Statements of Consolidated Operations and Cash Flows reflect such businesses
as discontinued operations. During July, 1995, the Company announced that it had
entered into an agreement to sell TW Recreational Services, Inc. ("TWRS") which
operates its recreation services business, for $110.0 million, subject to
certain adjustments. Such transaction is subject to National Park Service
approval and is expected to be completed during the fourth quarter of 1995. The
Company also is continuing in its efforts to sell Volume Services, Inc.
("Volume"), which operates its concession services business. Although the major
league baseball strike ended during April 1995, continuing uncertainty regarding
labor issues in baseball has delayed the sale of Volume beyond the time
originally anticipated.
The Company has allocated to the discontinued segment a
pro-rata portion of its interest expense. Such pro-rata portion was of
$4.5 million for the quarters ended September 30, 1995 and 1994,
respectively, and $13.6 million and $29.2 million for the nine months
ended September 30, 1995 and 1994, respectively.
Note 4. Divestitures
During September 1995, the Company sold its distribution
subsidiary, Proficient Food Company, for approximately $130.0 million
including receipt of cash of approximately $122.5 million. This
transaction resulted in a deferred gain of approximately $70.0 million
which will be recognized as income over the term of certain distribution
agreements entered into with the buyer.
During the third quarter of 1995, the Company entered into discussions
with the management of Quincy's regarding the potential sale of such concept.
Note 5. Earnings (Loss) Per Common Share
The Company uses the modified treasury stock method in its computation
of earnings (loss) per common share.
8
<PAGE>
FORM 10-Q
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results of Operations
The following discussion is intended to highlight significant changes
in financial position as of September 30, 1995 and the results of operations for
the three months and nine months ended September 30, 1995 as compared to the
corresponding 1994 periods.
The interim Consolidated Financial Statements and this Management's
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto for the year ended December 31, 1994 and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations, both
of which are contained in the Flagstar Companies, Inc. 1994 Annual Report on
Form 10-K.
Results of Operations
Three Months Ended September 30, 1995 Compared to Three Months Ended September
30, 1994
Operating revenues from continuing operations for the third
quarter of 1995 decreased by approximately $23.7 million (3.4%) as
compared with the same period in 1994. Denny's revenues (including
revenues for its processing and distribution operations) decreased by
$8.8 million (2.1%). Such decrease resulted from a 42-unit net
decrease in the number of Company-operated restaurants as of
September 30, 1995 as compared to September 30, 1994, largely due to the
sale of Company-owned restaurants to franchisees, and the sale of
Denny's distribution subsidiary during September 1995. Such
decreases were mitigated by a 2.0% increase in comparable store
sales during the 1995 quarter over the 1994 quarter. Denny's
increase in average check of 4.8% was partially offset by a 2.7%
decrease in traffic. During the 1995 quarter, Denny's completed remodels
on 50 Company-owned restaurants. Hardee's revenues decreased by
$16.0 million (8.7%) during the 1995 quarter as compared with the same
period in 1994 due to a 10.6% decrease in comparable sales, reflecting
continued aggressive discounting and promotions by quick-service
competitors. Such decreases more than offset a 9-unit net increase in
the number of restaurants over the prior year quarter. Hardee's
experienced a 12.2% decrease in traffic which was partially offset by a
1.9% increase in average check. During the 1995 quarter, the Company
completed remodels on 3 of its Hardee's units. Quincy's revenues
increased by $3.5 million (4.8%) during the 1995 quarter as compared
with the third quarter of 1994, despite an 8-unit net decrease in the
number of restaurants at September 30, 1995 as compared with
September 30, 1994. Comparable store sales increased 6.4% as a result
of increases in average check of 4.7% and traffic of 1.6%. During the
1995 quarter, the Company completed remodels on 16 of its Quincy's
units. Revenues decreased at El Pollo Loco to $32.4 million during the
third quarter of 1995 from $34.8 million during the third quarter of
1994 as a result of a net decrease of 26 Company-owned restaurants at
September 30, 1995 as compared with September 30, 1994. Such
decrease in the number of units was due primarily to the sale of
Company-owned restaurants to franchisees. El Pollo Loco's comparable
store sales increased by 0.8% during the 1995 quarter as compared to
the 1994 period and reflect an increase in average check of 0.9% which
was partially offset by a decrease in traffic of 0.1%. During the
1995 quarter, El Pollo Loco completed remodels on 6 Company-owned
restaurants.
9
<PAGE>
FORM 10-Q
Operating expenses from continuing operations decreased
by $17.9 million (2.8%) in the third quarter of 1995 as compared with
the same period of 1994. Such decrease reflects a $16.6 million
decrease in operating expenses attributable to Denny's. Denny's
operating expenses were reduced by gains on the sale of restaurants to
franchisees of $10.3 million during the third quarter of 1995.
Additional decreases in operating expenses at Denny's are comprised
primarily of decreases of $5.8 million in product cost and $5.4
million in payroll and benefits expense. These decreases resulted
primarily from the decrease in the number of Company-owned restaurants
and were partially offset by incremental increases in other expense
items, including an increase in advertising
expense of $3.4 million. At Hardee's, operating expenses decreased by
$3.3 million during the third quarter of 1995 over the corresponding
1994 period principally due to a decrease in product cost of $4.7
million as a result of decreased sales during the 1995 quarter.
Quincy's operating expenses increased by $2.5 million during the 1995
quarter over the corresponding period of 1994 primarily due to
increases in product costs of $1.8 million and payroll and benefits
expenses of $1.0 million. Operating expenses at El Pollo Loco
decreased by $3.3 million primarily due to a 26-unit decrease in the
number of Company-owned restaurants at September 30, 1995 as compared
with September 30, 1994 as a result of the sale of restaurants to
franchisees. El Pollo Loco's operating expenses included gains on the
sale of restaurants to franchisees of $1.4 million and $0.4 million
during the third quarters of 1995 and 1994, respectively. Corporate
and other expenses increased by $2.9 million due primarily to
increased expenses of $1.0 million recorded at the corporate level
related to the Denny's consent decree with the U. S. Department of
Justice and charges of $2.3 million related to various management
recruiting, training, and information services initiatives.
Total interest and debt expense from continuing and
discontinued operations decreased by $0.6 million in the third quarter
of 1995 as compared with the corresponding quarter of 1994.
The Company's concession and recreation services businesses,
which are accounted for as discontinued operations, recorded operating
revenues of $130.7 million during the third quarter of 1995, an
increase of $0.6 million over the same period of 1994. Revenues related
to the operation of major league baseball and National Football League
stadium concessions were up $1.7 million during the third quarter
of 1995 over the same period of 1994 due to an increase in the number of
events. Operating income and depreciation and amortization expense
related to the Company's discontinued operations were $20.9 million and
$3.5 million, respectively, for the third quarter of 1995 as
compared with $22.1 million and $3.5 million, respectively, during
the comparable period of 1994.
For the third quarter of 1995, the Company recognized an
extraordinary gain totaling $0.5 million, net of income taxes, which
represents a gain on the repurchase of $24,975,000 principal amount of
certain senior indebtedness, net of the charge-off of the related
unamortized deferred financing costs.
10
<PAGE>
FORM 10-Q
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1994
Operating revenues from continuing operations for the first
nine months of 1995 decreased by approximately $11.6 million (0.6%)
as compared with the same period in 1994. Denny's revenues increased
by $5.9 million (0.5%) during the first nine months of 1995 as compared
with the same 1994 period. Comparable store sales at Denny's increased
by 2.8% during the first nine months of 1995 as compared with the same
period of 1994, reflecting increases in average check of 2.0% and
traffic of 0.8%, while the number of Company-owned units declined.
During the first nine months of 1995, Denny's completed remodels
of 136 Company-owned restaurants. Hardee's revenues decreased by 4.8% to
$500.5 million from $526.0 million during the corresponding period of
1994 despite a 9-unit net increase in the number of restaurants operated
at September 30, 1995 as compared to September 30, 1994. Hardee's
comparable store sales decreased by 8.1% during the first nine months of
1995 as compared with the 1994 period reflecting a decrease in
traffic of 9.3% which was mitigated by an increase in average check of
1.3%. Hardee's traffic continues to be significantly affected by
aggressive discounting and promotions by quick-service competitors.
During the first nine months of 1995, the Company had remodeled 60
of its Hardee's restaurants. Despite an 8-unit decrease in the number
of restaurants at September 30, 1995 as compared to September 30,
1994, Quincy's revenues increased by $12.2 million (5.8%) during the
first nine months of 1995 as compared with the first nine months of
1994, primarily due to a 7.1% increase in comparable store sales. The
increase in comparable store sales resulted from increases of 5.8% in
traffic and 1.2% in average check. During the first nine months of 1995,
the Company completed remodels on 35 of its Quincy's units. Revenues
at El Pollo Loco decreased by $4.2 million (4.2%) to $96.6 million
during the first nine months of 1995 from $100.8 million during the
corresponding 1994 period. Such decrease is attributable primarily
to a 26-unit net decrease in the number of Company-operated
restaurants following the sale of units to franchisees. Comparable
store sales at Company-operated El Pollo Loco units increased by 2.1%
reflecting an increase in average check of 2.3% which was partially
offset by a 0.2% decrease in traffic. During the first nine months of
1995, El Pollo Loco completed remodels on 45 of its Company-owned
units.
The Company's operating expenses from continuing operations
decreased by $9.1 million (0.5%) in the first nine months of 1995 as
compared with the same period of 1994. Operating expenses at Denny's
decreased $22.3 million principally due to decreases in payroll and
benefits of $14.2 million and occupancy expense of $2.1 million.
Denny's operating expenses were also reduced by gains on the sale of
restaurants to franchisees of $18.9 million during the first nine months
of 1995 as compared with $3.9 million during the 1994 period.
Such decreases were offset, in part, by increases in advertising expense
of $4.8 million and overhead expense of $4.8 million. At Hardee's, an
increase in operating expenses of $2.6 million is mainly attributable
to increased expenses for payroll and benefits of $3.2 million, overhead
expense of $3.9 million in 1995 related to the restructuring of field
management during 1994, other expenses of $2.7 million, and an
increase of $1.3 million in workers' compensation charges. Such
increases were offset, in part, by a $9.2 million decrease in product
costs associated with decreased revenues in the 1995 period. An
increase in operating expenses of $12.2 million at Quincy's is
principally attributable to increases in payroll and benefits
expense of $4.6 million, product costs of $4.4 million associated
with an increase in revenues during the first nine months of 1995,
advertising expense of $1.7 million, and repairs and maintenance
expense of $0.6 million. Operating expense at El Pollo Loco decreased
by $7.5 million during the first nine months of 1995 due primarily to a
26-unit decrease in the number of Company-operated restaurants at
September 30, 1995 as compared with September 30, 1994 following the
sale of
11
<PAGE>
FORM 10-Q
restaurants to franchisees. El Pollo Loco's operating expenses during
the first nine months of 1995 included gains on the sale of restaurants
of $3.1 million as compared with $0.5 million during the corresponding
period of 1994. Corporate and other expenses increased by $5.9
million during the first nine months of 1995 as compared with 1994 due
primarily to increased expenses of $3.2 million recorded at the
corporate level related to the Denny's consent decree with the U. S.
Department of Justice and charges of $3.1 million related to various
management recruiting, training, and information services initiatives.
Total interest and debt expense from continuing and
discontinued operations decreased by $13.4 million in the first
nine months of 1995 as compared to the same period of 1994 principally
as a result of a reduction in interest expense following the payment
during June 1994 of the principal amount ($170.2 million) outstanding
under the term facility of the Company's Restated Credit Agreement and
certain other indebtedness following the sale of the Company's food
and vending subsidiary, and an increase in interest income,
partially offset by an increase in expense related to interest rate
exchange agreements.
The Company's concession and recreation services businesses,
which are accounted for as discontinued operations, recorded operating
revenues of $248.0 million during the first nine months of 1995, a
decrease of $13.1 million from the $260.2 million recorded during
the same period of 1994. Revenues related to the operation of major
league baseball stadium concessions were down $12.9 million during the
first nine months of 1995 as compared to the corresponding period of
1994 due to the average attendance at such games during 1995
being down approximately 31% from 1994. Operating income and
depreciation and amortization expense were $14.9 million and $10.8
million, respectively, for the first nine months of 1995 as compared
with $22.5 million and $10.6 million, respectively, during the
comparable period of 1994.
For the nine months ended September 30, 1995, the Company
recognized an extraordinary gain totaling $0.5 million, net of income
taxes, which represents a gain on the repurchase of $24,975,000
principal amount of certain senior indebtedness, net of the charge off
of the related unamortized deferred financing costs. For the first
nine months ended September 30, 1994, the Company recognized an
extraordinary loss totaling $10.8 million, net of income tax
benefits of $1.1 million. The extraordinary loss represents the
charge-off of unamortized deferred financing costs associated with the
prepayment in June 1994 of senior bank debt.
Liquidity And Capital Resources
At September 30, 1995 and December 31, 1994, the Company had
working capital deficits of $100.5 million and $128.3 million,
respectively. The decrease in the deficit between December 31, 1994
and September 30, 1995 is attributable primarily to an increase in
cash and cash equivalents following the sale of the Company's food
distribution subsidiary, Proficient Food Company ("PFC"), during
September 1995. The sale price of $130.0 million included receipt
of $122.5 million in cash by the Company. 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 investment 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.
12
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FORM 10-Q
The Company is currently evaluating its options regarding the
proceeds from the pending sale of its recreation services subsidiary,
TW Recreational Services, Inc. Such options include the repayment of
long-term debt and financing the Company's restaurant remodeling and
capital expenditures. The Company is also in discussion with the
management of Quincy's regarding the potential sale of such concept.
13
<PAGE>
FORM 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. The following are included as exhibits to this filing: (1)
Exhibit 10, Ninth Amendment, waiver and consent, dated as of
August 24, 1995, to the 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 (2) Exhibit 11,
Computation of Earnings (Loss) per Share and (3) Exhibit 27,
Financial Data Schedule.
b. Not applicable.
14
<PAGE>
FORM 10-Q
SIGNATURES
Pursuant to the requirements 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.
Date: November 14, 1995 By: /s/ Rhonda J. Parish
Rhonda J. Parish
Vice President and
General Counsel
Date: November 14, 1995 By: /s/ C. Robert Campbell
C. Robert Campbell
Vice President and
Chief Financial Officer
15
<PAGE>
NINTH AMENDMENT, WAIVER AND CONSENT
NINTH AMENDMENT, WAIVER AND CONSENT dated as of August 24,
1995 (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 an Amended and Restated
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. In accordance with Section 5.02(e)(viii) of the Credit
Agreement, Canteen Holdings, Inc. proposes to sell its direct and indirect
Subsidiaries listed on Schedule A hereto (the "IM Parks Subsidiaries") pursuant
to a Stock Purchase Agreement dated July 14, 1995, the principal terms of which
are described on the attached Schedule B (the "IM Parks Transaction").
3. Denny's Holdings, Inc. proposes to sell its direct and
indirect Subsidiaries listed on Schedule C hereto (the "Proficient Food
Subsidiaries") pursuant to a Stock Purchase Agreement dated July 7, 1995, the
principal terms of which are described on the attached Schedule D (the
"Proficient Food Transaction" and collectively with the IM Parks Transaction,
the "Transactions"). In anticipation of the Proficient Food Transaction, the
Borrowers have requested the amendment of Section 5.02(e) of the Credit
Agreement.
4. The Borrowers have requested that the Lenders agree (a) to
clarify the application of proceeds of the Transactions to the Obligations under
the Loan Documents and (b) waive, at the election of the Lenders, the required
reduction of the Working Capital Facility.
5. The Borrowers have requested that the Lenders agree (a) to
permit the Borrowers, following the reduction of the Working Capital Facility
pursuant to Section 2.04(b) of the Credit Agreement to the extent such reduction
has not been waived hereunder by the Lenders, to apply the proceeds of the
Proficient Food Transaction and the IM Parks Transaction to either prepay Funded
Debt or to make additional Cash Capital Expenditures and (b) to adjust the
financial covenants to allow the Borrowers to apply the proceeds of the
Proficient Food Transaction and the IM Parks Transaction to make additional
Capital Expenditures.
<PAGE>
2
6. The Lenders have expressed their willingness to grant the
Borrowers' request as set forth above 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. Consent to IM Parks Transaction . (a) The Lenders
hereby agree that the condition set forth in Section 5.02(e)(viii)(i) of the
Credit Agreement shall be satisfied if Flagstar shall have returned to the
Issuing Banks for cancellation all Letters of Credit set forth on Schedule E
hereto other than the Letter of Credit marked with an asterisk on Schedule E
(the "NY Letter of Credit"), provided that within 60 days after the consummation
of the IM Parks Transaction, the Borrowers shall have returned to the applicable
Issuing Bank for cancellation the NY Letter of Credit or shall have deposited
cash collateral with such Issuing Bank in an amount equal to the Available
Amount of the NY Letter of Credit.
(b) The Lenders hereby agree that the conditions set forth in Section
5.02(e)(viii)(ii) of the Credit Agreement shall be satisfied if the IM Parks
Transaction is consummated upon substantially the terms described in the
attached Schedule B.
(c) The Lenders hereby agree that the condition set forth in Section
5.02(e)(viii)(iii) of the Credit Agreement shall be satisfied if, as a result of
the closing of the IM Parks Transaction, the Working Capital Facility is reduced
by an amount equal to the Net Proceeds (as defined below) from such Transaction
less the IM Parks Extension Amount (as defined below).
SECTION 2. Consent to Proficient Food Transaction . (a) The
Lenders hereby agree that the condition set forth in Section 5.02(e)(ix)(i) of
the Credit Agreement (as amended hereby) shall be satisfied if Flagstar shall
have returned to the Issuing Banks for cancellation all Letters of Credit set
forth on Schedule F hereto.
(b) The Lenders hereby agree that the conditions set forth in Section
5.02(e)(ix)(ii) of the Credit Agreement (as amended hereby) shall be satisfied
if the Proficient Food Transaction is consummated upon substantially the terms
described in the attached Schedule D.
(c) The Lenders hereby agree that the condition set forth in Section
5.02(e)(ix)(iii) of the Credit Agreement (as amended hereby) shall be satisfied
if, as a result of the closing of the Proficient Food Transaction, the Working
Capital Facility is reduced by an amount equal to the Net Proceeds (as defined
below) from such Transaction less the PFC Extension Amount (as defined below).
<PAGE>
3
SECTION 3. Amendments to the 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 5 hereof, hereby amended as
follows:
(a) The definition of "Adjusted Cash Capital Expenditures" in
Section 1.01 is amended in full as follows:
"Adjusted Cash Capital Expenditures" means, for any period,
Cash Capital Expenditures less, for each of the Rolling Periods ending
on the last day of the fiscal quarters set forth below, an amount equal
to the sum of (i) the amount set forth opposite such fiscal quarter:
Fiscal Quarter Ended ................................. Amount
September 30, 1995 ................................... $125,000,000
December 31, 1995 .................................... 110,000,000
March 31, 1996 ....................................... 65,000,000
plus (ii) for each of the Rolling Periods ending September 30, 1995
through March 31, 1996, an amount equal to the Available Cash Proceeds
from any Permitted Sale Transactions consummated prior to the end of
the applicable Rolling Period less the aggregate amount used by the
Borrowers to prepay, redeem, purchase, defease or otherwise satisfy
Funded Debt in reliance on Section 5.02(n)(i)(G) prior to the end of
the applicable Rolling Period less the aggregate amount of prepayments
of Advances required to be made pursuant to Section 2.05(b)(ii) prior
to the end of the applicable Rolling Period less the aggregate amount
of cash paid to the Managing Agent for deposit in the Funding Cash
Collateral Account pursuant to Section 2.05(b)(vi) prior to the end of
the applicable Rolling Period.
(b) The following new defined terms are added to Section 1.01 to
be inserted therein in alphabetical order:
"Available Cash Proceeds" means (i) with respect to the
disposition of IM Parks, Inc. and its Subsidiaries permitted by Section
5.02(e)(viii), $93,000,000 and (ii) with respect to disposition of the
Proficient Food Companies permitted by Section 5.02(e)(ix),
$118,000,000.
"Permitted Sale Transactions" means (i) the disposition of IM
Parks, Inc. and its Subsidiaries permitted by Section 5.02(e)(viii) and
(ii) the disposition of the Proficient Food Companies permitted by
Section 5.02(e)(ix).
"Proficient Food Companies" means Proficient Food Company,
TWS 200 Corp. and DFC Trucking Co.
<PAGE>
4
(c) Section 5.02(e) is amended by deleting from the end of clause (vii)
thereof the word "and", adding to the end of clause (viii) thereof the word
"and" and adding a new clause (ix) thereto to read as follows:
"(ix) disposition of the Proficient Food Companies on or before
December 31, 1995, provided that (i) on or prior to the date of
disposition of the Proficient Food Companies, Funding shall have
returned to the Issuing Banks for cancellation, or shall have made
other arrangements satisfactory to the requisite Lenders in respect of,
the Letters of Credit issued in support of obligations of any of the
Proficient Food Companies, (ii) any such disposition shall be for an
amount not less than fair market value and on other terms and
conditions reasonable and customary in similar transactions, in each
case as determined in the reasonable judgment of the Required Lenders
and (iii) the Net Cash Proceeds of such dispositions are used to prepay
Advances in accordance with Section 2.05;"
(d) Section 5.02(e) is further amended by deleting from the proviso
clause at the end thereof the phrase "clauses (iv), (v) and (viii)" and
substituting therefor the phrase "clauses (iv), (v), (viii) and (ix)".
(e) Section 5.02(n) is amended by deleting the word "and" at the end of
clause (i)(E) thereof and substituting a comma therefor, adding the word "and"
at the end of clause (i)(F) thereof and adding a new clause (i)(G) to read as
follows:
"(G) prepayments, redemptions, purchases, defeasances or other
satisfactions of Funded Debt, in an aggregate principal amount not to
exceed the Available Cash Proceeds from any Permitted Sale Transactions
consummated prior to such satisfaction of Funded Debt, provided that,
both before and after giving effect to any transaction permitted by
this clause (G), no Default shall have occurred and be continuing."
(f) Section 5.04(d) is amended by adding to the end thereof the
following:
"provided, further, that the amount set opposite the Fiscal Year Ending
In December 1995 shall be (i) increased by an amount equal to the
Available Cash Proceeds from any Permitted Sale Transaction consummated
prior to the end of such Fiscal Year and (ii) reduced by the sum of (A)
an amount equal to the amount used to prepay, redeem, purchase, defease
or otherwise satisfy Funded Debt in reliance on Sections 5.02(n)(i)(G)
prior to the end of such Fiscal Year, (B) the aggregate amount of
prepayments of Advances required to be made pursuant to Section
2.05(b)(ii) prior to the end of such Fiscal Year and (C) the aggregate
amount of cash paid to the Managing Agent for deposit in the Funding
Cash Collateral Account pursuant to Section 2.05(b)(vi) prior to the
end of such Fiscal Year."
SECTION 4. Extension of Working Capital Commitments.
(a) Definitions. As used in this Section 4, the following terms are defined
as follows:
<PAGE>
5
"Extension Amount" means, with respect to a Permitted Sale
Transaction, either the IM Parks Extension Amount or the PFC Extension
Amount, as the context may require.
"IM Parks Elected Commitment Reduction Waiver" of a Lender
means an amount equal to (i) the amount of such Lender's Required
Commitment Reduction in respect of the IM Parks Transaction multiplied
by (ii) such Lender's Waiver Percentage.
"IM Parks Extension Amount" means the aggregate amount of the
IM Parks Elected Commitment Reduction Waivers.
"Net Proceeds" means with respect to (i) the Proficient Food
Transaction, $90,000,000 and (ii) the IM Parks Transaction,
$79,000,000.
"PFC Elected Commitment Reduction Waiver" of a Lender means an
amount equal to (i) the amount of such Lender's Required Commitment
Reduction in respect of the Proficient Food Transaction multiplied by
(ii) such Lender's Waiver Percentage.
"PFC Extension Amount" means the aggregate amount of the PFC
Elected Commitment Reduction Waivers.
"Required Commitment Reduction" of a Lender means with respect
to a Permitted Sale Transaction the amount of the Net Proceeds from
such Permitted Sale Transaction that would be applied to reduce such
Lender's Commitment, determined by pro rating such Net Proceeds by
reference to such Lender's Working Capital Commitment as a percentage
of the Working Capital Facility on the date hereof.
"Waiver Percentage" of a Lender means the percentage of such
Lender's aggregate Required Commitment Reductions in respect of the
Permitted Sale Transactions that such Lender elects to waive as
indicated on such Lender's signature page hereof.
(b) Determination of IM Parks and PFC Elected Commitment
Reduction Waivers. (i) On or before August 24, 1995, each Lender that
elects a Waiver Percentage shall deliver to the Managing Agent a copy
of its signature page to this Amendment, duly executed by such Lender
and specifying in the space provided on such page opposite the name of
such Lender the Waiver Percentage.
(ii) Promptly upon receipt of the signature pages as
contemplated by clause (i) above, the Managing Agent shall notify the
Borrowers of the PFC Extension Amount and the IM Parks Extension
Amount, and shall promptly notify each Lender that has a Waiver
Percentage of the amounts of its IM Parks Elected Commitment Reduction
Waiver and its PFC Elected Commitment Reduction Waiver. Promptly after
the consummation of each Permitted Sale Transaction, the Managing Agent
shall
<PAGE>
6
notify each such Lender of its Working Capital Commitment after giving
effect to this Amendment, and shall notify the Lenders and the
Borrowers of the amount of the Working Capital Facility after giving
effect to this Amendment.
(c) Extension of Working Capital Commitments. (i) Subject to
the satisfaction of the conditions precedent set forth in Section 5(b) hereof,
each Lender that has a Waiver Percentage hereby waives Section 2.04(b) of the
Credit Agreement to the extent of the amount of such Lender's PFC Elected
Commitment Reduction Waiver, whereupon (A) that portion of the Working Capital
Facility equal to the PFC Extension Amount that would otherwise be reduced by
application of the Net Cash Proceeds of the Proficient Food Transaction shall
instead remain outstanding and (B) the amount of the Working Capital Facility
shall be reduced by the amount of the difference, if any, between the Net
Proceeds from the Proficient Food Transaction and the PFC Extension Amount.
(ii) Subject to the satisfaction of the conditions precedent
set forth in Section 5(c) hereof, each Lender that has a Waiver Percentage
hereby waives Section 2.04(b) of the Credit Agreement to the extent of the
amount of such Lender's IM Parks Elected Commitment Reduction Waiver, whereupon
(A) that portion of the Working Capital Facility equal to the IM Parks Extension
Amount that would otherwise be reduced by application of the Net Cash Proceeds
of the IM Parks Transaction shall instead remain outstanding, and (B) the amount
of the Working Capital Facility shall be reduced by the amount of the
difference, if any, between the Net Proceeds from the IM Parks Transaction and
the IM Parks Extension Amount.
SECTION 5. Conditions of Effectiveness. (a) This Amendment
shall become effective when, and only when (i) 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, (ii) the Managing
Agent shall have received the Consent attached hereto, signed by each Subsidiary
of Flagstar and (iii) the Managing Agent shall have received a certificate,
dated the date of receipt thereof by the Managing Agent, in form and substance
satisfactory to the Managing Agent, signed by a duly authorized officer of each
Loan Party, stating that:
(A) The representations and warranties contained in each Loan
Document and in Section 6 hereof are correct on and as of the date of
such certificate as though made on and as of such date, and
(B) No event has occurred and is continuing that constitutes a
Default.
(b) Section 4(c)(i) shall become effective on and as of the
date on or prior to December 31, 1995 when, in addition to the conditions set
forth in clause (a) above, (i) the Proficient Food Transaction shall have been
consummated and (ii) 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 who elected a Waiver Percentage, an extension fee equal to 0.125% of such
Lender's PFC Elected Commitment Reduction Waiver.
<PAGE>
7
(c) Section 4(c)(ii) shall become effective on and as of the
date on or prior to December 31, 1995 when, in addition to the conditions set
forth in clause (a) above, (i) the IM Parks Transaction shall have been
consummated and (ii) 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 who elected a Waiver Percentage, an extension fee equal to 0.125% of such
Lender's IM Parks Elected Commitment Reduction Waiver.
SECTION 6. 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 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
<PAGE>
8
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 7. 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 8. Governing Law. This Amendment shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 9. 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, Waiver and Consent.
<PAGE>
9
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.
Borrowers
FLAGSTAR CORPORATION
By
Title: Vice President and Treasurer
TWS FUNDING, INC.
By
Title: Treasurer
Lenders
Waiver Percentage: _____% of the [Print or type name of institution]
Aggregate Required Commitment
Reductions
By
Title:
<PAGE>
CONSENT
Dated as of August 24, 1995
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 Ninth Amendment, Waiver and Consent (the "Amendment") hereby consents
to said Amendment and hereby confirms and agrees that (i) each of the Guaranty
and the Security Agreement is, and shall continue to be, except as otherwise
specifically provided in said Amendment, 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 Amendment, each reference in each of the
Guaranty and the Security Agreement to the Credit Agreement, "thereunder",
"thereof" or words of like import shall mean and be a reference to the Credit
Agreement as amended by said Ninth 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
President or Vice President of each of
the corporations listed above
CANTEEN SUBSIDIARY GROUP
CANTEEN MANAGEMENT SERVICES, INC.
IM PARKS, INC.
IM STADIUM, INC.
TW RECREATIONAL SERVICES, INC.
VOLUME SERVICES, INC. (A KANSAS CORPORATION)
VOLUME SERVICES, INC. (A DELAWARE CORPORATION)
By
Vice President or Treasurer of each
of the corporations listed above
<PAGE>
2
DENNY'S SUBSIDIARY GROUP
CB DEVELOPMENT #6, INC.
C-B-R DEVELOPMENT CO., INC.
DANNY'S DO NUTS #10, INC.
DENNY'S, INC.
DENNY'S MANAGEMENT, INC.
DFC TRUCKING CO.
EAVES PACKING COMPANY, INC.
EL POLLO LOCO, INC.
By
President or Vice President of each of
the corporations listed above
DENNY'S RESTAURANTS OF IDAHO, INC.
By
Title: Assistant Treasurer
HAROLD BUTLER ENTERPRISES #362, INC.
HAROLD BUTLER ENTERPRISES #607, INC.
LA MIRADA ENTERPRISES NO. 1, 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
President or Vice President of each of
the corporations listed above
<PAGE>
3
TWS 200 CORP.
TWS 300 CORP.
TWS 500 CORP.
TWS 600 CORP.
TWS 700 CORP.
TWS 800 CORP.
WDH SERVICES, INC.
By
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
Title: Vice President
SPARTAN SUBSIDIARY GROUP
QUINCY'S RESTAURANTS, INC.
FLAGSTAR ENTERPRISES, INC.
FLAGSTAR SYSTEMS, INC.
SPARTAN REALTY, INC.
By
Treasurer of each of the
corporations listed above
SPARTAN MANAGEMENT, INC.
By
Title: Treasurer
ADDITIONAL GUARANTOR:
AMS HOLDINGS, INC.
By
Title: President or Vice President
<PAGE>
4
<PAGE>
SCHEDULE A
SUBJECT IM PARKS SUBSIDIARIES
Class Stock Number
of Certif. of
Subsidiary Stockholder Stock No.(s) Shares
IM Parks, Inc. Canteen Holdings, Inc. Common 1 100
TW Recreational IM Parks, Inc. Common 8 700
Services., Inc.
<PAGE>
SCHEDULE B
TW RECREATIONAL SERVICES, INC.
TERM SHEET
The following is a brief summary of the terms of the Stock
Purchase Agreement dated July 14, 1995 among Canteen Holdings, Inc.
("Seller"), Flagstar Corporation ("Flagstar"), Flagstar Companies, Inc.
("Flagstar Parent"), Amfac Parks, Inc. ("Buyer") and Northbrook
Corporation ("Northbrook").
(Bullet) Stock Sale. Seller to sell to Buyer all of the issued and
outstanding shares of IM Parks, Inc. ("IMP"). TW Recreational
Services, Inc. ("TWRS") is a wholly owned subsidiary of IMP.
TWRS and IMP are referred to as the TWRS Group.
(Bullet) Purchase Price. The purchase price is $110,000,000 subject to
adjustment relating to the Net Asset Value as described below.
Buyer shall pay Seller $110,000,000 in immediately available
funds on the closing date.
(Bullet) Net Asset Value Adjustment. The purchase price shall be
increased by the amount, if any, by which the Net Asset Value
as of the closing date exceeds $33,000,000 or reduced by the
amount, if any, by which $33,000,000 exceeds the Net Asset
Value as of the closing date. Net Asset Value means the amount
by which the aggregate book value of the assets of the TWRS
Group exceeds the aggregate book value of liabilities of the
TWRS Group, determined on a consolidated basis in accordance
with GAAP consistently applied, subject to certain specified
adjustments. Deloitte & Touche shall resolve any dispute
regarding the Net Asset Value as of the closing date. The
purchase price adjustment shall be paid within 5 business days
of its determination.
(Bullet) Section 338 Elections. Flagstar Parent and Buyer have agreed
to make timely Section 338(h)(10) elections. The federal and
state income tax liabilities resulting from the Section
338(h)(10) elections shall be the responsibility of
Flagstar Parent or its subsidiaries, as applicable, and
not the responsibility of Buyer or the TWRS Group.
(Bullet) Financing Contingency. In addition to standard conditions to
the Buyer's closing obligations, Buyer's obligations shall be
subject to Bank of America not having refused to fund loans
contemplated by a commitment as a result of any failure of any
condition precedent which was beyond reasonable control of
Buyer at Northbrook to prevent and as long as Buyer has used
its reasonable best efforts to secure appropriate financing
from Bank of America. In addition, Seller may terminate the
agreement at any time after September 15, 1995 if Buyer has not
entered into a definitive agreement with Bank of America by
such date to provide appropriate funding for the transaction.
<PAGE>
(Bullet) Representations, Warranties and Covenants. The Agreement
contains representations, warranties and covenants which are
customary in transactions of this nature, including
representations regarding title to properties, financial
statements and compliance with laws and covenants regarding
operation of the business prior to closing, non-competition
and certain transitional support and services to be provided by
Flagstar.
(Bullet) Indemnification by Flagstar. Flagstar indemnifies the TWRS
Group and Buyer against liabilities relating to (i) breach of
any representations relating to the capitalization of IMP and
TWRS; (ii) breach of any covenant relating to the Section
338(h)(10) elections and any federal and state income tax
liability (for states which compute tax on a unitary basis) for
all periods up to and including the closing date; (iii) certain
environmental matters; (iv) certain undisclosed claims relating
to the conduct of the business prior to the closing; (v)
certain obligations to pay costs and fees in connection with
that certain Noncompetition Agreement dated April 26, 1994
among Flagstar, Compass Group PLC, Canteen Corporation and
certain others; (vi) breach of certain other specified
representations and warranties, some of which are only to the
knowledge of TWRS management; (vii) certain liabilities
relating to certain former operations and properties of the
TWRS Group, including but not limited to Spaceport USA; and
(viii) certain liabilities relating to the termination of
certain employment agreements. Flagstar's indemnification
obligations under subparagraphs (i), (ii) and (v) shall
terminate upon the expiration of all applicable limitation
periods. Flagstar's indemnification obligations with respect to
the TWRS Group operations and properties at Spaceport USA shall
terminate as of the third anniversary of the closing date.
Flagstar's indemnification obligations under subparagraphs
(iii), (iv), (vi), (vii) (other than with respect to the TWRS
Group operations and properties at Spaceport USA) and (viii)
above shall terminate upon the first anniversary of the closing
date. The first $3,000,000 of any indemnifiable environmental
liabilities shall be borne equally by Buyer and Flagstar.
Flagstar obligations under subparagraph (iv) only relate to
uninsured obligations in excess of $2,000,000 in the aggregate.
Other than with respect to the TWRS Group operations and
properties at Spaceport USA, Flagstar shall have no obligation
under subparagraphs (vi) and (vii) until the amount of
otherwise indemnifiable obligations thereunder exceeds
$1,000,000. In addition, Flagstar's obligations under
subparagraphs (iii), (iv), (vi) and (vii) are subject to a
$50,000 threshold amount with respect to each obligation.
(Bullet) Continuing Letter of Credit. Scotia has issued a letter of
credit in the amount of $17,277,103 with respect to certain
insurance obligations of Flagstar and its direct and indirect
subsidiaries, of which $1,911,104 is attributable to
obligations of the TWRS Group. Flagstar has agreed to provide
at closing a letter of credit in the amount of $600,000 through
December 31, 1996. In addition, Flagstar will provide at
closing a letter of credit for the portion of the insurance
obligations attributable to the Spaceport USA operations
(approximately $1,000,000) and Buyer shall provide at closing
substitute collateral for the remaining balance.
<PAGE>
SCHEDULE C
SUBJECT PROFICIENT FOOD SUBSIDIARIES
Class Stock Number
of Certif. of
Subsidiary Stockholder Stock No.(s) Shares
TWS 200 Corp. Denny's Holdings, Inc. Common 3 100
Proficient Food TWS 200 Corp. Common 2 50
Company
DFC Trucking Co. Proficient Food Company Common 1 50,000
<PAGE>
SCHEDULE D
PROFICIENT FOOD COMPANY
TERM SHEET
The following is a brief summary of the terms of the Stock
Purchase Agreement dated July 7, 1995 (the "Purchase Agreement") among
Denny's Holdings, Inc. ("Seller"), Flagstar Corporation ("Flagstar"),
Flagstar Companies, Inc. ("Flagstar Parent"), Proficient Acquisition
Corp. ("Buyer") and Meadowbrook Meat Company, Inc. ("MBM").
(Bullet) Stock Sale. Seller to sell to Buyer all of the issued and
outstanding shares of TWS 200 Corp. ("TWS"). Proficient Food
Company ("PFC") is a wholly owned subsidiary of TWS. DFC
Trucking Co. is a wholly owned subsidiary of PFC and together
with PFC and TWS are referred to as the PFC Group.
(Bullet) Purchase Price. The purchase price is $122,500,000 subject to
adjustment relating to the Net Asset Value. Buyer shall pay
Seller $122,500,000 in immediately available funds on the
closing date.
(Bullet) Net Asset Value Adjustment The purchase price shall be
increased by the amount, if any, by which the Net Asset Value
as of the closing date exceeds $44,750,000 or reduced by the
amount, if any, by which $44,750,000 exceeds the Net Asset
Value as of the closing date. Net Asset Value means the amount
by which the aggregate book value of the assets of the PFC
Group exceeds the aggregate book value of liabilities of the
PFC Group, determined on a consolidated basis in accordance
with GAAP consistently applied, subject to certain specified
adjustments. Buyer has exercised its option under the Purchase
Agreement to require Flagstar affiliates other than the PFC
Group to retain or assume certain self insured workers
compensation liabilities relating to the PFC Group.
Accordingly, such liabilities shall be excluded from the
calculation of the Net Asset Value as of the closing date.
Coopers and Lybrand shall resolve any dispute regarding the Net
Asset Value as of the closing date. The purchase price
adjustment shall be paid within 5 business days of its
determination.
(Bullet) Section 338 Elections. Flagstar Parent and Buyer have agreed
to make timely Section 338(h)(10) elections and corresponding
elections under state, local and foreign tax law where
applicable. The federal and state income tax liabilities
resulting from these elections shall be the responsibility
of Flagstar Parent or its subsidiaries, as applicable,
and not the responsibility of Buyer or the PFC Group.
<PAGE>
(Bullet) Representations, Warranties and Covenants. The Agreement
contains representations, warranties and covenants which
are customary in transactions of this nature, including
representations regarding title to properties, financial
statements and compliance with laws and covenants regarding
operation of the business prior to closing,
non-competition and certain transitional support and
services to be provided by Flagstar.
(Bullet) Indemnification by Flagstar. Flagstar indemnifies the PFC
Group and Buyer against liabilities relating to (i) breach of
certain representations relating to the capitalization of the
members of the PFC Group, enforceability of the Purchase
Agreement or certain obligations to related parties; (ii)
breach of any covenant in the Purchase Agreement relating to
the Section 338(h)(10) and corresponding elections and any
federal and state income tax liability (for states which
compute tax on a unitary basis) for all periods up to and
including the closing date; (iii) the termination or attempted
termination by PFC of that certain Distribution Agreement dated
April 26, 1994 between PFC and Canteen Corporation; (iv)
obligations of businesses of Flagstar not sold to Buyer; (v)
certain environmental matters; and (vi) certain undisclosed
claims relating to the conduct of business prior to the
closing. Flagstar's indemnification obligations under
subparagraph (i) shall not expire. Flagstar's indemnification
obligations under subparagraphs (ii), (iii) and (iv) terminate
ten (10) days after the expiration of all applicable limitation
periods. Flagstar's indemnifications and obligations under
subparagraph (v) and (vi) terminate upon the first anniversary
of the closing date. The closing date balance sheet shall
reflect a reserve for environmental matters. Flagstar shall
have no obligation under subparagraph (v) above until the
amount of otherwise indemnifiable environmental obligations
exceed the amount of the reserve. In addition, Flagstar's
obligations relating to environmental and undisclosed claims
are subject to a $100,000 threshold amount with respect to each
obligation and a $8,000,000 basket such that Flagstar's
indemnification obligations with respect to such claims only
apply to the extent aggregate claims exceed the $8,000,000
basket.
(Bullet) Distribution Agreements. Denny's, Hardee's, Quincy's and El
Pollo Loco will each enter into eight (8) year distribution
agreements with either PFC or MBM, subject to renewal at the
end of such term, on business terms and provisions
negotiated by each of the concepts. Pursuant to such
distribution agreements, PFC (which currently is the supplier
for Denny's and El Pollo Loco) or MBM (which currently is the
supplier for Hardee's and Quincy's), as the case may be, will
continue to provide food and beverage distribution and
related services to Flagstar's restaurant concepts.
<PAGE>
8
SCHEDULE E TO NINTH AMENDMENT, WAIVER AND CONSENT
Estimated letters of credit to be returned upon the sale of TW Recreational
Services, Inc. ("TWRS")
<TABLE>
<CAPTION>
Issued by: Issued to: Description Amount
<S> <C> <C> <C>
ScotiaBank CNA Surety bonds $2,300,000
ScotiaBank CNA Workers compensation, general 720,000(1)
liability and auto liability
insurance
Citibank NY St. Dept. of Parks Obligations related to
contract at Gideon 300,000
Putnam Hotel
ESTIMATED TOTAL $3,320,000
</TABLE>
(1) Estimated TWRS allocation of gross letter of credit of $34,640,000 which
secures certain insurance obligations of Flagstar and its subsidiaries.
<PAGE>
SCHEDULE F TO NINTH AMENDMENT, WAIVER AND CONSENT
Estimated letters of credit to be returned upon the sale of TWS 200 Corp. and
Subsidiaries
<TABLE>
<CAPTION>
Issued by: Issued to: Description Amount
<S> <C> <C> <C>
CitiBank Chubb Surety bonds $294,750(1)
ScotiaBank CNA Surety bonds 37,200(2)
ScotiaBank CNA General liability and auto 455,000(3)
liability insurance
ESTIMATED TOTAL $786,950
</TABLE>
(1) Estimated TWS 200 Corp. allocation of gross letter of credit of $7,675,000
which secures certain bond obligations of Flagstar and its subsidiaries
(other than bonds related to TW Recreational Services, Inc.
(2) Estimated TWS 200 Corp. allocation of gross letter of credit of $5,000,000
which secures certain bond obligations of Flagstar and its subsidiaries
(other than bonds related to TW Recreational Services, Inc.
(3) Estimated TWS 200 Corp. allocation of gross letter of credit of $34,640,000
which secures certain insurance obligations of Flagstar and its
subsidiaries.
<PAGE>
FLAGSTAR COMPANIES, INC. Exhibit 11
Computation of Earnings (Loss) per Share
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1995(B) 1994(C)
Primary and Primary and
Fully Diluted Fully Diluted
<S> <C> <C>
Adjustment of common and equivalent shares:
Average number of common shares
outstanding before adjustments 42,434 42,369
Assumed exercise of stock warrants
and options --- ---
Conversion of convertible securities --- ---
Conversion of preferred stock --- ---
Total average outstanding and equivalent
common shares 42,434 42,369
Adjustment of net income(loss):
Income(loss) from continuing operations(A) $ (6,312) $ 707
Interest on senior debt, net of income taxes --- ---
Interest on convertible debentures, net of
income taxes --- ---
Dividends on preferred stock --- ---
Income(loss) on continuing operations
applicable to common stock (6,312) 707
Income from discontinued operations, net
of income taxes 16,534 19,269
Extraordinary item, net of income taxes 466 ---
Adjusted net income applicable to
common stockholders $ 10,688 $ 19,976
Earnings(loss) per common share:
On continuing operations $ (0.15) $ 0.02
On discounted operations, net 0.39 0.45
On extraordinary item, net 0.01 ---
On net income $ 0.25 $ 0.47
</TABLE>
17
<PAGE>
Exhibit 11
FLAGSTAR COMPANIES, INC.
Computation of Earnings (Loss) per Share
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1995(B) 1994(D)
Primary and
Fully Diluted Primary Fully Diluted
<S> <C> <C> <C>
Adjustment of common and equivalent shares:
Average number of common shares
outstanding before adjustments 42,429 42,369 42,369
Assumed exercise of stock warrants
and options --- 9,914 9,914
Conversion of convertible securities --- --- 4,136
Conversion of preferred stock --- --- 8,562
Total average outstanding and
equivalent common shares 42,429 52,283 64,981
Adjustment of net income(loss):
Loss from continuing
operations(A) $ (42,137) $(31,920) $(31,920)
Interest on senior debt, net of
income taxes --- 17,897 17,897
Interest on convertible debentures,
net of income taxes --- --- 7,296
Dividends on preferred stock --- --- 10,631
Income(loss) on continuing
operations applicable to
common stock (42,137) (14,023) 3,904
Income from discontinued
operations, net of income taxes 657 383,355 383,355
Extraordinary item, net 466 (10,822) (10,822)
Adjusted net income(loss)
applicable to common
stockholders $ (41,014) $358,510 $376,437
Earnings(loss) per common share:
On continuing operations $ (0.99) $ (0.27) $ 0.06
On discounted operations, net 0.01 7.33 5.90
On extraordinary item, net 0.01 (0.21) (0.17)
On net income(loss) $ (0.97) $ 6.85 $ 5.79
</TABLE>
18
<PAGE>
(A) After deduction of the dividends on preferred stock for the
respective periods.
(B) The computations of primary and fully diluted per share amounts
during the 1995 periods is based on the weighted average number
of outstanding shares. The stock options and warrants have
been omitted from the primary computations because assumed
exercise of such options and warrants would have an
anti-dilutive effect on per share amounts. In addition, the
10% Convertible Junior Debentures and $2.25 Convertible Preferred
Stock are omitted from the fully diluted computation because such
securities also have an anti- dilutive effect on per share
amounts. As such, primary and fully diluted amounts per share
for the 1995 periods are the same.
(C) The computation of primary earnings per share for the 1994
quarter is based on the weighted average number of outstanding
shares. The stock options and warrants have been omitted
from the primary computations because assumed exercise of
such warrants would have an anti-dilutive effect on per share
amounts. Adjustments to the primary earnings per share
amount are not material in computing fully diluted earnings
per share.
(D) The computation of primary earnings per share for the nine
months of 1994 is based on the weighted average number of
outstanding shares as adjusted by the assumed dilutive effect
that would occur if the outstanding stock options and warrants
were exercised using the modified treasury stock method. The
computation of fully diluted earnings per share during the nine
months of 1994 is based on additional adjustments to the
primary earnings per share amount for the dilutive effect of
the assumed conversion of the Company's 10% Convertible Junior
Debentures and $2.25 Convertible Preferred Stock.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements of Flagstar Companies, Inc. as contained
in its Form 10-Q for the quarterly period ended September 30, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 86,636
<SECURITIES> 0
<RECEIVABLES> 26,543
<ALLOWANCES> 3,843
<INVENTORY> 37,693
<CURRENT-ASSETS> 241,464
<PP&E> 1,769,026
<DEPRECIATION> 624,229
<TOTAL-ASSETS> 1,506,715
<CURRENT-LIABILITIES> 341,977
<BONDS> 2,012,193
<COMMON> 21,185
0
630
<OTHER-SE> (1,125,329)
<TOTAL-LIABILITY-AND-EQUITY> 1,506,715
<SALES> 0
<TOTAL-REVENUES> 1,994,826
<CGS> 0
<TOTAL-COSTS> 1,851,066
<OTHER-EXPENSES> 884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,982
<INCOME-PRETAX> (31,106)
<INCOME-TAX> 400
<INCOME-CONTINUING> (31,506)
<DISCONTINUED> 657
<EXTRAORDINARY> 466
<CHANGES> 0
<NET-INCOME> (30,383)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> (0.97)
</TABLE>
