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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, 1994
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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<S> <C>
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) 597-8000.
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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $110,401,050 based upon the closing sales price of
registrant's Common Stock on March 15, 1995 of $6.00 per share.
As of March 15, 1995, 42,434,620 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................................................................................................... 8
Item 3. Legal Proceedings............................................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.......................................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................ 11
Item 6. Selected Financial Data...................................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 12
Item 8. Financial Statements and Supplementary Data.................................................................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant........................................................... 19
Item 11. Executive Compensation....................................................................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and Management............................................... 29
Item 13. Certain Relationships and Related Transactions............................................................... 32
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................. 38
INDEX TO FINANCIAL STATEMENTS........................................................................................... 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 restaurant companies in
the United States, operating (directly and through franchisees) more than 2,500
moderately priced restaurants.
Flagstar's restaurant operations are conducted through three principal
chains or concepts. Denny's is the nation's largest chain of family-oriented
full service restaurants, with over 1,500 units in 49 states and six foreign
countries, including 498 in California and Florida. According to an independent
survey conducted in 1994, Denny's has the leading share of the national market
in the family segment. Hardee's is a chain of quick-service restaurants of which
Flagstar, with 595 units located primarily in the Southeast, is the largest
franchisee. Although specializing in sandwiches, Flagstar's Hardee's restaurants
serve fresh fried chicken and offer a breakfast menu that accounts for
approximately 39% 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." A weekend breakfast buffet is available at most
Quincy's locations. Flagstar also operates El Pollo Loco, a chain of 209
quick-service 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, quick-service 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, Flagstar remodeled 245 of its Company-owned restaurants
and added a net of 59 (both franchised and Company-owned) new restaurants to its
chains.
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"). 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.
As a result of the 1989 acquisition of Flagstar, the Company became and
remains very highly leveraged. As discussed in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations and in Notes 1 and
2 to the Consolidated Financial Statements, while the Company's cash flows have
been, and are expected to continue to be, sufficient to cover interest costs,
operating results since the acquisition in 1989 have fallen short of
expectations. Such shortfalls have resulted from negative operating trends as
evidenced by consistently low annual growth in average unit sales at the
Company's Denny's, Quincy's and El Pollo Loco restaurants and decreased sales
volume, primarily during the period 1990 through 1993, at the Company's (now
sold) food and vending business. These trends have been 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. In the fourth quarter of 1993, management
determined that the most likely projections of future results were those based
on the assumption that these historical operating trends of each of the
Company's restaurant concepts and at its food and vending business would
continue, and that such projected financial results of the Company would not
support the carrying value of the remaining balance of goodwill and certain
other intangible assets. Accordingly, such balances were written-off during
1993. See Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Notes 1 and 2 to the Consolidated Financial
Statements for additional information.
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 may 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 expects
its chain of Hardee's restaurants to maintain its strong market position in the
Southeast.
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During the fourth quarter of 1993, the Company approved a restructuring plan
which included the following key features: (1) the identification of units for
sale, closure or conversion to another concept because of poor operating
performance or location in markets that have been determined to be nonstrategic
(with a resulting write-down of such units to their net realizable values); (2)
changes to the field management structure to eliminate a layer of management and
increase the regional managers' "span of control"; and (3) consolidation of
certain Company operations and elimination of overhead positions in the field
and in certain of its corporate functions. The restructuring charge reflected in
the Company's 1993 Consolidated Financial Statements consisted primarily of the
write-down in the carrying value of assets referred to in (1) above and
severance and relocation costs associated with (2) and (3) above. During 1994
the Company completed the realignment of the field and corporate management
structure contemplated by the restructuring and adjusted the estimated costs
associated with these components of the restructuring plan. Specific plans to
fundamentally change the competitive positions of Denny's, Quincy's and El Pollo
Loco are ongoing, as discussed below.
DENNY'S
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YEAR ENDED DECEMBER 31,
1990 1991 1992 1993
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Operating Units (end of year)
Owned/operated.................................................................... 992 996 1,013 1,024
Franchised........................................................................ 306 330 382 431
International..................................................................... 60 65 65 59
Revenues (in millions) (1).......................................................... $1,407 $1,429 $1,449 $1,546
Operating Income (Loss) (in millions) (1)........................................... $ 118 $ 128 $ 130 $ (625)(2)
Depreciation and Amortization (in millions) (1)..................................... $ 68 $ 75 $ 82 $ 88
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,209 $1,232 $1,231 $1,233
Franchised........................................................................ $ 949 $1,040 $1,065 $1,057
Average Check....................................................................... $ 4.20 $ 4.37 $ 4.56 $ 4.76
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1994
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Operating Units (end of year)
Owned/operated.................................................................... 978
Franchised........................................................................ 512
International..................................................................... 58
Revenues (in millions) (1).......................................................... $1,548
Operating Income (Loss) (in millions) (1)........................................... $ 123
Depreciation and Amortization (in millions) (1)..................................... $ 68
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,247
Franchised........................................................................ $1,060
Average Check....................................................................... $ 4.75
</TABLE>
(1) Includes distribution and processing operations.
(2) Operating income reflects the write-off of goodwill and certain other
intangible assets and the provision for restructuring charges for the year
ended December 31, 1993 of $716 million. For a discussion of the write-off
and restructuring and the reasons therefor, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes 2 and 3 to the Consolidated Financial Statements.
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 1994 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, Puerto Rico, and six foreign countries, with principal concentrations
in California, Florida, Texas, Washington, Arizona, Pennsylvania, Illinois, and
Ohio. Denny's restaurants are designed to provide a casual 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.
In 1994, the Company began to implement a "reimaging" strategy intended to
result in a fundamental change in the competitive positioning of Denny's. This
reimaging strategy involves all restaurants within a market area and 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 in
some markets Baskin-Robbins(Register mark) ice cream. The Company completed the
reimaging of 124 restaurant units during 1994 and plans to significantly
increase the number of restaurants reimaged in 1995. A typical remodeling under
the reimaging strategy 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 $325,000 per
unit. A reimaged market is supported by increased marketing expenditures and a
marketing campaign directed specifically toward the reopening of the
restaurants. The Company's reimaging program during 1995 includes the San Diego,
Tampa, and South Florida markets.
Prior to the implementation of the reimaging strategy in 1994, remodeling
of Denny's restaurant units was principally based on an evaluation of the
maintenance needs of the restaurant with no fundamental change in the image of
the restaurant chain. Individual restaurants within a market were remodeled, and
the reopening of the restaurant was not
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supported by marketing. As a result, there was no consistent demonstrable
increase in revenues as a result of the previous remodeling programs. Prior to
1994, the Company had not attempted a reimaging program for any of its concepts.
Although preliminary results of the current program indicate that year-over-year
sales increases are 15% to 20% in reimaged restaurants, no assurance can be
given that such program will result in a long-term reversal of historical
trends.
The Company completed the rollout of its Denny's restaurants with POS
systems in 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.
Marketing initiatives in 1995 will focus on the positioning of Denny's as
the price value leader within its segment, offering value menus at breakfast,
lunch, and dinner, and the reimaging of units in selected markets. The Company
intends to support these initiatives by using television marketing in its
reimaging markets and 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 1995 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 the 105 units
previously identified to be sold or closed under the Company's 1993
restructuring plan (of which, at December 31, 1994, 16 such units had been sold
or closed). 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 1994, the Company added a net of 81 new Denny's franchises, of which
47 units were previously owned by the Company, bringing total franchised units
to 512, or 33% 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
1994, Denny's realized $38.8 million of revenues from franchising. Franchisees
also purchase food and supplies from a Company subsidiary.
The average unit sales for Company-owned Denny's units has increased only
slightly during the past five years principally as a result of declining traffic
counts, offset by increases in average check. The restructuring and reimaging
programs at Denny's are intended to increase customer satisfaction and traffic.
While initial results indicate that year-over-year sales increases are in the
range of 15% to 20% in reimaged markets completed in 1994, the Company has not
previously attempted a reimaging program such as the one being undertaken. There
can be no assurance that implementation of the program will result in a
long-term reversal of Denny's previous operating trends. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Notes 1 and 2 to the Consolidated Financial Statements, for
discussion of such trends and the write-off of goodwill and certain other
intangible assets during 1993.
HARDEE'S
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YEAR ENDED DECEMBER 31,
1990 1991 1992 1993
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Operating Units (end of year)
Owned/operated.................................................................... 483 500 528 564
Revenues (in millions).............................................................. $ 510 $ 525 $ 607 $ 682
Operating Income (Loss) (in millions)............................................... $ 52 $ 52 $ 72 $ (179)(1)
Depreciation and Amortization (in millions)......................................... $ 40 $ 40 $ 44 $ 48
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,077 $1,062 $1,185 $1,255
Average Check....................................................................... $ 2.64 $ 2.72 $ 2.88 $ 3.09
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1994
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Operating Units (end of year)
Owned/operated.................................................................... 595
Revenues (in millions).............................................................. $ 701
Operating Income (Loss) (in millions)............................................... $ 76
Depreciation and Amortization (in millions)......................................... $ 41
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,206
Average Check....................................................................... $ 3.11
</TABLE>
(1) Operating income reflects the write-off of goodwill and certain other
intangible assets and the provision for restructuring charges for the year
ended December 31, 1993 of $260 million. For a discussion of the write-off
and restructuring and the reasons therefor, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes 2 and 3 to the Consolidated Financial Statements.
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 fifth largest
sandwich chain in the United States based on national systemwide sales. Of the
595 Hardee's restaurants operated by the Company at December 31, 1994, 574 were
located in ten southeastern states. The Company's Hardee's restaurants provide
uniform menus in a quick-service 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
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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 1994. 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 39% of total sales at the Company's
Hardee's restaurants. The Company plans to remodel its Hardee's restaurants at a
current average cost of $130,000 per unit for image enhancement 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 31 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 31 additional units will require
approximately $31 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.
Although Hardee's has had annual increases in revenues and increases in
average unit sales during three of the last five years, the Company as a whole
has experienced disappointing operating trends due to its highly-leveraged
nature and revenue trends at the Company's other restaurant concepts and, prior
to its sale in 1994, at its food and vending services business. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Notes 1 and 2 to the Consolidated Financial Statements, for a
discussion of the Company-wide write-off of goodwill and certain other
intangible assets during 1993, and the bases therefor.
QUINCY'S
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YEAR ENDED DECEMBER 31,
1990 1991 1992 1993
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Operating Units (end of year)
Owned/operated.............................................................. 212 216 217 213
Revenues (in millions)........................................................ $ 282 $ 283 $ 290 $ 279
Operating Income (Loss) (in millions)......................................... $ 20 $ 15 $ 11 $ (154)(1)
Depreciation and Amortization (in millions)................................... $ 21 $ 22 $ 22 $ 21
Average Unit Sales (in thousands)
Owned/operated.............................................................. $1,324 $1,320 $1,335 $1,302
Average Check................................................................. $ 5.38 $ 5.40 $ 5.32 $ 5.61
<CAPTION>
1994
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Operating Units (end of year)
Owned/operated.............................................................. 207
Revenues (in millions)........................................................ $ 284
Operating Income (Loss) (in millions)......................................... $ 23
Depreciation and Amortization (in millions)................................... $ 11
Average Unit Sales (in thousands)
Owned/operated.............................................................. $1,350
Average Check................................................................. $ 5.79
</TABLE>
(1) Operating income reflects the write-off of goodwill and certain other
intangible assets and the provision for restructuring charges for the year
ended December 31, 1993 of $164 million. For a discussion of the write-off
and restructuring and the reasons therefor, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes 2 and 3 to the Consolidated Financial Statements.
Ranked by 1994 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 207 Company-owned restaurants at December 31,
1994 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. In addition, weekend breakfast service, which is
available at most locations, allows Quincy's to utilize its asset base more
efficiently.
The Company began testing a unit concept conversion in 1993 by remodeling
and converting three steakhouses in Columbia, S.C., to a buffet only concept. As
part of the restructuring plan adopted in the fourth quarter of 1993, 90 poor
performing restaurants were identified to be sold, closed or converted to
another concept and were written down to net realizable value. At December 31,
1994, the Company had closed seven units and determined that the performance of
the buffet restaurants did not justify further conversions to that concept.
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During 1994 the Company continued the introduction of the scatter bar
format by remodeling 39 units in the Birmingham and Greenville-Spartanburg
markets at a cost of approximately $180,000 per unit. To date, year-over-year
sales increases are 15% to 20% in these reimaged restaurants.
The average unit sales of Quincy's has increased only slightly during the
past five years. The restructuring program and concurrent reimaging and
refurbishment program are intended to result in increased customer satisfaction
and traffic. There can be no assurance, however, that implementation of such
programs will result in a long-term reversal of the historical operating trends
of the Company. See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes 1 and 2 to the Consolidated
Financial Statements, for a discussion of such trends and the write-off of
goodwill and certain other intangible assets during 1993.
EL POLLO LOCO
El Pollo Loco is the leading chain in the quick-service segment of the
restaurant industry to specialize in flame-broiled chicken. As of December 31,
1994, there were 209 El Pollo Loco units (of which 127 were operated by the
Company, 78 were operated by franchisees and 4 were operated under foreign
licensing agreements). Approximately 95% 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.
Average unit sales at El Pollo Loco declined during the four year period
1990 through 1993 following the Company's 1989 acquisition. As a part of the
1993 restructuring plan, the Company identified 45 units which did not generate
an adequate return on investment, and thus are to be sold or closed. At December
31, 1994, 9 such units had been sold pursuant to the restructuring plan. The
Company's restructuring plan included 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 were intended to increase customer
satisfaction and expand the customer market resulting in higher customer
traffic. To date, year-over-year sales increases are approximately 10% in these
reimaged restaurants. During 1994, average unit sales at El Pollo Loco increased
by 12.4% over 1993 as a result of new menu items, combination meals, and a full
year's impact of the acquisition of high-volume franchise units in the fourth
quarter of 1993. There can be no assurance, however, that El Pollo Loco's
reimaging program will result in a long-term reversal of the historical
operating trends of the Company. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Notes 1 and 2 to
the Consolidated Financial Statements, for a discussion of such trends and the
write-off of goodwill and certain other intangible assets in 1993.
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.
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,
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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 Denny's, Hardee's, Quincy's and El
Pollo Loco restaurants.
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 $43.2 million for 1994, or
about 2.4% of Denny's system-wide restaurant sales. Individual restaurants are
also given the discretion to conduct local advertising campaigns. In accordance
with HFS licensing agreements, the Company spent during 1994 approximately 6.3%
of Hardee's total gross sales on marketing and advertising. Of this amount,
approximately 2.5% 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 4.5% of Quincy's gross sales on
Quincy's marketing in 1994. During 1994, El Pollo Loco spent approximately 4.9%
of its system-wide restaurant sales on advertising.
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 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. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations, for a discussion of
certain management projections that assume no new unit growth for the Company in
the future and the bases therefor.
DISCONTINUED OPERATIONS
The Company's concession and recreation services subsidiaries provide food,
beverage, novelty, and ancillary services in sports stadiums, amphitheaters,
arenas and other locations. Volume Services, Inc. ("Volume") provides
concessions services at five major league baseball parks (Hubert H. Humphrey
Metrodome, Oakland-Alameda County Coliseum, Royals Stadium, Yankee Stadium and
Candlestick Park), nine minor league baseball parks, and five professional
football stadiums (Arrowhead Stadium, Hubert H. Humphrey Metrodome, Los Angeles
Coliseum, Tampa Stadium and Candlestick Park). TW Recreational Services, Inc.
("TWRS") 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. Contracts to provide
these services usually are obtained on the basis of competitive bids. In most
instances, Volume or TWRS, as applicable, receives the exclusive right to
provide 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.
6
<PAGE>
The Company operates and manages its Volume and TWRS operations on a
regional basis, with each region 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 three learning
centers 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.
During April 1994, the Company announced that it had entered into an
agreement to sell the food and vending business of its Canteen subsidiary and
its intent to dispose of Volume and TWRS, which constitute the balance of the
Company's Canteen operations. Canteen's 1993 total annual revenues were $1.37
billion (out of total Company revenues of $3.97 billion for the year), of which
$187.4 million and $134.6 million were attributable to Volume and TWRS,
respectively. In June 1994, the Company closed the sale of such food and vending
business. In November 1994, the Company announced that it had agreed to sell
TWRS. Such transaction is subject to resolution of certain issues that have been
raised by the National Park Service. The Company is continuing its efforts to
sell Volume; however, the major league baseball strike has delayed the sale of
Volume beyond the time originally anticipated. See Note 14 to the accompanying
Consolidated Financial Statements for additional information.
COMPETITION
According to the National Restaurant Association, in the past five years,
the total food service industry experienced annual real growth of approximately
1.25%. The restaurant industry not only competes within the food consumed away
from home segment of the food industry, but also with sources of food consumed
at home. In order to grow at a real growth rate in excess of 1.25%, the
Company's restaurant concepts must take market share from other competing
restaurant and non-restaurant food sources.
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 quick-service restaurant chains is especially
intense. Restaurants, particularly those in the quick-service 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 1994, Denny's had a 14.3%
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 quick-service restaurants serving other kinds of foods,
such as chicken outlets (e.g., KFC 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 quick-service 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 quick-service outlets. Nationwide, the
top five chains are Sizzler, Ponderosa, Golden Corral, Ryan's, and Western
Sizzlin'. According to NATION'S RESTAURANT NEWS (published August 1, 1994),
Quincy's ranked sixth nationwide in system-wide sales and third in sales per
unit among the steak chains.
As a result of such competition and other factors, the Company's historical
growth has been disappointing. Although initial results of the 1993
restructuring plan have been encouraging, particularly at Denny's and El Pollo
Loco, there can be no assurance that such changes will result in a long-term
reversal of the historical operating trends of the Company. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Notes 1 and 2 to the Consolidated Financial Statements, for a
discussion of such trends and the write-off of goodwill and certain other
intangible assets in 1993.
7
<PAGE>
EMPLOYEES
At December 31, 1994, the Company had approximately 90,000 employees of
which less than 1% are union members. Many of the Company's restaurant employees
work part-time, and many are paid at or slightly above minimum wage levels. 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, 1994:
<TABLE>
<CAPTION>
LAND LEASED
LAND AND AND LAND AND
BUILDING BUILDING BUILDING
OWNED OWNED LEASED
<S> <C> <C> <C>
TYPE OF RESTAURANT
DENNY'S............... 271 42 665
HARDEE'S.............. 285 107 203
QUINCY'S.............. 157 43 7
EL POLLO LOCO......... 11 40 76
Total............... 724 232 951
</TABLE>
8
<PAGE>
The number and location of the Company's restaurants in each chain as of
December 31, 1994 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 9 156 46 -- --
Alaska..................................................... -- 4 -- -- -- --
Arizona.................................................... 33 31 -- -- -- --
Arkansas................................................... 1 5 3 -- -- --
California................................................. 251 88 -- -- 127 72
Colorado................................................... 25 9 -- -- -- --
Connecticut................................................ 7 3 -- -- -- --
Delaware................................................... 3 -- -- -- -- --
Florida.................................................... 104 55 55 41 -- --
Georgia.................................................... -- 23 10 11 -- --
Hawaii..................................................... 4 3 -- -- -- --
Idaho...................................................... -- 6 -- -- -- --
Illinois................................................... 49 7 -- -- -- --
Indiana.................................................... 16 8 -- -- -- --
Iowa....................................................... 1 5 -- -- -- --
Kansas..................................................... 9 3 -- -- -- --
Kentucky................................................... -- 19 -- 1 -- --
Louisiana.................................................. 8 2 1 -- -- --
Maine...................................................... -- 4 -- -- -- --
Maryland................................................... 14 16 -- -- -- --
Massachusetts.............................................. 10 -- -- -- -- --
Michigan................................................... 40 1 -- -- -- --
Minnesota.................................................. 13 3 -- -- -- --
Mississippi................................................ 2 2 42 8 -- --
Missouri................................................... 30 5 -- -- -- --
Montana.................................................... -- 1 -- -- -- --
Nebraska................................................... -- 7 -- -- -- --
Nevada..................................................... 12 3 -- -- -- 4
New Hampshire.............................................. 2 1 -- -- -- --
New Jersey................................................. 15 2 -- -- -- 2
New Mexico................................................. 2 12 -- -- -- --
New York................................................... 24 8 -- -- -- --
North Carolina............................................. 8 12 65 40 -- --
North Dakota............................................... -- 3 -- -- -- --
Ohio....................................................... 36 18 19 1 -- --
Oklahoma................................................... 9 6 -- -- -- --
Oregon..................................................... 14 8 -- -- -- --
Pennsylvania............................................... 52 4 2 -- -- --
Rhode Island............................................... -- -- -- -- -- --
South Carolina............................................. 9 5 123 42 -- --
South Dakota............................................... -- 1 -- -- -- --
Tennessee.................................................. 3 10 116 13 -- --
Texas...................................................... 66 41 -- -- -- --
Utah....................................................... 7 8 -- -- -- --
Vermont.................................................... -- 2 -- -- -- --
Virginia................................................... 20 6 3 4 -- --
Washington................................................. 55 12 -- -- -- --
West Virginia.............................................. -- 3 -- -- -- --
Wisconsin.................................................. 13 7 -- -- -- --
Wyoming.................................................... -- 6 -- -- -- --
Canada..................................................... 10 15 -- -- -- --
International.............................................. -- 58 -- -- -- 4
Total.................................................... 978 570 595 207 127 82
</TABLE>
At December 31, 1994, the Company owned seven warehouses in California,
Illinois, Florida, Pennsylvania, Texas and Washington, and one manufacturing
facility in Texas.
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.
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
9
<PAGE>
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 current and
former officers and directors of those companies, are 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.
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.
On June 15, 1994, a derivative action was filed in the Alameda County
Superior Court for the State of California by Mr. Adam Lazar, purporting to act
on behalf of the Company, against the Company's directors and certain of its
current and former officers alleging breach of fiduciary duty and waste of
corporate assets by the defendants relating to alleged acts of mismanagement or
the alleged failure to act with due care, resulting in policies and practices at
Denny's that allegedly gave rise to certain public accommodations class action
lawsuits against the Company that were settled in 1994. The action seeks
unspecified damages against the defendants on behalf of the Company and its
stockholders, including punitive damages, and injunctive relief. There has been
only limited discovery in this action to date. Accordingly, it is premature to
express a judgment herein as to the likely outcome of the action.
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.
10
<PAGE>
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 15, 1995, 42,434,620 shares of Common Stock were outstanding, and
there were approximately 10,500 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>
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
1994
First quarter..................................................................... 12 3/4 9
Second quarter.................................................................... 10 1/2 7 3/4
Third quarter..................................................................... 10 1/4 7 1/2
Fourth quarter.................................................................... 9 3/4 5 1/2
</TABLE>
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, 1994. 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>
YEAR ENDED DECEMBER 31,
1990 (1) 1991 (1) 1992 (1) 1993 (1) 1994
<S> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT RATIOS)
Income Statement data:
Operating revenues................................. $2,303.9 $2,338.7 $2,443.0 $2,615.2 $2,666.0
Operating income (loss)............................ 187.7 179.3 196.7 (1,102.4)(2) 211.1
Loss from continuing operations (3)................ (57.6) (54.1) (39.2) (1,238.6) (16.8)
Primary earnings (loss) per share applicable to
common shareholders:
Continuing operations............................ (2.62) (2.44) (1.82) (29.56) (0.14)
Discontinued operations (3)...................... (0.46) (0.60) (0.50) (9.67) 7.52
Net income (loss)(4)............................. (3.08) (3.04) (9.29) (40.14) 7.16
Fully diluted earnings (loss) per share applicable
to common shareholders:
Continuing operations............................ (2.62) (2.44) (1.82) (29.56) 0.26
Discontinued operations (3)...................... (0.46) (0.60) (0.50) (9.67) 6.05
Net income (loss) (4)............................ (3.08) (3.04) (9.29) (40.14) 6.13
Cash dividends per common share (5)................ -- -- -- -- --
Ratio of earnings to fixed charges (6)............. -- -- -- -- --
Deficiency in the coverage of fixed charges to
earnings before fixed charges (6)................ 69.1 69.8 45.8 1,318.2 19.3
Balance Sheet data (at end of period):
Current assets (7)................................. 99.4 95.3 98.4 122.2 180.7
Working capital (deficiency) (7)(8)................ (261.0) (326.7) (256.3) (273.0) (205.6)
Net property and equipment......................... 1,282.5 1,256.9 1,269.9 1,167.2 1,196.4
Total assets....................................... 3,264.1 3,186.9 3,170.9 1,538.9 1,582.1
Long-term debt..................................... 2,303.7 2,255.3 2,171.3 2,341.2 2,067.6
</TABLE>
(1) Certain amounts for the four years ended December 31, 1993 have been
reclassified to conform to the 1994 presentation.
(2) Operating loss for the year ended December 31, 1993 reflects charges for the
write-off of goodwill and certain other intangible assets of $1,104.6
million and the provision for restructuring charges of $158.6 million.
11
<PAGE>
(3) The Company's food and vending and concessions and recreation services
subsidiaries have been reclassified as discontinued operations (its food and
vending subsidiary having been sold in 1994). The Company sold American
Medical Services, Inc., The Rowe Corporation and Milnot Company in 1990 and
Preferred Meal Systems, Inc. in 1991. Such entities were also classified as
discontinued operations.
(4) 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. For the year
ended December 31, 1994, net income includes an extraordinary loss of $0.22
per share, as calculated for primary earnings per share, and $0.18 per
share, as calculated for fully diluted earnings per share, relating to the
charge off of unamortized deferred financing costs associated with the
Company's prepayment of its senior term loan and working capital facility
during the second quarter of 1994.
(5) 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.
(6) 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.
(7) The current assets and working capital deficiency amounts presented exclude
assets held for sale of $595.8 million, $503.0 million, $480.8 million,
$103.2 million, and $77.3 million as of December 31, 1990 through 1994,
respectively. Such assets held for sale relate to the Company's food and
vending and concessions and recreation services subsidiaries.
(8) A negative working capital position is not unusual for a restaurant
operating company. The increase in the working capital deficit 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. The decrease in the working capital deficiency from
December 31, 1993 to December 31, 1994 is due primarily to an increase in
cash following the sale of the Company's food and vending subsidiary during
1994.
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.
OPERATING TRENDS
During the past year a number of significant changes were made in the
leadership of the Company and its operations in an effort to address the
operating performance of the Company's restaurants. Over the past several years,
the Company's overall restaurant operations have reflected low comparable store
sales growth particularly at the Company's Denny's, Quincy's, and El Pollo Loco
chains. The lack of comparable store sales growth has resulted from the
continuation of a long-term trend of 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.
Because of these trends and in an effort to reverse them, the Company initiated
a restructuring plan in the fourth quarter of 1993 that included: (1) the sale,
conversion to another concept, or closure of approximately 240 of the Company's
Denny's, Quincy's, and El Pollo Loco restaurants; (2) consolidation of certain
corporate administrative operations; and (3) the elimination of a layer of field
management. At the same time, the Company initiated certain reimaging programs
intended to fundamentally change the competitive positioning of Denny's,
Quincy's, and El Pollo Loco.
During 1994 the Company completed the realignment of its field and
corporate management structures and sold or closed 31 of the stores identified
in the restructuring plan. The Company currently estimates that the remaining
such
12
<PAGE>
units will be sold or closed during 1995. The new designs for Denny's and El
Pollo Loco were also finalized based on extensive market tests during 1994.
Rollout of the reimaging programs began in 1994, with 124 Denny's and 27 El
Pollo Loco restaurants completed in 1994. The reimaging program at Denny's has,
to date, shown 15% to 20% year-over-year gains in comparable store sales and
customer counts, while El Pollo Loco has experienced year-over-year sales gains
of approximately 10%. The reimaging program will be completed at El Pollo Loco
in 1995. Because of the number of restaurants and capital required, the Denny's
reimaging program will require a period of two to three years to complete.
Introduction of the scatter bar and related steakhouse reimaging program at
Quincy's combined with increased promotional advertising has also shown initial
favorable results. The test conversion of Quincy's steakhouses to an all buffet
concept was not satisfactory, however, and the Company continues to review
alternatives for underperforming Quincy's restaurants. While these initial
results of the restructuring are encouraging, the ultimate outcome of the
Company's restructuring effort continues to be uncertain. Accordingly, no
assurance can be given that such results will continue or that they will lead to
a reversal of long-term trends, or that the Company will be able to generate the
funds needed to fund the capital improvements that these programs require.
Only a limited number of restaurants were reimaged for a portion of 1994
pursuant to the restructuring plan. Accordingly, the impact of the reimaging
program on year-to-year comparisons and trends has been minimal. A more detailed
discussion of each of the Company's restaurant chains and their operating
results in 1994 as compared to 1993 is set forth below. For more information
concerning previous Company trends and the Company's restructuring, see
"Write-off of Goodwill and Certain Other Intangible Assets; Restructuring
Charge" set forth below.
1994 COMPARED TO 1993
Operating revenues from continuing operations for 1994 increased by
approximately $50.8 million (1.9%) as compared with 1993. Denny's revenues
increased $1.9 million (0.1%) due to increased outside revenues of $36.3 million
from its food distribution operations offset in part by a reduction of
restaurant revenues of $34.4 million, principally as a result of a net decrease
of 46 units in the number of Company-owned units. This decrease in the number of
Company-owned units was partially offset by a net increase of 81 units in the
number of franchise-owned restaurants and by a 0.3% increase in comparable store
sales during 1994 as compared to 1993. The increase in comparable store sales
resulted from a 0.6% increase in customer traffic offset, in part, by a decrease
in average check of 0.4%. Management believes that the positive trend in
customer traffic in 1994 was primarily during the third and fourth quarters as a
result of the Company-wide $1.99 Original Grand Slam Breakfast promotion.
Hardee's revenues increased $18.8 million (2.8%) during 1994 as compared to the
prior year due to a net increase of 31 units. Although Hardee's total revenues
increased, comparable store sales decreased 3.6% as a result of a 3.9% decrease
in customer traffic mitigated in part by a 0.3% increase in average check. The
decline in customer traffic at Hardee's during 1994 was principally the result
of aggressive discounting by the Company's quick-service competitors. Quincy's
revenues increased by $5.6 million (2.0%) in 1994 as compared with 1993,
primarily due to successful product promotions and the impact of remodeled
restaurants resulting in a 2.9% increase in comparable store sales which more
than offset a net decrease of 6 units. The increase in comparable store sales at
Quincy's reflects an increase of 3.2% in average check and a 0.3% decrease in
customer traffic. Revenues at El Pollo Loco increased by $24.6 million (22.7%)
during 1994 over 1993 due primarily to new products and combination meals,
including barbeque chicken, additional taco and burrito entrees, and new side
orders such as french fries, black beans, corn, and potatoes, introduced during
1994, and the acquisition of high-volume franchise restaurants in late 1993.
Comparable store sales increased 6.5% and reflect increases in customer traffic
of 6.0% and in average check of 0.5%.
The Company's overall operating expenses before considering the effects of
the write-off of goodwill and certain other intangible assets and the provision
for restructuring charges in 1993 increased by $0.5 million in 1994 as compared
with 1993. At Denny's, operating expenses before considering the effects of the
write-off of goodwill and certain other intangible assets and the provision for
restructuring charges in 1993 decreased by $29.9 million in 1994 as compared
with 1993. A significant portion of the decrease ($20.7 million) was
attributable to a reduction in depreciation and amortization expense related to
the year-end 1993 write-off of assets and a reduction of $18.5 million in
payroll and benefits expense. Such decreases were partially offset by a $3.9
million increase in occupancy expense and a $2.1 million increase in
advertising. In addition, Denny's operating expenses for 1994 reflect a gain of
approximately $8.8 million related to the sale of Company-owned restaurants. At
Hardee's, an increase in operating expenses of $24.4 million was mainly
attributable to the increase in the number of restaurants in operation and
reflects increases in payroll and benefits expenses of $14.6 million, product
costs of $7.4 million, occupancy and maintenance expenses of $2.6 million, and
utilities expense of $1.8 million. Such increases were partially offset by
reduced depreciation and amortization charges of $1.2 million related to the
year-end 1993 write-off of assets. A decrease in operating expenses of $7.6
million at Quincy's was principally attributable to a decrease in depreciation
and amortization charges of $9.6 million related to the year-end 1993 write-off
of assets which was offset, in part, by increased payroll and benefits expense
of $2.3 million. General corporate overhead expense
13
<PAGE>
(before allocation to specific operating companies) decreased by $5.2 million in
1994 as compared to 1993 primarily as a result of the effect of the Company's
restructuring plan.
Interest and debt expense increased by $13.9 million in 1994 as compared to
1993. During 1993, $45.6 million was allocated to discontinued operations;
however, the allocation decreased to $33.7 million as a result of the sale of
the Company's food and vending subsidiary in June 1994. Cash interest increased
by $6.9 million during 1994 as compared with 1993 due to the higher fixed
interest rates on the $400.0 million of the 10 3/4% Senior Notes due 2001 (the
"10 3/4% Notes") and 11 3/8% Senior Subordinated Debentures due 2003 (the
"11 3/8% Debentures") issued during the third quarter of 1993, the proceeds of
which were used to refinance a portion of the Company's bank facility that
during 1993 had interest at lower variable rates. Interest expense for 1994
included charges of $9.2 million related to interest rate exchange agreements
compared to charges of $12.2 million during 1993. See Notes 1 and 4 to the
Consolidated Financial Statements for additional information relating to the
interest rate exchange agreements.
The Company's concession and recreation services businesses, which are
accounted for as discontinued operations, recorded a revenue increase of $3.3
million (1.0%) to $325.4 million during 1994 as compared to 1993. During April
1994, the Company announced its intent to dispose of these businesses. In
November 1994, the Company announced that it had reached an agreement to sell
TWRS (which operates its recreation services business). Such transaction is
subject to resolution of certain issues that have been raised by the National
Park Service. The Company is continuing its efforts to sell Volume (which
operates its concession services business). However, the major league baseball
strike, which was initiated by the players union in August 1994 and which is
currently unresolved, has delayed the sale of Volume beyond the time originally
anticipated. See Note 14 to the accompanying Consolidated Financial Statements
for additional information.
1993 COMPARED TO 1992
Operating revenues for 1993 increased by approximately $172.2 million
(7.0%) as compared with 1992. 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
certain litigation involving claims of discrimination (subsequently settled) at
Denny's. As a result of these factors, Denny's comparable store sales were flat
and included a decrease in customer traffic of 2.6% while the average check
increased 2.8%. 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 6.4% increase in comparable store sales
and a 36-unit increase in the number of restaurants. The increase in comparable
store sales resulted from a 6.8% increase in the average check offset, in part,
by a decrease of 0.4% in customer traffic. The increases in comparable store
sales and average check at Hardee's were primarily attributable to its 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 2.8% decrease in comparable store sales combined
with a 4-unit decline in the number of units. The decrease in comparable store
sales resulted from a decrease in customer traffic of 8.2% which was offset, in
part, by a 5.9% increase in average check. The significant decrease in traffic
at Quincy's as compared with 1992 reflected 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 accounted 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 3.0% increase in
comparable store 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 $208.1 million (9.3%) in
1993 as compared with 1992. Of the total increase in operating expenses, a
significant portion ($118.7 million) was 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 was due primarily to an increase in product
costs of $84.8 million and an increase in payroll and 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. 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 was mainly attributable to increased revenues and was 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-
14
<PAGE>
off of goodwill and certain intangible assets and the provision for
restructuring charges at Quincy's of $8.9 million was 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 other
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.
Interest and debt expense decreased by $28.3 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 $5.9 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.
Interest expense for 1993 includes charges of $12.2 million related interest
rate exchange agreements, which represents a decrease of $3.7 million from $15.9
million recorded in 1992. See Notes 1 and 4 to the Consolidated Financial
Statements for additional information relating to the interest rate exchange
agreements.
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 from continuing
operations by approximately $5.9 million, respectively.
WRITE-OFF OF GOODWILL AND CERTAIN OTHER INTANGIBLE ASSETS; RESTRUCTURING
CHARGE
The Company's operating results since the Company's 1989 acquisition of
Flagstar have fallen short of projections prepared at the date of such
acquisition 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. As discussed
further below and in Notes 1 and 2 to the Consolidated Financial Statements,
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 of the Company derived from the prior four years
would continue, and that such projections indicated an inability to recover the
recorded balance of goodwill and certain other intangible assets. Accordingly
such assets were written off in 1993, resulting in non-cash charges of $1,475
million ($1,104.6 million to continuing operations and $370.2 million to
discontinued operations). Also in response to such trends, the Company adopted a
plan of restructuring that resulted in a separate charge in 1993 of $192.0
million ($158.6 million to continuing operations and $33.4 million to
discontinued operations).
While total operating revenues increased 2.8% in 1992 and 6.7% in 1993,
operating income for each of the four full years since the Company's 1989
acquisition of Flagstar through 1993 were insufficient to cover the Company's
interest and debt expense. Operating cash flows have been sufficient to cover
interest costs. The primary factor affecting the Company's ability to generate
operating income sufficient to cover interest and debt expense and amortization
of goodwill and other intangibles has been the average unit sales at the
restaurant concepts and the sales volume at the Company's contract food and
vending operation. At the time of the Company's 1989 acquisition of Flagstar,
projections of future operations assumed annual growth rates in average unit
sales at all concepts and corresponding increases in operating income. Such
projections and those prepared since the 1989 acquisition and prior to the
fourth quarter of 1993, indicated that the Company would become profitable
within several years. However, since the 1989 acquisition through the end of
1993 and despite increases in average unit sales at Hardee's, average unit sales
at Denny's and Quincy's increased only slightly and food and vending sales
volume declined. Specifically, for the four years since the acquisition through
the end of 1993, average unit sales for Company-owned units increased
(decreased) at an average annual rate of 2.5%, (4.7)%, 5.0% and 1.1% for
Denny's, El Pollo Loco, Hardee's and Quincy's, respectively. See Item 1.
Business. Revenue increases during the four year period since the acquisition
through the end of 1993 were achieved as a result of an increase in the number
of units at Hardee's and Denny's and certain regional food and vending
acquisitions, in addition to increased average unit sales at Hardee's. However,
such increased revenues did not result in positive earnings after interest and
debt expense. Projections prepared during the fourth quarter of 1993 indicated
that, if the four year trends in customer traffic and other operating factors
were to continue, future operating income less interest and debt expense would
continue to be insufficient to recover the carrying value of goodwill and other
intangible assets. The projections assumed that average unit sales at each of
the restaurant concepts and food and vending sales volume would increase or
decrease consistent with the four year historical trends described above. These
fourth quarter 1993 projections assumed no additional borrowing to fund new unit
growth (because even if new units continued to be developed at historical
levels, it would not have a
15
<PAGE>
material impact on projected net income) and no reversal of the historical
trends of the Company that may result from successful restructuring and
reimaging programs, since management determined, based on all information
available, that historical trends provided the best estimate of future operating
results.
Also as a result of the historical operating trends described above and in
an attempt to reverse them, effective in the fourth quarter of 1993, the Company
approved a restructuring plan that included the sale or closure of restaurants,
a reduction in personnel, and a reorganization of certain management structures.
The provision for restructuring charges resulted from a comprehensive financial
and operational review initiated in 1993 which included a re-engineering study
that evaluated the Company's major business processes. The restructuring charge
for continuing operations of $158.6 million included primarily a non-cash charge
of $130.7 million to write-down certain assets and incremental charges of $27.9
million for severance, relocation, and other costs. The restructuring charge for
discontinued operations of $33.4 million included $25.5 million to write-down
certain assets and $7.9 million for severance. See Note 3 to the Consolidated
Financial Statements for further details.
The write-down of assets under the fourth quarter 1993 restructuring plan
represented predominantly non-cash adjustments made to reduce the carrying value
of approximately 240 of the Company's Denny's, Quincy's, and El Pollo Loco
restaurants. Approximately 105 Denny's and 45 El Pollo Loco restaurants were
identified to be sold or closed over a twelve month period and were written down
to net realizable value. The Quincy's concept was over-penetrated in a number of
its markets; thus, most of the 90 Quincy's units identified in the restructuring
plan were identified to be sold, closed or converted to another concept. As a
result, the estimated amount of the units' carrying value with no future benefit
was written off. The write-down of assets also included a charge of $15 million
to establish a reserve for operating leases primarily related to restaurant
units to be sold 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 also included consolidation of certain Company
operations, eliminating overhead positions in the field and in its corporate
marketing, accounting, and administrative functions. Also, the Company's field
management structure was reorganized to eliminate a layer of management. The
restructuring charge included a provision of approximately $25 million for the
related severance, relocation, and office closure costs. The Company's
restructuring plan also included the decision to fundamentally change the
competitive positioning of Denny's, Quincy's and El Pollo Loco.
The Company continues to believe that the restructuring plan is the most
appropriate manner in which to respond to the historical operating trends
experienced since the Company's 1989 acquisition of Flagstar. Management
anticipates that such plan will continue to provide the opportunity to reverse
the traffic trends at Denny's, Quincy's and El Pollo Loco. However, there can be
no assurance that such plan will result in a long-term reversal of historical
operating trends of the Company.
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.
The Company reported net income in 1994 as a result of a gain recognized on
the sale of its food and vending business subsidiary and a net loss in 1993
attributable in major part to non-cash charges, consisting principally of the
write-off of goodwill and certain other intangible assets and the write-down of
certain operating assets in the restructuring. 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:
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993 1994
<S> <C> <C>
(IN MILLIONS)
Net income (loss).......................................................................... $(1,686.7) $ 364.1
Write-off of goodwill and certain other intangible assets.................................. 1,104.6 --
Provision for restructuring charges........................................................ 158.6 (7.2)
Non-cash charges and credits............................................................... 185.3 128.7
Deferred income tax benefits............................................................... (84.4) (2.8)
Discontinued operations.................................................................... 409.7 (392.7)
Extraordinary items, net................................................................... 26.4 11.8
Cumulative effect of changes in accounting principles, net................................. 12.0 --
Changes in certain working capital items................................................... 66.3 (24.4)
Decrease in other assets and increase (decrease) in other liabilities, net................. (62.9) (22.9)
Cash from operations available for debt repayment and capital expenditures................. $ 128.9 $ 54.6
</TABLE>
The Restated Credit Agreement consists of a working capital and letter of
credit facility of up to $250.0 million with a working capital sublimit of $160
million and a letter of credit sublimit of $157.9 million. In connection with
the sale of the Company's food and vending subsidiary and the use of proceeds
therefrom to liquidate $296.3 million of borrowings under the Restated Credit
Agreement, the agreement was amended to include, among other things, less
restrictive financial covenants, a 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, and a reduction in annual capital
expenditures to reflect the reduced size of ongoing operations.
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. By its terms, the Restated Credit Agreement
expires in June of 1996.
At December 31, 1994 scheduled debt maturities of long-term debt for the
years 1995 through 1999 are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
(IN MILLIONS)
1995.................................................................................... $ 31.4
1996.................................................................................... 40.2
1997.................................................................................... 39.8
1998.................................................................................... 33.3
1999.................................................................................... 28.0
</TABLE>
In addition to scheduled maturities of principal, approximately $250
million of cash will be required in 1995 to meet interest payments on long-term
debt and dividends on FCI's $2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock, par value $.10 per share (the "Preferred Stock").
The projections of future operating results prepared in the fourth quarter
of 1993, which resulted in the conclusion that goodwill and certain other
intangibles were impaired (see Write-off of Goodwill and Certain Other
Intangible Assets; Restructuring Charge herein), assumed that the historical
operating trends experienced by the Company since the 1989 acquisition will
continue in the future. Although the 1994 results of the Company's restructuring
plan have been encouraging, the ultimate outcome of the Company's restructuring
effort continues to be uncertain. If historical trends are not reversed, the
Company may need to refinance or renegotiate the terms of existing debt prior to
their maturities. While management believes that the Company will be able, if
necessary, to refinance or renegotiate the terms of its existing debt prior to
maturity, no assurance can be given that it will be able to do so on acceptable
terms.
The Company's principal capital requirements are those associated with
opening new restaurants and remodeling and maintaining its existing restaurants
and facilities. During 1994, total capital expenditures were approximately
$173.3 million, of which approximately $58.3 million was used to reimage
existing restaurants pursuant to the Company's restructuring plan described
above, $55.9 million was used to open new restaurants, and $59.1 million was
expended to maintain existing facilities. Of these expenditures, approximately
$18.8 million were financed through capital leases and secured borrowings.
Capital expenditures during 1995 are expected to total approximately $120.0
million to $150.0 million, including costs associated with the Denny's, Quincy's
and El Pollo Loco reimaging programs. The Company currently expects to finance
such capital expenditures internally through continuing operations and asset
sales. For additional information, see "Operating Trends" above.
17
<PAGE>
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, 1994, the Company's working capital deficiency was $128.3 million
as compared with $169.8 million at the end of 1993. Such decrease is
attributable primarily to an increase in cash as a result of the sale of the
Company's food and vending subsidiary during 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements 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.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to each current
director and executive officer of FCI and Mr. A. Andrew Levison, a nominee to
the Board of Directors of FCI for election at the 1995 annual meeting of
stockholders of FCI. Each director of FCI is also a director of Flagstar.
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
James B. Adamson.................... 47 Director of FCI and Flagstar; President and Chief Executive Officer of FCI and
Flagstar (February 1995-present); Chief Executive Officer of Burger King
Corporation (1993-January 1995); Chief Operating Officer of Burger King
Corporation (1991-1993); President of Burger King U.S.A. Retail Division (1991);
Executive Vice President, Marketing of Revco, Inc. (1988-1991).
Michael Chu......................... 46 Director of FCI and Flagstar; President and Chief Executive Officer of ACCION
International (1994-present); Director of Latin American Operations, ACCION
International (1993-1994); Executive of KKR and a Limited Partner of KKR
Associates (1989-1993); Director of Banco Solidario S.A., Commercial Printing
Holding Co., FINANSOL Compania de Financiamiento Comercial and World Color Press,
Inc.
Vera King Farris.................... 54 Director of FCI and Flagstar; President of The Richard Stockton College of New
Jersey (1983-present); Director of National Utility Investors.
Hamilton E. James................... 44 Director of FCI and Flagstar; Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") (investment banking) (1987-present); Chairman, DLJ
Merchant Banking Group (1992-present); Director of County Seat Stores, Inc. and
Price/Costco Inc.
Henry R. Kravis (a)................. 51 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of American Re Corporation, Auto Zone, Inc., Borden, 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. and World Color Press, Inc.
A. Andrew Levison................... 38 Managing Director, Investment Banking of DLJ (1989-present); Managing Director,
Leverage Buyout Group of Drexel Burnham Lambert (1984-1989); Director of
Ferrellgas Companies, Inc. and Rickel Home Centers, Inc.
Paul E. Raether..................... 48 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Duracell International, Inc., Fred Meyer, Inc., IDEX Corporation and The Stop
& Shop Companies, Inc.
Jerome J. Richardson................ 58 Chairman of FCI and Flagstar (1992-present); Director of FCI (1989-present);
Director of Flagstar (1980-present); Chief Executive Officer of FCI and Flagstar
(1989-January 1995); President of FCI (1989-1992); President of Flagstar
(1987-1992); Chairman of Denny's (1989-1994); President and Chief Executive
Officer of Canteen (1989-1994); Chairman of Flagstar Systems, Inc. (1990-1994);
President and Chief Executive Officer of Flagstar Systems, Inc. (1989-1994);
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; Founder and President of the corporate
general partner of Richardson Sports, the franchisee of the NFL Carolina
Panthers.
Clifton S. Robbins.................. 37 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of Borden, Inc., IDEX Corporation, RJR Nabisco Holdings Corp., RJR Nabisco, Inc.
and The Stop & Shop Companies, Inc.
George R. Roberts (a)............... 51 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of American Re Corporation, Auto Zone, Inc., Borden, 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. and World Color Press, Inc.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
L. Edwin Smart...................... 71 Director of FCI and Flagstar; Counsel, Hughes Hubbard & Reed (law firm which
performed services for the Company in 1994) (1989-present); Chairman of the Board
and Chief Executive Officer of Flagstar (1986-1987); Chairman of the Board and
Chief Executive Officer of Transworld Corporation (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 Sonat Inc.
Michael T. Tokarz................... 45 Director of FCI and Flagstar; General Partner of KKR and KKR Associates; Director
of IDEX Corporation, K-III Communications Corporation, RJR Nabisco, Inc., RJR
Nabisco Holdings Corp. and Safeway, Inc.
A. Ray Biggs........................ 53 Vice President and Chief Financial Officer of FCI and Senior Vice President and
Chief Financial Officer of Flagstar (1992-present); Partner, Deloitte & Touche
LLP (accounting firm which served as independent auditors for the Company in
1994) (1978-1992).
Rhonda J. Parish.................... 38 Vice President and General Counsel of FCI and Senior Vice President and General
Counsel of Flagstar (January 1995-present); Secretary of FCI and Flagstar
(February 1995-present); Assistant General Counsel of Wal-Mart Stores, Inc.
(1990-1994); Corporate Counsel of Wal-Mart Stores, Inc. (1983-1990).
</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 would consist of persons designated by affiliates of
KKR. For additional information concerning agreements regarding the composition
of the Board of Directors, see Item 11. Executive Compensation -- Employment
Agreements and Item 12. Security Ownership of Certain Beneficial Owners and
Management -- The Stockholder's Agreement and -- Adamson Shareholder 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>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
Samuel H. Maw (a)................... 61 Executive Vice President, Product Development and Distribution of Flagstar
(1994-present); Senior Vice President, Product Development and Distribution of
Flagstar (1990-1994); Chief Operating Officer of Canteen Corporation (1993-1994);
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.
H. Stephen McManus (a).............. 52 Executive Vice President, Special Projects of Flagstar (February 1995-present);
President of Flagstar Systems, Inc. (1994-present); Executive Vice President,
Restaurant Operations of Flagstar (1991-February 1995); Senior Vice President of
Flagstar (1989-1991); Chief Operating Officer of Flagstar Enterprises, Inc.
(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).
Edna K. Morris...................... 43 Executive Vice President, Human Resources and Corporate Affairs
of Flagstar (February 1995-present); Senior Vice President, Human Resources of
Flagstar (1993-February 1995); Vice President, Education and Development of
Flagstar (1992-1993); Senior Vice President/Human Resources of HFS (1987-1992);
Director of Employee Relations of HFS (1987); Personnel Manager, Consolidated
Diesel Company, a joint venture between J. I. Case and Cummins Engine Company
(1981-1987); Personnel Manager, Manufacturing of HFS (1980-1981).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CURRENT PRINCIPAL
OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
C. Ronald Petty..................... 50 Executive Vice President of Flagstar and President of Denny's (1994-present);
Chief Executive Officer of Denny's (February 1995-present); Chief Operating
Officer of Denny's (1993-present); Senior Vice President of Flagstar (1993-1994);
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).
Gregory M. Buckley.................. 41 Senior Vice President of Flagstar and Chief Operating Officer of Quincy's
Restaurants, Inc. (1993-present); President of Quincy's Restaurants, Inc.
(1994-present); Vice President, Central Division of Pizza Hut (1990-1993);
President, Southeast Division of Progressive Corp. (1986-1990).
Jerry A. Houck...................... 52 Senior Vice President, Real Estate and Construction 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..................... 40 Senior Vice President of Flagstar and Chief Operating Officer of
Flagstar Enterprises, Inc. (Hardee's) (1991-present); President of Flagstar
Enterprises, Inc. (Hardee's) (1994-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).
Raymond J. Perry.................... 53 Senior Vice President of Flagstar and Chief Operating Officer of El Pollo Loco
(1993-present); President of El Pollo Loco (1994-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).
Kent M. Smith....................... 57 Senior Vice President and Assistant to the Chief Executive Officer of Flagstar
(March 1995-present); Consultant of Pollo Tropical (1994-February 1995); Senior
Vice President of Burger King Corporation (1992-1994); President of Strategic
Marketing Group (1984-1992).
Coleman J. Sullivan................. 45 Senior Vice President, Corporate Affairs of Flagstar (February 1995-present);
Vice President, Communications of Flagstar (1990-February 1995); Vice President
of Brown Boxenbaum, Inc. (public relations firm) (1986-1990); Director, Financial
Relations, Transworld Corporation (1984-1986).
C. Burt Duren....................... 36 Vice President, Tax of Flagstar (1993-present); Treasurer of Flagstar (1994-
present); Director of Tax of Flagstar (1989-1993); Senior Tax Manager, Deloitte &
Touche LLP (1988-1989).
Thomas R. Holt...................... 38 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).
Honorio J. Padron................... 42 Vice President, Business Transformation of Flagstar (March 1995-present); Senior
Director of Research and Development of Burger King Corporation (January
1995-March 1995); Director of Reengineering of Burger King Corporation
(1993-January 1995); Director of Worldwide Profit and Loss Improvement of Burger
King Corporation (1993); Manager of Systems Support of Burger King Corporation
(1990-1993).
Stephen W. Wood..................... 36 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 HFS (1991-1993); Consultant of Hewitt Associates, L.P. (benefit
consultants that performed services for the Company in 1994) (1990); McGuire,
Woods, Battle & Boothe (law firm) (1984-1990).
</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.
21
<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 1994, 1993 and 1992 with respect
to compensation for services to the Company of Mr. Richardson, the Chief
Executive Officer of the Company during 1994, and each of the four most highly
compensated executive officers (other than the Chief Executive Officer) of the
Company during 1994.
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)(5)
<S> <C> <C> <C> <C> <C>
Jerome J. Richardson 1994 $ 856,594 $250,000 -- $ 10,250
Chairman; Formerly 1993 $ 824,355 -- -- $ 13,652
Chief Executive 1992 $ 776,804 $750,000 600,000 $ 15,286
Officer of Flagstar
Gregory M. Buckley 1994 $ 221,416 $126,563 80,000 $111,747
Senior Vice President of 1993 $ 136,533 -- 60,000 $460,852
Flagstar and President 1992 -- -- -- --
and Chief Operating
Officer of Quincy's
Samuel H. Maw 1994 $ 301,145 $ 95,625 80,000 --
Executive Vice President, 1993 $ 280,861 -- 80,000 --
Product Development 1992 $ 273,024 $124,888 -- --
and Distribution
of Flagstar
Raymond J. Perry 1994 $ 237,339 $135,000 80,000 --
Senior Vice President 1993 $ 136,606 -- 60,000 $130,000
of Flagstar and President 1992 -- -- -- --
and Chief Operating
Officer of El Pollo Loco
C. Ronald Petty 1994 $ 284,284 $144,281 80,000 $ 78,194
Executive Vice President 1993 $ 142,500 -- 80,000 $483,125
of Flagstar and President 1992 -- -- -- --
and Chief Executive
Officer of Denny's
</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 1994 include accruals of $112,938 and $41,086 for
Messrs. Richardson and Maw, respectively, under a supplemental executive
retirement plan. The amounts shown for 1993 include accruals of $62,082 and
$26,823, and the amounts shown for 1992 include accruals of $58,053 and
$30,119, for Messrs. Richardson and Maw, respectively, under the same plan.
Such amounts also reflect certain costs and credits to the named executive
officers relating to certain life, health and disability insurance coverage
provided through the Company.
(3) For additional information concerning the grant of options in 1994, 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 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.
Options were granted to Messrs. Buckley, Maw, Perry and Petty on June 29,
1993 pursuant to the 1989 Option Plan. The exercise price for such options
is $11.25 per share. Such options become exercisable at the rate of 50% as
of June 29, 1995 and 25% per year thereafter.
(4) The amounts shown for Mr. Richardson are split-dollar insurance premium
payments paid by the Company for the years indicated.
22
<PAGE>
(5) The amounts shown for Messrs. Buckley, Perry and Petty consist of additional
compensation and/or expense reimbursement paid to the respective named
executive officers at or near the time of, or otherwise arising in
connection with, their initial employment with the Company.
STOCK OPTIONS
Set forth below is information with respect to individual grants of stock
options with respect to the Common Stock made during 1994 to Messrs. Buckley,
Maw, Perry and Petty. No stock options were granted in 1994 to Mr. Richardson.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED EXERCISE STOCK PRICE
OPTIONS TO OR BASE APPRECIATION FOR
GRANTED EMPLOYEES PRICE EXPIRATION OPTION TERM
NAME (#)(1) IN 1994 ($/SH)(2) DATE 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Gregory M. Buckley 80,000 6.3% $ 9.00 08-16-04 $ 453,600 $1,144,800
Samuel H. Maw 80,000 6.3% $ 9.00 08-16-04 $ 453,600 $1,144,800
Raymond J. Perry 80,000 6.3% $ 9.00 08-16-04 $ 453,600 $1,144,800
C. Ronald Petty 80,000 6.3% $ 9.00 08-16-04 $ 453,600 $1,144,800
</TABLE>
(1) Such options were granted on August 16, 1994 pursuant to the 1989 Option
Plan and become exercisable at the rate of 50% as of August 16, 1996 and 25%
per year thereafter, conditioned upon continued employment with the Company.
Under the 1989 Option Plan, the exercise price of shares upon the exercise
of an option may be paid in cash or by surrender of other shares of Common
Stock having a fair market value on the date of exercise equal to such
exercise price, or in a combination of cash and such shares. Upon
termination of employment of a holder, all of such holder's options not then
exercisable expire and terminate. If such termination is by reason of death,
retirement or disability, such holder's exercisable options remain
exercisable for one year following termination. If such termination is
voluntary or without cause, such holder's exercisable options generally
remain exercisable for sixty days following termination. If such termination
is for cause, such holder's exercisable options expire and terminate as of
the date of termination.
(2) The exercise price for such options was established at the closing sales
price for the Common Stock as of the date prior to the date of grant.
The following table sets forth information with respect to the 1994
year-end values of unexercised options, all of which were granted by the Company
pursuant to the 1989 Option Plan, held by Mr. Richardson, the Chief Executive
Officer of the Company during 1994, and each of the other persons named in the
Summary Compensation Table above:
AGGREGATED OPTION EXERCISES IN 1994 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
YEAR-END (#) YEAR-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
<S> <C> <C>
Jerome J. Richardson....................................................................... 240,000/360,000 -- / --
Gregory M. Buckley......................................................................... -- /140,000 -- / --
Samuel H. Maw.............................................................................. -- /160,000 -- / --
Raymond J. Perry........................................................................... -- /140,000 -- / --
C. Ronald Petty............................................................................ -- /160,000 -- / --
</TABLE>
No options held by the foregoing officers were exercised in 1994.
23
<PAGE>
RETIREMENT PLANS
A tax-qualified defined benefit retirement plan is maintained by Flagstar
Systems, Inc. and certain other Flagstar subsidiaries. Such plan is described
below.
The following table shows the estimated annual benefits for a single life
annuity that could be payable under the Flagstar Retirement Plan (as defined),
as amended, and the ancillary plan described below 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.................................................. $ 43,296 $ 57,728 $ 72,161 $ 86,593 $100,000
250,000................................................. 54,546 72,728 90,911 109,093 125,000
300,000................................................. 65,796 87,728 109,661 131,593 150,000
350,000................................................. 77,046 102,728 128,411 154,093 175,000
400,000................................................. 88,296 117,728 147,161 176,593 200,000
500,000................................................. 110,796 147,728 184,661 221,593 250,000
600,000................................................. 133,296 177,728 222,161 266,593 300,000
700,000................................................. 155,796 207,728 259,661 311,593 350,000
800,000................................................. 178,296 237,728 297,161 356,593 400,000
900,000................................................. 200,796 267,728 334,661 401,593 450,000
</TABLE>
The Flagstar Pension Plan (the "Flagstar Retirement Plan"), which is
noncontributory, generally covers all employees of Flagstar and its subsidiaries
(other than its Denny's restaurant and distribution, El Pollo Loco, and
concessions and recreation services subsidiaries) who have attained the age of
21 and who have completed one thousand hours 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 generally 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 1993 year-end bonus paid in 1994), excluding
reimbursements and other expense allowances, fringe benefits, moving expenses,
deferred compensation and welfare benefits (such exclusions to include, without
limitation, severance pay, relocation allowance, gross-up pay to compensate for
taxable reimbursements, hiring bonuses, 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
Company property or services). Except for limited purposes described in the
plan, Compensation also includes 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 that provides future service benefits and benefits in excess
of the annual maximum benefits limit under the Internal Revenue Code of 1986, as
amended (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. Benefits payable under the ancillary plan are
included in the table above. A supplemental executive retirement plan provides
additional benefits to certain key executives calculated as a percentage of base
salary.
The maximum annual pension benefit payable under the Flagstar Retirement
Plan for 1994 was $118,800 (or, if greater, the participant's 1982 accrued
benefit).
Except for the exclusion of 1994 bonuses paid in 1995 and the accrual of
certain nonqualified benefits as described herein, the Compensation included
under the Flagstar Retirement Plan (including the ancillary nonqualified plan)
generally corresponds with the annual compensation of the named executive
officers in the Summary Compensation Table above. Includable Compensation for
1994 for Messrs. Richardson, Buckley, Maw and Petty was $750,000, $225,000,
$261,236 and $285,000, respectively.
As of December 31, 1994, the estimated credited years of service under the
Flagstar Retirement Plan for Messrs. Richardson, Buckley, Maw and Petty at
normal retirement age was 40, 24, 29 and 15, respectively.
24
<PAGE>
The early retirement provisions of the Flagstar Retirement Plan 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 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
12-year graduating vesting to five-year cliff vesting for the plan.
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 $9,240 (for 1994, 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, although
certain executive officers continue to have accounts thereunder. 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.
25
<PAGE>
EMPLOYMENT AGREEMENTS
RICHARDSON EMPLOYMENT AGREEMENT
Concurrently with the execution of the Purchase Agreement (as defined
herein), Mr. Richardson and Flagstar entered into an employment agreement (the
"Richardson Employment Agreement"), which took effect on November 16, 1992,
which provided that Flagstar would 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 Richardson 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 Richardson 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 Richardson Employment Agreement as in effect in 1994, Mr.
Richardson was 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 Benefits 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 achieved budgeted financial
and other performance targets, to be established annually by the Compensation
and Benefits 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"), the grant of a new
option or options to purchase 600,000 shares of Common Stock (the "Richardson
Options"), exercisable at the rate of 20% per year beginning on November 16,
1993 (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 below), in which case the option to purchase 160,000 of such shares
would be exercisable pursuant to the schedule for the Prior Option) 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
Richardson Employment Agreement also entitled Mr. Richardson to participate in
all of the Company's benefit plans applicable to the Company's executive
officers generally. As a condition to Mr. Richardson entering into the
Richardson Employment Agreement which extended 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, N.A. (Carolinas) 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 Richardson Employment Agreement, Flagstar is required to make payments as
follows based upon the cause of such termination: (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 Richardson 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. Under the terms of the Amended Richardson Agreement (as defined
below) such other benefits referred to in (iii) above shall include certain
health, welfare and retirement plan benefits through the remaining term of the
agreement or the cash equivalents thereof.
As of January 10, 1995, Mr. Richardson and the Company entered into an
amended and restated employment agreement (the "Amended Richardson Agreement")
to provide that Flagstar would employ Mr. Richardson as its Chief Executive
Officer until February 6, 1995, as its Chairman until November 16, 1997 unless a
successor is chosen upon 30 days' prior notice and, thereafter, as Chairman
Emeritus until November 16, 1997, unless earlier terminated as provided in the
agreement. Under the Amended Richardson Agreement, (i) Mr. Richardson shall be
entitled to receive a base salary at a rate of $750,000 per year and an annual
bonus, if any, as determined in the reasonable discretion of the Board, (ii) the
Richardson Options remain outstanding generally in accordance with terms
previously established, provided, however, that if the Company terminates Mr.
Richardson's employment other than for "cause" or if Mr. Richardson dies, the
Richardson Options immediately become fully exercisable, and (iii) the
Richardson Loan remains outstanding generally in accordance with terms
previously established, except as otherwise described in Item 13. Certain
Relations and Related
26
<PAGE>
Transactions. Such amended agreement also provides that during the employment
term, while Mr. Richardson shall be the Chief Executive Officer, Chairman and/or
Chairman Emeritus of the Company, he shall serve on the Board.
ADAMSON EMPLOYMENT AGREEMENT
Concurrently with the execution of the Adamson Shareholder Agreement (as
defined below), Mr. Adamson and FCI entered into an employment agreement (as
amended on February 27, 1995, the "Adamson Employment Agreement") which took
effect on January 23, 1995 and which provides that FCI will employ Mr. Adamson
as President and Chief Executive Officer of FCI until January 23, 1998 or until
his earlier death or termination of employment by reason of permanent
disability, voluntary termination of employment or involuntary termination with
or without cause (as defined). The Adamson Employment Agreement also provides
that Mr. Adamson shall be appointed as a director of FCI (on or before the first
meeting of the Board of Directors of FCI that is held after January 23, 1995)
and as the Chairman of the Board of Directors of FCI (on or before July 23,
1995, or upon 30 days' prior notice if such date is extended at Mr. Adamson's
sole discretion). The Adamson Employment Agreement prohibits Mr. Adamson from
soliciting employees of the Company or its affiliates and from engaging in
certain competitive activities generally during his term of employment and for a
period of two years after the later of the termination of his employment or the
date on which the Company is no longer required to make certain termination
benefits. The Adamson Employment Agreement further prohibits Mr. Adamson from
using or disclosing certain "confidential" or "proprietary" information for
purposes other than carrying out his duties with the Company.
Under the Adamson Employment Agreement, Mr. Adamson is entitled to receive
(i) an annual base salary at the annual rate of $950,000, $1,000,000 and
$1,050,000 for the first, second and third years of employment, respectively,
(ii) a one-time signing bonus equal to $500,000, (iii) an annual performance
bonus at an annual rate up to 200% of his base salary (targeted to equal 75% of
his base salary) if the Company and Mr. Adamson achieve budgeted financial and
other performance targets to be established by the Compensation and Benefits
Committee, with a guaranteed minimum bonus of $500,000 for his first year of
employment, (iv) 65,306 shares (the "Restricted Shares") of Common Stock (plus
an amount in cash to reimburse Mr. Adamson in part for his income tax
liabilities with respect to such shares), fifty percent (50%) of which are
subject to forfeiture upon the termination of Mr. Adamson's employment under
certain conditions prior to January 23, 1996, and (v) the grant under the 1989
Option Plan of a ten-year option to purchase 800,000 shares of Common Stock, to
become exercisable at the rate of 20% per year beginning on January 9, 1996 and
each anniversary thereafter (conditioned upon Mr. Adamson's continuing to be
employed by the Company on such dates), and subject to an exercise price of
$6.125 per share (the "Adamson Option"). Vested shares of Common Stock acquired
by Mr. Adamson pursuant to (iv) and (v) above (including shares as to which Mr.
Adamson is entitled, under certain circumstances, to accelerated vesting) are
subject to and have the rights and benefits of the Adamson Shareholder Agreement
(as defined below). See Item 12. Security Ownership of Certain Beneficial Owners
and Management -- Adamson Shareholder Agreement. The Adamson Employment
Agreement also entitles Mr. Adamson to reimbursement of expenses of relocation
and certain other privileges and benefits, including participation in all of the
Company's benefit plans applicable to the Company's executive officers
generally.
In the event of Mr. Adamson's termination of employment during the term of
the Adamson Employment Agreement, the Company is required to make payments as
follows based upon the cause of such termination: (i) if by reason of death, Mr.
Adamson's surviving spouse is entitled to be paid an amount equal to Mr.
Adamson's base salary and annual bonus and continuation of certain benefits for
a one-year period after his death; (ii) if by reason of permanent disability,
Mr. Adamson is entitled to be paid one-half of his base salary and annual bonus
and continuation of certain benefits for a period of two years after termination
of employment; and (iii) if by FCI other than for "cause," Mr. Adamson is, in
general, entitled to (a) a lump sum in the amount of the base salary remaining
to be paid over the remaining unexpired contract term but not less than an
amount equal to two years' base salary, (b) a pro rata portion of the annual
bonus otherwise payable during the calendar year of termination, (c) the
continued vesting of the Adamson Option until the option to purchase an
aggregate of 480,000 shares thereunder shall have become exercisable, (d) the
immediate vesting of 100% of the Restricted Shares, and (e) continuation of
certain benefits and other contract rights; provided, however, that in the event
of termination by FCI without "cause" following a "change of control", the
Adamson Option shall be 100% vested and exercisable as of the date of such
termination and Mr. Adamson shall be entitled to a lump sum payment on such date
equal to 200% of his targeted bonus for the year during which such termination
occurs. Furthermore, the Adamson Option shall expire and terminate as follows in
the event of Mr. Adamson's termination of employment for the following reasons:
(i) if for "cause" or voluntary termination, the Adamson Option shall expire and
terminate as of the date of termination; (ii) if by reason of death, permanent
disability or without "cause" following a "change in control", the
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<PAGE>
Adamson Option shall expire and terminate on the later of (a) the date the
Company is no longer required to provide certain termination benefits, and (b)
the first anniversary of the date of termination; and (iii) if without "cause"
(but not following a "change in control"), the Adamson Option shall expire and
terminate on the latest of January 9, 1999 and (a) and (b) above.
OTHER EMPLOYMENT ARRANGEMENTS
During 1994, Messrs. Buckley, Perry and Petty were each party to employment
agreements with the Company providing for specified base salaries, subject to
annual adjustment by the Compensation and Benefits Committee, an annual
performance bonus and options to purchase Common Stock. These agreements also
contained provisions for the payment of certain additional compensation to each
of the named executive officers at or near the time of their initial employment.
See the Summary Compensation Table above. Mr. Petty's agreement also contained
termination provisions for the payment of severance benefits equal to two years'
annual base salary and bonus upon termination of his employment under certain
circumstances. Also, in 1994, Messrs. Buckley, Maw and Perry entered into
separate agreements providing for severance benefits equal to two years' annual
base salary upon termination of their employment under certain circumstances or
the occurrence of certain other events, including a change of control of the
Company.
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Raether, Robbins and Tokarz served on the Company's Compensation
and Benefits Committee during 1994. Messrs. Tokarz and Robbins serve as officers
of certain subsidiaries of the Company. Messrs. Raether, Robbins and Tokarz are
general partners of KKR. In 1994, KKR received an annual financial advisory fee
of $1,250,000.
Pursuant to the Purchase Agreement (as defined below), 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 below) prior to March 31, 1995 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 Associates, 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 (the
"Exchange Act")) 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.
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 and Mr. Adamson 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.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1995, 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 and nominee to the
Board of Directors 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............................................................... 34,999,999(1)(2) 60.94%
Gollust, Tierney & Oliver
(and related entities)
500 Park Avenue
New York, NY 10022............................................................... 4,844,445(3) 11.42%
DLJ Capital Corporation
(and related entities)
140 Broadway
New York, NY 10005............................................................... 3,040,407 7.16%
James B. Adamson................................................................... 65,306(4) *
Michael Chu........................................................................ -- --
Vera King Farris................................................................... 100 *
Hamilton E. James.................................................................. 36,687(5) *
Henry R. Kravis (1)................................................................ -- --
A. Andrew Levison.................................................................. 9,473(6) *
Paul E. Raether (1)................................................................ -- --
Jerome J. Richardson............................................................... 1,058,164(7)(8) 2.48%
Clifton S. Robbins (1)............................................................. -- --
George R. Roberts (1).............................................................. -- --
L. Edwin Smart..................................................................... 14,566(5)(9) *
Michael T. Tokarz (1).............................................................. -- --
Gregory M. Buckley................................................................. 12,000 *
Samuel H. Maw...................................................................... 22,092(7) *
Raymond J. Perry................................................................... -- --
C. Ronald Petty.................................................................... -- --
All directors and executive officers as a group (27 persons)....................... 1,247,417(7 (10)(11) 2.92%
</TABLE>
* Less than one percent.
(1) Includes 19,999,999 shares of Common Stock owned of record. Such shares 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, Robbins, Roberts and Tokarz
(directors of FCI and Flagstar) and Messrs. Saul A. Fox, Edward A. Gilhuly,
Perry Golkin, James H. Greene, Jr., Robert J. MacDonnell, Michael W.
Michelson and Scott Stuart, 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) Includes 15,000,000 shares of Common Stock underlying warrants (the
"Warrants"), which become exercisable on March 31, 1995, acquired by TW
Associates (14,935,000 shares) and KKR Partners II (65,000 shares) under a
Stock and Warrant Purchase Agreement dated August 11, 1992 by and between
FCI and TW Associates (the "Purchase Agreement"). The Warrants were issued
pursuant to a Warrant Agreement dated November 16, 1992 by and
29
<PAGE>
between FCI and Associates. Each Warrant entitles the holder thereof to
purchase one fully paid and nonassessable share of Common Stock at an
exercise price of $17.50, subject to adjustment from time to time upon the
occurrence of certain events.
(3) The Common Fund (which is a party to an investment management arrangement
with GTO) owns 1,872,540 of the shares lised. GTO disclaims beneficial
ownership of such shares. GTO and related entities own the balance of the
shares listed. According to a Schedule 13D filed by GTO and related
entities dated as of January 3, 1995, The Saurer Group Investments Ltd. and
North Atlantic Continental Capital Ltd., formerly parties to investment
management arrangements with GTO with respect to their ownership of shares
of Common Stock, no longer maintain such arrangements. Accordingly, shares
owned by such entities are not included in the shares listed.
(4) Shares listed are those received by Mr. Adamson pursuant to the terms of
his employment agreement with the Company, 50% of which are subject to
forfeiture upon the termination of Mr. Adamson's employment with the
Company under certain conditions prior to January 23, 1996. See Item 11.
Executive Compensation -- Employment Agreements -- Adamson Employment
Agreement.
(5) Includes 10,000 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 pursuant to the 1990 Non-Qualified Stock Option Plan of
FCI, as adopted July 31, 1990 and thereafter amended (the "1990 Option
Plan"). Mr. James is Managing Director of DLJ and Chairman, DLJ Merchant
Banking Group. He also has a limited investment in GTO or related entities,
or both. Shares listed for Mr. James exclude shares held by DLJ Capital and
related entities or by GTO and related entities.
(6) Mr. Levison is a nominee to the Board of Directors of FCI for election at
the Annual Meeting and Managing Director, Investment Banking of DLJ. Shares
listed for Mr. Levison exclude shares held by DLJ Capital and related
entities.
(7) Includes shares held by the trustee of the Thrift Plan as of December 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 and 222 are credited to the accounts of
Messrs. Richardson and Maw, respectively, and 7,551 are credited to the
accounts of all directors and executive officers as a group.
(8) Includes 240,000 shares that Mr. Richardson has the right to acquire upon
the exercise of currently exercisable options granted by the Company under
the 1989 Option Plan.
(9) Includes 4,166 shares that Mr. Smart has the right to acquire upon
conversion of Flagstar's 10% Debentures.
(10) Includes shares referred to in (5), (8) and (9) above and otherwise that
individual directors or officers have the right to acquire upon the
exercise of options or conversion of certain securities.
(11) Excludes shares owned by KKR Associates through TW Associates and KKR
Partners II, as set forth above. Messrs. Kravis, Raether, Robbins, 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, Robbins, Roberts and Tokarz
disclaims beneficial ownership of those shares listed above as owned by KKR
Associates. Also excludes shares shown as beneficially owned by GTO or DLJ
Capital and related entities, as set forth above.
30
<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 (as amended from time to time thereafter, the
"Stockholders' Agreement") pursuant to which the Stockholder Parties 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. Effective as of January 1, 1995, pursuant
to the latest amendment thereto, the GTO Group is no longer a Stockholder Party
or otherwise a party to or bound by the Stockholders' Agreement.
Pursuant to the Stockholders' Agreement, each of the Stockholder Parties
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 remained Chief Executive Officer of FCI), (c) one
representative designated by DLJ Capital (for so long as DLJ Capital continues
to own at least 2% of the outstanding shares of Common Stock on a fully-diluted
basis) and (d) two independent directors. GTO's right to a Board representative
terminated as of January 1, 1995. For information regarding Mr. Richardson's
continuing participation on the Board following his resignation as Chief
Executive Officer, see Item 11. Executive Compensation -- Employment
Agreements -- Richardson Employment Agreement. 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 terms shall
end.
Under the Stockholders' Agreement, at any time after March 31, 1995, (i)
DLJ Capital may make two written requests to FCI for registration under the
Securities Act of 1933, as amended (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, DLJ Capital, Mr. Richardson and Associates have customary
"piggyback" registration rights to include their securities, subject to certain
limitations, in any other registration statement filed by FCI, 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 DLJ Capital and Mr. Richardson
or by Associates; provided that, at such time as DLJ Capital shall own less than
2% of the outstanding Common Stock on a fully-diluted basis, DLJ Capital shall
be released from its obligations and forfeit its 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.
31
<PAGE>
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 (if permitted by the Amended Richardson Agreement) to require payment
of the balance of the principal and accrued interest on the Richardson Loan (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, and (iv) 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 Amended Richardson Agreement, the market value with
respect to 160,000 shares of the Option Stock is to be reduced on a per share
basis by the difference between $20.00 and the exercise price thereof.
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.
ADAMSON SHAREHOLDER AGREEMENT. Pursuant to a shareholder agreement (the
"Adamson Shareholder Agreement") dated January 10, 1995 between Mr. Adamson and
Associates, Associates has agreed to vote all shares of Common Stock owned by it
to elect Mr. Adamson to the Board of Directors of FCI as long as Mr. Adamson is
employed by FCI. If at any time during Mr. Adamson's Employment Term (as defined
in the Adamson Employment Agreement) or for so long as Mr. Adamson is an active
employee of the Company, Associates proposes to sell or exchange any shares of
its Common Stock to any third party which is not an affiliate of Associates,
then Mr. Adamson has the right to have included in such sale or exchange a
number of his vested shares of Common Stock (including shares as to which Mr.
Adamson is entitled, under certain circumstances, to accelerated vesting)
determined by multiplying (i) the total number of shares of Common Stock
proposed to be sold or exchanged by Associates by (ii) a fraction, the numerator
of which is equal to the number of such shares of Common Stock owned by Mr.
Adamson and the denominator of which is equal to the aggregate number of such
shares of Common Stock owned by Mr. Adamson and the number of shares owned by
Associates. The Adamson Shareholder Agreement terminates upon the termination of
Mr. Adamson's Employment Term. For additional information, see Item 11.
Executive Compensation -- Employment Agreements -- Adamson Employment Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Pursuant to the Richardson 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 on November 16, 1997, subject to acceleration, as provided pursuant to
the Amended Richardson Agreement, upon Mr. Richardson's earlier termination of
employment by reason of a voluntary termination or termination for "cause".
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. In the event of a payment to Mr. Richardson upon the acceleration of
benefits due to a Termination Without Cause, such payment shall be offset
against amounts due on the Richardson Loan, with the balance due on November 16,
1997. The Richardson Loan is secured by 812,000 shares of Common Stock and
certain other collateral. See Item 11. Executive Compensation -- Employment
Agreements -- Richardson Employment Agreement.
32
<PAGE>
GTO received fees of $250,000 in 1994 for certain financial advisory
services.
Mr. Richardson, the Company's Chairman, is also an officer, director and
principal shareholder of P.F.F., Inc., the corporate general partner of
Richardson Sports, the franchisee of the NFL Carolina Panthers. Several members
of Mr. Richardson's immediate family have similar interests in P.F.F., Inc. The
stadium to be used by the team beginning with the 1996-1997 NFL season is owned
by Carolinas Stadium Corp. ("CSC") and is leased to Richardson Sports for NFL
football games and for Richardson Sports' day-to-day operations. Neither Mr.
Richardson nor members of his immediate family hold any ownership interest in
CSC. The Company has entered into the Concession Agreements with Richardson
Sports and CSC described below. These agreements were the result of arms'-length
negotiations and were approved by a disinterested majority of the Board of
Directors of the Company.
On or about February 15, 1994, Volume, an indirect wholly-owned subsidiary
of the Company, entered into Concession Agreements (the "Concession Agreements")
pursuant to which Volume was granted the exclusive right to sell food and
beverage concessions and novelties at the Carolinas Stadium currently under
construction for a 20-year period commencing with the 1996-1997 NFL season (with
CSC) and at the Clemson University Memorial Stadium for the 1995-1996 NFL season
(with Richardson Sports) and until completion of the Carolinas Stadium. As
consideration for the exclusive rights granted under the Concession Agreements,
Volume is required to pay Richardson Sports an aggregate amount of $6 million
over a ten-year period beginning in 1994 as well as certain minimum commissions
during each year of operation. Volume has also committed to incur construction
costs and other related capital expenditures for the project of an additional
$10.5 million by 1996.
The Company has also entered into certain suite rentals and has purchased
permanent seat licenses and season tickets at Carolinas Stadium at an aggregate
cost to the Company in 1994 of $137,250. Such transactions were on terms and
conditions identical with those applicable to unrelated third parties.
For information concerning certain transactions in which KKR (and their
affiliates) have an interest, see Item 11. Executive
Compensation -- Compensation and Benefits 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.
In connection with the sale of its food and vending operation on June 17,
1994 the Term Facility was repaid in full and the Revolving Credit Facility was
reduced to $250 million. Under the Restated Credit Agreement, the repayment of
the Term Facility will cause the Revolving Credit Facility to terminate on June
17, 1996 (the "Termination Date"), the second anniversary of the repayment.
The Restated Credit Agreement provides generally that the working capital
advances under the Revolving Credit Facility must be repaid in full 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 permanently reduce the Revolving Credit Facility by 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
33
<PAGE>
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 (as defined therein)).
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 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, certain exchanges of real property,
fixtures and improvements for other real property, fixtures and improvements and
the disposition of its concessions and recreation services businesses (subject
to certain conditions, including the reduction of the Revolving Credit Facility
by the amount of Net Cash Proceeds from such disposition); (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 5.90:1.00
applicable on or after March 31, 1995.
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 2.50:1.00 on or after December 31,
1999 (3.30:1.00 as of the Termination Date).
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 Adjusted
Cash Capital Expenditures (as defined below) to (b) Adjusted Cash Interest
Expense (as defined below) 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 (1.25:1.00 as of
the Termination Date).
34
<PAGE>
CAPITAL EXPENDITURES TEST. Flagstar and its subsidiaries are prohibited
from making capital expenditures in excess of $195,000,000, $210,000,000,
$200,000,000 and $175,000,000 in the aggregate for the fiscal years ending in
December 1992 through 1995, respectively, and $275,000,000 in the aggregate for
each fiscal year thereafter.
"Adjusted Cash Capital Expenditures" is defined in the Restated Credit
Agreement to mean, for any period, Cash Capital Expenditures (as defined below)
less, for each of the Rolling Periods (as defined below) ending December 31,
1994 through March 31, 1996, a specified amount, ranging from $75,000,000 for
the Rolling Period ending December 31, 1994, to $125,000,000 for the Rolling
Period ending June 30, 1995, to $65,000,000 for the Rolling Period ending March
31, 1996.
"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.
"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 (as defined below) 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.
35
<PAGE>
"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.
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
36
<PAGE>
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. On 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, 1994,
$205.6 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 downgrade of Flagstar's outstanding debt securities
during 1994, certain payments by the Company which fund such interest payments
are due and payable on a monthly basis. Principal payments total $2.9 million
annually in 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 238 Hardee's and 148 Quincy's restaurants.
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.
37
<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 which appears on page F-1
hereof.
(2) -- Financial Statement Schedules:
No schedules are filed herewith because of the absence of
conditions under which they are required or because the
information called for is in the Consolidated Financial
Statements or Notes thereto.
(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
<C> <S>
* 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")).
* 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 (incorporated by reference to Exhibit 3.3 to FCI's
1993 Form 10-K, File No. 0-18051 (the "1993 Form 10-K")).
* 3.4 Certificate of Amendment to the Restated Certificate of Incorporation of FCI dated June 16, 1993 (incorporated by
reference to Exhibit 3.4 to the 1993 Form 10-K).
3.5 By-Laws of FCI as amended through March 22, 1995.
* 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")).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 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")).
* 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 (incorporated by
reference to Exhibit 4.22 to the 1993 Form 10-K).
* 4.23 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 3/4% Notes
(incorporated by reference to Exhibit 4.23 to the 1993 Form 10-K).
* 4.24 Form of 10 3/4% Note (incorporated by reference to Exhibit 4.24 to the 1993 Form 10-K).
* 4.25 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to the 11 3/8%
Debentures (incorporated by reference to Exhibit 4.25 to the 1993 Form 10-K).
* 4.26 Form of 11 3/8% Debenture (incorporated by reference to Exhibit 4.26 to the 1993 Form 10-K).
* 4.27 Fourth Amendment to the Amended and Restated Credit Agreement dated as of April 26, 1994 (incorporated by reference
to Exhibit 10.2 to FCI's Quarterly Report on Form 10-Q for the quarterly period ending March 31, 1994 (the "1994
Form 10-Q")).
4.28 Sixth Amendment to the Amended and Restated Credit Agreement dated as of June 17, 1994.
4.29 Seventh Amendment to the Amended and Restated Credit Agreement dated as of October 7, 1994.
*10.1 Stock Purchase Agreement, dated as of April 26, 1994, among Flagstar, Canteen Holdings, Inc., Compass Group PLC and
Compass Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the 1994 Form 10-Q).
*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 Amendment (No. 3) to Stockholders' Agreement, dated as of January 1, 1995, among FCI, GTO and certain affiliated
partnerships, DLJ Capital, Jerome J. Richardson and Associates.
*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 through June 7, 1994.
10.10 FCI 1990 Non-Qualified Stock Option Plan, as adopted July 31, 1990 and amended through April 28, 1992.
*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).
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
*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).
*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).
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
*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 Amended and Restated Employment Agreement, dated as of January 10, 1995, between Flagstar and Jerome J. Richardson.
10.42 Employment Agreement, dated as of January 10, 1995, between FCI and James B. Adamson.
10.43 Adamson Shareholder Agreement, dated as of January 10, 1995, between Associates and James B. Adamson.
10.44 Amendment to Employment Agreement, dated as of February 27, 1995, between FCI and James B. Adamson.
10.45 Employment Agreement, dated as of May 15, 1993, between Flagstar and Gregory M. Buckley.
10.46 Employment Agreement, dated as of May 26, 1993, between Flagstar and Raymond J. Perry.
10.47 Employment Agreement, dated as of June 7, 1993, between Flagstar and C. Ronald Petty.
10.48 Form of Agreement providing certain severance benefits.
10.49 Flagstar's 1994 Senior Management Incentive Plan.
10.50 Amended Consent Decree dated May 24, 1994.
10.51 Consent Decree dated May 24, 1994 among certain named claimants, individually and on behalf of all others similarly
situated, Flagstar and Denny's, Inc.
11 Computation of Earnings (Loss) Per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Flagstar.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedules.
</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 1994.
41
<PAGE>
FLAGSTAR COMPANIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report........................................................................................... F-2
Statements of Consolidated Operations for the Three Years Ended December 31, 1992, 1993 and 1994....................... F-3
Consolidated Balance Sheets as of December 31, 1993 and 1994........................................................... F-4
Statements of Consolidated Cash Flows for the Three Years Ended December 31, 1992, 1993 and 1994....................... F-5
Notes to Consolidated Financial Statements............................................................................. F-7
</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, 1993 and 1994,
and the related statements of consolidated operations and consolidated cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1993 and 1994 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for self-insurance liabilities,
effective January 1, 1993.
(Deloitte & Touche LLP Signature)
Greenville, South Carolina
February 17, 1995
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,
1992 1993 1994
<S> <C> <C> <C>
Operating revenues............................................................ $2,442,992 $ 2,615,169 $2,665,966
Operating expenses:
Product cost................................................................ 795,372 899,145 919,087
Payroll & benefits.......................................................... 852,424 905,231 919,928
Depreciation & amortization expense......................................... 157,771 170,231 129,633
Utilities expenses.......................................................... 90,930 99,767 99,021
Other....................................................................... 349,791 379,992 394,377
Write-off of goodwill and certain other intangible assets (Note 2).......... -- 1,104,553 --
Provision for (recovery of) restructuring charges (Note 3).................. -- 158,620 (7,207)
2,246,288 3,717,539 2,454,839
Operating income (loss)....................................................... 196,704 (1,102,370 ) 211,127
Other charges:
Interest and debt expense (Note 4).......................................... 241,420 213,125 227,073
Other -- net................................................................ 753 2,397 3,087
242,173 215,522 230,160
Loss before income taxes...................................................... (45,469) (1,317,892 ) (19,033)
Benefit from income taxes (Note 6)............................................ (6,244) (79,328 ) (2,213)
Loss from continuing operations............................................... (39,225) (1,238,564 ) (16,820)
Gain on sale of discontinued operation, net of income tax provision of $9,999
(Note 14)................................................................... -- -- 399,188
Loss from discontinued operations, net of income tax provision (benefit) of:
1992 -- $(339) 1993 -- $(1,821); 1994 -- $471 (Note 14)..................... (12,550) (409,671 ) (6,518)
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle........................................................ (51,775) (1,648,235 ) 375,850
Extraordinary items, net of income tax benefit of: 1992 -- $85,053;
1993 -- $196; 1994 -- $174 (Note 12)........................................ (155,401) (26,405 ) (11,757)
Cumulative effect of change in accounting principles, net of income tax
benefit of: 1992 -- $8,785 (Note 8); 1993 -- $90 (Note 1)................... (17,834) (12,010 ) --
Net income (loss)............................................................. (225,010) (1,686,650 ) 364,093
Dividends on preferred stock.................................................. (6,064) (14,175 ) (14,175)
Net income (loss) applicable to common shareholders........................... $ (231,074) $(1,700,825 ) $ 349,918
Per share amounts applicable to common shareholders (Note 11):
Primary
Loss from continuing operations............................................. $ (1.82) $ (29.56 ) $ (0.14)
Income (loss) from discontinued operations, net............................. (0.50) (9.67 ) 7.52
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle..................................................... (2.32) (39.23 ) 7.38
Extraordinary items, net.................................................... (6.25) (0.62 ) (0.22)
Cumulative effect of change in accounting principle, net.................... (0.72) (0.29 ) --
Net income (loss)........................................................... $ (9.29) $ (40.14 ) $ 7.16
Average outstanding and equivalent common shares............................ 24,883 42,370 52,223
Fully diluted
Income (loss) from continuing operations.................................... $ (1.82) $ (29.56 ) $ 0.26
Income (loss) from discontinued operations, net............................. (0.50) (9.67 ) 6.05
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle..................................................... (2.32) (39.23 ) 6.31
Extraordinary items, net.................................................... (6.25) (0.62 ) (0.18)
Cumulative effect of change in accounting principle, net.................... (0.72) (0.29 ) --
Net income (loss)........................................................... $ (9.29) $ (40.14 ) $ 6.13
Average outstanding and equivalent shares................................... 24,883 42,370 64,921
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FLAGSTAR COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................................... $ 24,174 $ 66,720
Receivables, less allowance for doubtful accounts of: 1993 -- $4,790;
1994 -- $4,561............................................................................... 32,929 37,381
Merchandise and supply inventories............................................................. 62,633 62,293
Net assets held for sale (Note 14)............................................................. 103,208 77,320
Other.......................................................................................... 2,495 14,344
225,439 258,058
Property:
Property owned (at cost) (Note 4):
Land......................................................................................... 265,671 273,411
Buildings and improvements................................................................... 749,001 813,305
Other property and equipment................................................................. 413,212 462,421
Total property owned............................................................................. 1,427,884 1,549,137
Less accumulated depreciation.................................................................... 387,439 477,176
Property owned -- net............................................................................ 1,040,445 1,071,961
Buildings and improvements, vehicles, and other equipment held under capital leases (Note 5)..... 177,819 194,348
Less accumulated amortization.................................................................... 51,095 69,958
Property held under capital leases -- net........................................................ 126,724 124,390
1,167,169 1,196,351
Other Assets:
Other intangible assets, net of accumulated amortization: 1993 -- $13,892; 1994 --
$14,646...................................................................................... 25,567 25,009
Deferred financing costs -- net................................................................ 91,086 71,955
Other (including loan receivable from officer of: 1993 -- $14,815; 1994 -- $15,657) (Note
13).......................................................................................... 29,662 30,762
146,315 127,726
$ 1,538,923 $ 1,582,135
LIABILITIES
Current Liabilities:
Current maturities of long-term debt (Note 4).................................................. $ 34,213 $ 31,408
Accounts payable............................................................................... 93,435 102,464
Accrued salaries and vacations................................................................. 47,338 56,159
Accrued insurance.............................................................................. 49,585 45,165
Accrued taxes.................................................................................. 21,853 21,795
Accrued interest and dividends................................................................. 41,187 47,568
Accrued restructuring cost (Note 3)............................................................ 19,404 13,771
Other.......................................................................................... 88,217 67,986
395,232 386,316
Long-Term Liabilities:
Debt, less current maturities (Note 4)......................................................... 2,341,164 2,067,648
Deferred income taxes (Note 6)................................................................. 23,861 21,679
Liability for self-insured claims.............................................................. 60,720 58,128
Other non-current liabilities and deferred credits............................................. 140,495 110,864
2,566,240 2,258,319
Commitments and Contingencies (Notes 5 and 9)
Shareholders' Equity (Deficit) (Note 10):
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock:
$0.10 par value; 1993 and 1994, 25,000 shares authorized; 6,300 shares issued and
outstanding; liquidation preference $157,500................................................ 630 630
Common stock:
$0.50 par value; 1993 and 1994 -- 200,000 shares authorized, 42,369 issued and outstanding... 21,185 21,185
Paid-in capital................................................................................ 724,545 724,545
Deficit........................................................................................ (2,157,818 ) (1,807,900 )
Minimum pension liability adjustment (Note 7).................................................. (11,091 ) (960 )
(1,422,549 ) (1,062,500 )
$ 1,538,923 $ 1,582,135
</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,
1992 1993 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................................... $ (225,010) $(1,686,650 ) $ 364,093
Adjustments to Reconcile Net Income (Loss) to Cash Flows from Operating
Activities:
Write-off of goodwill and certain other intangible assets................ -- 1,104,553 --
Provision for (recovery of) restructuring charges........................ -- 158,620 (7,207 )
Depreciation and amortization of property................................ 120,259 129,222 122,870
Amortization of goodwill................................................. 27,362 27,449 --
Amortization of other intangible assets.................................. 10,150 13,560 6,763
Amortization of deferred financing costs................................. 9,362 9,416 6,453
Interest accretion on debt............................................... 68,283 -- --
Deferred income tax benefit.............................................. (15,414) (84,413 ) (2,793 )
Other.................................................................... 1,412 5,666 (7,363 )
Loss from discontinued operations, net................................... 12,550 409,671 6,518
Gain on sale of discontinued operation, net.............................. -- -- (399,188 )
Extraordinary items, net................................................. 155,401 26,405 11,757
Cumulative effect of change 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.............................................................. (3,049) (10,105 ) (4,452 )
Inventories.............................................................. (3,111) (5,159 ) 340
Other current assets..................................................... 870 (864 ) (11,849 )
Other assets............................................................. 1,969 2,873 2,241
Increase (decrease) in liabilities:
Accounts payable......................................................... (14,806) 10,105 9,029
Accrued salaries and vacations........................................... 9,320 612 8,821
Accrued taxes............................................................ (11,369) 10,878 (9,582 )
Other accrued liabilities................................................ (6,703) 60,796 (16,696 )
Other noncurrent liabilities and deferred credits........................ 8,586 (65,737 ) (25,198 )
Net cash flows from operating activities...................................... 163,896 128,908 54,557
Cash Flows from Investing Activities:
Purchase of property........................................................ (112,737) (99,007 ) (154,480 )
Proceeds from dispositions of property...................................... 9,269 33,678 20,135
Receipts from (advances to) discontinued operations, net.................... 17,766 (51,607 ) (9,670 )
Proceeds from sale of discontinued operation................................ -- -- 447,073
Loan to officer............................................................. (13,922) -- --
Purchase of other long-term assets.......................................... (1,741) (19,070 ) (6,205 )
Net cash flows provided by (used in) investing activities..................... (101,365) (136,006 ) 296,853
</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,
1992 1993 1994
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Net working capital advances (repayments) under credit agreements........... $ 4,000 $ 54,000 $(93,000)
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.................................................... (92,521 ) (11,388) (25)
Long-term debt payments..................................................... (1,135,275 ) (440,750) (201,664)
Cash dividends on preferred stock........................................... (2,520 ) (14,175) (14,175)
Sale of common stock and warrants........................................... 300,000 -- --
Sale of preferred stock..................................................... 157,500 -- --
Stock issuance costs........................................................ (14,039 ) -- --
Other....................................................................... (84 ) --
Net cash flows provided by (used in) financing activities..................... (61,027 ) 10,611 (308,864)
Increase in cash and cash equivalents......................................... 1,504 3,513 42,546
Cash and Cash Equivalents at:
Beginning of period......................................................... 19,157 20,661 24,174
End of period............................................................... $ 20,661 $ 24,174 $ 66,720
Supplemental Cash Flow Information:
Income taxes paid........................................................... $ 10,229 $ 4,917 $ 8,035
Interest paid............................................................... $ 205,668 $233,671 $244,478
Non-cash financing activities:
Debt issued in exchange for $700,880 of debt tendered in exchange
offers................................................................. $ 722,411 $ -- $ --
Capital lease obligations................................................ $ 29,043 $ 64,029 $ 18,800
Other financings......................................................... $ 4,841 $ 1,278 $ --
Dividends declared but not paid.......................................... $ 3,544 $ 3,544 $ 3,544
</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 write-off of such assets.
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 affiliates 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).
The Company conducts business through its Denny's, Hardee's, Quincy's, and
El Pollo Loco restaurant concepts which serve the family, quick-service
hamburger, steak house, and quick-service chicken segments, respectively.
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 its
subsidiaries. See also Note 14, related to accounting for
unconsolidated subsidiaries held for sale. Certain 1992 and 1993
amounts have been reclassified to conform to the 1994 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
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.
(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
F-7
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
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 allowed
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 certain 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 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 $5,900,000 (see Note 15). The total discounted
self-insurance liabilities recorded at December 31, 1993 and 1994 were
$97,400,000 and $86,300,000 respectively, reflecting a 4% discount
rate. The related undiscounted amounts at such dates were $107,000,000
and $94,300,000, respectively.
(j) INTEREST RATE EXCHANGE AGREEMENTS. As a hedge against fluctuations in
interest rates, the Company has entered into interest rate exchange
agreements to swap a portion of its fixed rate interest payment
obligations for floating rates without the exchange of the underlying
principal amounts. The Company does not speculate on the future
direction of interest rates nor does the Company use these derivative
financial instruments for trading purposes. Since such agreements are
not entered into on a speculative basis, the Company uses the
settlement basis of accounting. See Note 4 for further discussion of
the interest rate exchange agreements.
(k) DISCONTINUED OPERATIONS. The Company has allocated to discontinued
operations a pro-rata portion of interest and debt expense related to
its acquisition debt based on a ratio of the net assets of its
discontinued operations to its total consolidated net assets as of the
1989 acquisition date. Interest included in discontinued operations for
the years ended December 31, 1992, 1993, and 1994 was $62.5 million,
$53.0 million, and $37.4 million, respectively.
(m) POSTRETIREMENT BENEFITS. Effective January 1, 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
F-8
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
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.
(n) POSTEMPLOYMENT BENEFITS. During 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards 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 impact of Statement No. 112 on
the Company's statement of operations for 1994 is not material.
NOTE 2 WRITE-OFF OF GOODWILL AND CERTAIN OTHER INTANGIBLE ASSETS
For the year ended December 31, 1993, the Company's consolidated statement
of operations reflects charges totaling $1,474.8 million ($1,104.6 million in
continuing operations and $370.2 million in discontinued operations) for the
write-off of goodwill and certain other intangible assets, primarily tradenames
and franchise agreements.
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 prior to
1993, 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 certain 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 would
continue. Thus, the Company 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 certain other intangible assets involved a detail six year
projection of operating results extrapolated forward 30 years, which
approximated the maximum remaining amortization period for such assets as of
December 31, 1993. The Company then evaluated the recoverability of goodwill and
certain other intangibles 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 certain
other intangibles. Extension of these trends to include the entire 36 year
amortization period indicated that there would be losses each year, unless the
restructuring plan or other activities were successful in reversing the present
operating trends; thus, the analysis indicated that there was insufficient net
income to recover the goodwill and certain 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 former contract food and vending
services 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 (see Note 14) 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
were 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 were assumed to remain at their historical percentage of revenues.
Other costs were assumed to increase at the historical inflation rate consistent
with revenue pricing increases. Through the year 1999, the Company's projections
indicated that interest expense would exceed operating income, which was
determined after deducting annual
F-9
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 WRITE-OFF OF GOODWILL AND CERTAIN OTHER INTANGIBLE ASSETS -- Continued
depreciation expense; however, operating income before depreciation is adequate
to cover interest expense. A continuation of this trend for the next 30 years
did not generate cash to repay the current debt and management assumes it will
be refinanced at constant interest rates.
NOTE 3 RESTRUCTURING
Effective in 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 involved the sale or closure of restaurants, a
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 reorganization of the field management structure of
the restaurant group resulted in the elimination of a layer of supervisory
management and consolidation of field offices resulting in related severance and
relocation costs. In addition, the Company has eliminated a number of positions
in the corporate marketing, accounting and administrative functions. The plan
resulted in a restructuring chargeduring the year ended December 31, 1993
comprised of the following:
<TABLE>
<S> <C>
Write-down of assets...................................................................... $130,711
Severance and relocation.................................................................. 17,080
Other..................................................................................... 10,829
Continuing operations..................................................................... 158,620
Discontinued operations................................................................... 33,383
Total..................................................................................... $192,003
</TABLE>
The write-down of assets represented 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 were
identified for sale, conversion to another concept, or closure. The 240
restaurants identified in the restructuring plan had aggregate operating
revenues during 1993 of approximately $227 million and a negative cash flow of
approximately $2.4 million. As of December 31, 1994, 31 units had been sold,
closed or converted to another concept. The remaining 209 restaurants had
aggregate operating revenues during 1994 of approximately $200.0 million. The
Company estimates that the remaining portions of the restructuring plan will be
completed during 1995.
The write-down of assets also included a charge of $15 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. During 1994,
approximately $1.4 million in lease payments were charged against the
restructuring reserves.
Approximately $28 million of the restructuring charges represent
incremental cash charges of which approximately $6.5 million and $8.2 million
were incurred and paid in 1993 and 1994, respectively. Unpaid amounts are
included in accrued restructuring cost on the accompanying balance sheet.
NOTE 4 DEBT
At December 31, 1993, advances of $93.0 million were outstanding under the
working capital facility portion of the Company's credit agreement (Restated
Credit Agreement). Such advances were classified as long-term debt in accordance
with the terms of the Restated Credit Agreement at such date. At December 31,
1994, the Restated Credit Agreement includes a working capital and letter of
credit facility of up to a total of $250.0 million which includes a working
capital sublimit of $160.0 million and a letter of credit sublimit of $157.9
million. At such date, the Company had no working capital borrowings; however,
letters of credit outstanding were $108.9 million. All outstanding amounts under
the Restated Credit Agreement must be repaid by June 17, 1996. 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,
1993 1994
<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, interest varies with prime and LIBOR at December 31, 1993 -- 5.9375%.......... 171,295 --
Notes and Debentures:
10.75% Senior Notes due September 15, 2001, interest payable semi-annually...................... 275,000 275,000
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... 125,000 125,000
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............................................................................. 99,259 99,259
Mortgage Notes Payable:
10.25% Guaranteed Secured Bonds due 2000........................................................ 208,508 205,612
11.03% Notes due 2000........................................................................... 160,000 160,000
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).............................. 24,893 23,129
Capital lease obligations (see Note 5)............................................................ 174,099 170,697
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).................................. 21,912 17,948
Total............................................................................................. 2,375,377 2,099,056
Less current maturities (c)....................................................................... 34,213 31,408
$2,341,164 $2,067,648
</TABLE>
(a) Collateralized by restaurant and other properties with a net book value of
$37.9 million at December 31, 1994.
(b) Collateralized by equipment with a net book value of $18.8 million at
December 31, 1994.
(c) Aggregate annual maturities during the next five years of long-term debt are
as follows (in thousands): 1995 -- $31,408; 1996 -- $40,248;
1997 -- $39,779; 1998 -- $33,301, and 1999 -- $28,017.
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.
During June 1994, net proceeds from the sale of Canteen Corporation, a
wholly-owned subsidiary, were used to prepay $170.2 million of outstanding
principal under the senior term loan and repay $126.1 million of outstanding
working capital advances. In connection with such sale and use of the net
proceeds, the Restated Credit Agreement was
F-11
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
amended to include, among other things, less restrictive financial covenants, a
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, and a reduction in annual capital expenditures to reflect the reduced
size of ongoing operations.
The Company was in compliance with the terms of the Restated Credit
Agreement at December 31, 1994. Under the most restrictive provision of the
Restated Credit Agreement (ratio of total debt to EBITDA, as defined), at
December 31, 1994, the Company could incur approximately $138 million of
additional indebtedness.
At December 31, 1994, the 10.25% guaranteed bonds were secured by, among
other things, mortgage loans on 386 restaurants, a lien on the related
restaurant equipment, assignment of intercompany lease agreements, and the stock
of the issuing subsidiaries. At December 31, 1994, the restaurant properties and
equipment had a net book value of $343.9 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; certain payments are made by the Company on a monthly
basis. Principal payments total $2.9 million in 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 $16.9 million in 1995 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, 1994 of
$220.7 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. 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, 1994, the Company has $900 million aggregate notional
amount in effect of reverse interest rate exchange agreements with maturities
ranging from twenty-four to sixty months. These notional amounts reflect only
the extent of the Company's involvement in these financial instruments and do
not represent the Company's exposure to market risk. The Company receives
interest at fixed rates calculated on such notional amounts and pays interest at
floating rates based on six months LIBOR in arrears calculated on like notional
amounts. The net income or expense from such agreements is reflected in interest
and debt expense. Management intends to maintain its exchange agreements until
maturity, unless there is a material change in the underlying hedged instruments
of the Company.
The counterparties to the Company's interest rate exchange agreements are
major financial institutions who participate in the Company's senior bank credit
facility. Such financial institutions are leading market-makers in the financial
derivatives markets, are well capitalized, and are expected to fully perform
under the terms of such exchange agreements, thereby mitigating the credit risk
to the Company.
The Company is exposed to market risk for such exchange agreements due to
the interest rate differentials described above. The Company monitors its market
risk by periodically preparing sensitivity analyses of various interest rate
fluctuation scenarios and the results of such scenarios on the Company's cash
flows on a nominal and discounted basis. In addition, the Company obtains
portfolio mark-to-market valuations from market-makers of financial derivatives
products.
Information regarding the Company's reverse interest rate exchange
agreements at December 31, 1994 is as follows:
<TABLE>
<CAPTION>
AMOUNT OF WEIGHTED AVERAGE
YEAR OF NOTIONAL INTEREST RATE
MATURITY PAYMENT RECEIVED PAID
<S> <C> <C> <C>
1997 $500,000 5.15% 7.03%
1998 300,000 5.57% 6.97%
1999 100,000 5.82% 6.93%
$900,000 5.37% 7.00%
</TABLE>
F-12
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
The estimated fair value of the Company's long-term debt (excluding capital
lease obligations) is approximately $1.74 billion at December 31, 1994. Such
computations are based on market quotations for the same or similar debt issues
or the estimated borrowing rates available to the Company. At December 31, 1994,
the estimated fair value of the $900 million notional amount of reverse interest
rate swaps was a net payable of approximately $74.1 million and represents the
estimated amount that the Company would be required to pay to terminate the swap
agreements at December 31, 1994. This estimate is based upon a mark-to-market
valuation of the Company's swap portfolio obtained from a major financial
institution which is one of the counterparties to the exchange agreements.
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, 1994, 951 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, 1994
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:
1995........................................................................... $ 38,788 $ 3,690 $ 39,225
1996........................................................................... 35,204 3,549 36,183
1997........................................................................... 32,107 3,275 34,036
1998........................................................................... 25,788 2,915 30,936
1999........................................................................... 20,902 2,526 27,674
Subsequent years............................................................... 144,401 4,598 178,148
Total....................................................................... $297,190 $20,553 $ 346,202
Less imputed interest............................................................ 126,493
Present value of capital lease obligations....................................... $170,697
</TABLE>
The total rental expense included in the determination of operating income
for the years ended December 31, 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994
<S> <C> <C> <C>
(IN THOUSANDS)
Basic rents................................................................... $ 44,441 $ 48,870 $ 49,234
Contingent rents.............................................................. 12,842 12,306 12,178
Total......................................................................... $ 57,283 $ 61,176 $ 61,412
</TABLE>
F-13
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 LEASES AND RELATED GUARANTEES -- Continued
Total rental expense does not include sublease rental income of $9,437,000,
$8,998,000, and $9,975,000 for the years ended December 31, 1992, 1993, and
1994, respectively.
NOTE 6 INCOME TAXES
A summary of the provision for (benefit from) income taxes attributable to
loss before discontinued operations, 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,
1992 1993 1994
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal..................................................................... $ 6,301 $ 1,323 $ 365
State, Foreign and Other.................................................... 2,869 3,762 215
9,170 5,085 580
Deferred:
Federal..................................................................... (13,471) (74,606) --
State, Foreign and Other.................................................... (1,943) (9,807) (2,793)
(15,414) (84,413) (2,793)
Benefit from income taxes..................................................... $ (6,244) $(79,328) $ (2,213)
The total provision (benefit) from income taxes related to:
Loss before discontinued operations, extraordinary items, and cumulative
effect of change in accounting principles................................ $ (6,244) $(79,328) $ (2,213)
Discontinued operations..................................................... (339) (1,821) 10,470
Extraordinary items......................................................... (85,053) (196) (174)
Cumulative effect of change in accounting principles........................ (8,785) (90) --
Total provision (benefit) from income taxes................................... $ (100,421) $(81,435) $ 8,083
</TABLE>
For the year ended December 31, 1993, the Company utilized regular tax net
operating loss carryforwards of approximately $9.5 million. During 1994, the
provision for income taxes relating to discontinued operations was reduced due
to the utilization of regular tax net operating loss carryforwards of
approximately $89 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,
1993 1994
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Amortization (including write-down) of intangible assets............................................. $ 1,768 $ --
Self-insurance reserves.............................................................................. 33,947 40,269
Capitalized leases................................................................................... 6,984 2,978
Assets held for sale................................................................................. 31,945 7,343
Other accruals and reserves (includes restructuring reserves)........................................ 93,404 38,246
Alternative minimum tax credit carryforwards......................................................... 13,330 14,125
General business credit carryforwards................................................................ 4,751 13,225
Net operating loss carryforwards..................................................................... 72,539 44,450
Less: valuation allowance............................................................................ (102,235) (28,767)
Total deferred tax assets............................................................................ 156,433 131,869
Deferred tax liabilities:
Depreciation of fixed assets......................................................................... 180,294 148,904
Amortization of intangible assets.................................................................... -- 4,644
Total deferred tax liabilities....................................................................... 180,294 153,548
Total deferred income tax liability.................................................................. $ 23,861 $ 21,679
</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 from continuing operations before discontinued
operations, extraordinary items and cumulative effect of accounting change is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994
<S> <C> <C> <C>
Statutory rate................................................................ 34% 35% 35%
Differences:
State, foreign, and other taxes, net of federal income tax benefit.......... (4) -- 12
Amortization and write-off of goodwill...................................... (16) (26) --
Portion of losses not benefited as a result of the establishment of
valuation allowance...................................................... -- (3) (35)
Effective tax rate............................................................ 14% 6% 12%
</TABLE>
At December 31, 1994, the Company has available, to reduce income taxes
that become payable in the future, general business credit carryforwards of
approximately $13.2 million most of which expire in 2002 through 2004, and
alternative minimum tax (AMT) credits of $14.1 million. The AMT credits may be
carried forward indefinitely. In addition, the Company has available regular
income tax net operating loss carryforwards of $127 million which expires in
2007. Due to the Recapitalization of the Company which occurred during 1992, the
Company's ability to utilize general business credits, and AMT credits which
arose prior to 1992 will be limited to a specified annual amount. The annual
limitation for the utilization of the tax credit carryforwards is approximately
$8 million. The remaining amount of net operating loss carryforward which arose
in 1992 of $127 million is not expected to be subject to any annual limitation.
F-15
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1992, 1993, and 1994 amounted to $2,672,000, $3,724,000 and
$3,995,000, respectively, of which $1,738,000, $2,802,000 and $3,270,000 related
to funded defined benefit plans and $934,000, $922,000 and $725,000 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 years ended December 31, 1992, 1993, and 1994 determined
under SFAS No. 87 follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost-benefits earned during the year.................................. $ 2,137 $ 2,625 $ 3,076
Interest cost on projected benefit obligations................................ 1,864 2,281 2,427
Actual return on plan assets.................................................. (115) (1,284) 761
Net amortization and deferral................................................. (1,214) 102 (2,269)
Net pension cost.............................................................. $ 2,672 $ 3,724 $ 3,995
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's balance sheet for its funded defined benefit plans:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested benefits....................................................................................... $20,087 $19,887
Non-vested benefits................................................................................... 1,077 1,412
Accumulated benefit obligations......................................................................... $21,164 $21,299
Plan assets at fair value............................................................................... $20,600 $21,859
Projected benefit obligation............................................................................ 28,027 27,556
Funded status........................................................................................... (7,427) (5,697)
Unrecognized net loss from past experience different from that assumed.................................. 8,684 7,270
Unrecognized prior service cost......................................................................... 441 137
Unrecognized net asset.................................................................................. (152) --
Additional liability.................................................................................... (2,109) --
Prepaid (accrued) pension costs......................................................................... $ (563) $ 1,710
</TABLE>
Assets held by the Company's plans are invested in money market and other
fixed income funds as well as equity funds.
F-16
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS -- Continued
The following sets forth the funded status of the plans and amounts
recognized in the Company's balance sheet for its unfunded defined benefit
plans:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested benefits........................................................................................ $ 3,467 $ 3,888
Non-vested benefits.................................................................................... 294 343
Accumulated benefit obligations.......................................................................... $ 3,761 $ 4,231
Plan assets at fair value................................................................................ $ -- $ --
Projected benefit obligation............................................................................. (5,727) (4,623)
Funded status............................................................................................ (5,727) (4,623)
Unrecognized net loss from past experience different from that assumed................................... 2,234 468
Unrecognized prior service cost.......................................................................... 849 738
Unrecognized net asset at January 1, 1987 being amortized over 15 years.................................. (179) (123)
Additional liability..................................................................................... (1,300) (1,163)
Accrued pension costs.................................................................................... $(4,123) $(4,703)
</TABLE>
Significant assumptions used in determining net pension cost and funded
status information for all the periods shown above are as follows:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Discount rate..................................................................... 7.5% 8.25%
Rates of salary progression....................................................... 4.0% 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 $4,107,000, $3,767,000, $3,932,000 for the
years ended December 31, 1992, 1993, and 1994, 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,
1992, 1993, and 1994 were as follows: $4,335,000, zero and $4,212,000. 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 exercise at such time or times either in whole or
part, as determined by the Committee. The 1989 Stock Option Plan authorizes
grants of up to 4,500,000 common shares. Options of 2,979,270 and 3,308,200,
respectively, were outstanding at December 31, 1993 and 1994 of which 131,870
and 241,610, respectively, were exercisable. Such options have exercisable
prices of between $9.00 and $20.00 per share and become exercisable between one
and two years after the date of grant with an additional twenty to twenty-five
percent of such options becoming exercisable each year thereafter. During 1993
and 1994 no options were exercised. 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, as
currently in effect, authorizes the issuance of up to 110,000 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
F-17
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS -- Continued
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, 1993 and 1994, respectively, options
outstanding under the 1990 Option Plan totalled 20,000 shares.
During January 1995, the Company issued 65,306 shares of common stock, 50%
of which are subject to forfeiture prior to January 23, 1996, and granted an
option under the 1989 Stock Option Plan to purchase 800,000 shares of the
Company's common stock, at market value at the date of grant, for a ten-year
period. Such grant becomes exercisable at the rate of 20% per year beginning on
January 9, 1996 and each anniversary thereafter.
NOTE 8 OTHER POSTRETIREMENT BENEFITS
During 1992, the Company adopted Statement of Financial Standards No. 106
"Employer's Accounting for Postretirement Benefits Other Than Pensions". This
statement requires the accrual of the cost of providing postretirement benefits,
including medical and life insurance benefits, during the active service period
of the covered employees. The Company 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). Charges of the Company for such
postretirement benefits during the years ended December 31, 1992, 1993, and
1994, respectively, were recorded at Canteen Corporation, a wholly-owned
subsidiary. During 1994, Canteen Corporation was sold by the Company (see Note
14).
For the years ended December 31, 1992, 1993, and 1994, the net
postretirement benefit cost (income) included in loss from discontinued
operations was $5,188,000, $(189,000), and $(100,000), respectively.
NOTE 9 COMMITMENTS AND CONTINGENCIES
There are various claims and pending legal actions against or indirectly
involving the Company, including actions concerned with civil rights of
employees and customers, other employment related matters, 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, 1994, 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.
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
F-18
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 COMMITMENTS AND CONTINGENCIES -- Continued
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.
NOTE 10 SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
TOTAL SHAREHOLDERS'
OTHER EQUITY DEFICIT EQUITY (DEFICIT)
<S> <C> <C> <C>
(IN THOUSANDS)
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)
Activity:
Net Income................................................................ -- 364,093 364,093
Dividends on Preferred Stock.............................................. -- (14,175) (14,175)
Minimum pension liability adjustment...................................... 10,131 -- 10,131
Balance December 31, 1994...................................................... $745,400 $(1,807,900) $ (1,062,500)
</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 increased 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 any
dividend payment date 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 $25.00 principal amount of 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, 1994 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.
F-19
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
The outstanding warrants as well as the stock options issued to management
and directors are common stock equivalents. The $2.25 Preferred Stock and 10%
Convertible Debentures, which are convertible into the common stock of the
Company (see Note 4), are not common stock equivalents; however, such securities
are considered "other potentially dilutive securities" which may become dilutive
in the calculation of fully diluted per share amounts.
The calculations of primary and fully diluted loss per share amounts for
the years ended December 31, 1992 and 1993 have been based on the weighted
average number of Company shares outstanding and give consideration to the
issuance of common shares during 1992. In addition, such primary and fully
diluted losses per share amounts have been adjusted on a retroactive basis to
reflect the reverse stock split effected during 1993. The warrants, options,
$2.25 Preferred Stock, and 10% Convertible Debentures have been omitted from the
calculations for 1992 and 1993 because they have an antidilutive effect on loss
per share.
For the year ended December 31, 1994, the calculation of primary earnings
per share has been based on the weighted average number of outstanding shares as
adjusted by the assumed dilutive effect that would occur if the outstanding
warrants and stock options were exercised, using the modified treasury stock
method. The calculation of fully diluted earnings per share has been based on
additional adjustments to the primary earnings per share amount for the dilutive
effect of the assumed conversion of the $2.25 Preferred Stock and 10%
Convertible Debentures.
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
</TABLE>
F-20
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 EXTRAORDINARY ITEMS -- Continued
<TABLE>
<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>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
INCOME LOSSES,
TAX NET OF
LOSSES BENEFITS TAXES
<S> <C> <C> <C>
(IN THOUSANDS)
Prepayment of Term Loan:
Write-off of unamortized deferred financing costs on indebtedness retired............. $11,931 $ (174) $11,757
</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.
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.
During the second quarter of 1994, the Company sold Canteen Corporation, a
wholly-owned subsidiary. A portion of the proceeds from the sale was used to
prepay $170.2 million of term and $126.1 million of working capital advances
which were outstanding under the Company's Restated Credit Agreement resulting
in a charge-off of $11.9 million of unamortized deferred financing costs.
NOTE 13 RELATED PARTY TRANSACTIONS
The Company expensed annual advisory fees of $1,000,000 during 1992 and
$250,000 during 1993 and 1994 for Gollust, Tierney & Oliver, Incorporated (GTO).
GTO earned interest of $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.
F-21
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 RELATED PARTY TRANSACTIONS -- Continued
The Company expensed annual advisory fees to Donaldson, Lufkin & Jenrette
Securities Corporation (DLJ) of $200,000 for 1992. 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 and 1994, KKR
received annually financial advisory fees of $1,250,000.
In November 1992 in connection with the recapitalization, the Company
loaned $13,922,000 to its chairman, 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 and 1994, the Company earned $789,000
and $842,000, respectively, on the loan which accrues interest at 5.6% per annum
and is payable at maturity.
During 1994, the Company, through Volume Services, Inc. a stadium
concession subsidiary, and Carolinas Stadium Corporation entered into a
long-term agreement whereby Volume Services, Inc. will be the concession manager
of Carolinas Stadium upon completion of the stadium for a term of 20 years, and
will provide concession services for National Football League games played at
Clemson University during 1995. The agreement provides for a $2.0 million
payment by the Company during 1994 and additional payments of $1.5 million
during each of 1995 and 1996, respectively, and $1.0 million during 2004 as well
as certain minimum commissions during each year of operation. Volume has also
committed to incur construction costs and other related capital expenditures for
the project of an additional $10.5 million by 1996. The chairman of the Company
is affiliated with Carolinas Stadium Corporation.
NOTE 14 DISCONTINUED OPERATIONS
During April 1994, the Company announced the signing of a definitive
agreement to sell the food and vending business and its intent to dispose of the
remaining concession and recreation services businesses of its subsidiary,
Canteen Holdings, Inc. The Company sold Canteen Corporation, a food and vending
subsidiary, for $447.1 million during June 1994, and recognized a net gain of
approximately $399.2 million, net of income taxes, during the year ended
December 31, 1994. A portion of the proceeds from such transaction was used to
prepay $170.2 million of outstanding principal under the senior term loan and
liquidate $126.1 million of outstanding working capital advances.
During November 1994, the Company announced that it had agreed to sell TW
Recreational Services, Inc., a concession and recreation services subsidiary.
Such transaction is subject to resolution of certain issues that have been
raised by the National Park Service. The Company is continuing its efforts to
sell Volume Services, Inc., a stadium concession services subsidiary; however,
the major league baseball strike has delayed the sale of Volume beyond the time
originally anticipated.
Prior period financial statements and related notes have been reclassified
to present Canteen Holdings, Inc. and its subsidiaries as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30.
Revenues and operating income (loss) of the discontinued operations for the
years ended December 31, 1992, 1993, and 1994 were $1.28 billion, $1.37 billion,
and $859.7 million and $50.9 million, $(313.3) million, and $32.6 million,
respectively.
F-22
<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 1993
and 1994 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, 1993:
Operating Revenues........................................................ $592,783 $658,201 $689,941 $ 674,244
Operating expenses:
Product costs........................................................... 198,163 227,622 240,406 232,954
Payroll & benefits...................................................... 216,319 229,267 231,758 227,887
Depreciation & amortization expense..................................... 40,644 42,064 41,438 46,085
Other................................................................... 110,505 121,495 133,826 113,933
Write-off of goodwill and certain other intangibles..................... -- -- -- 1,104,553
Provision for restructuring charges..................................... -- -- -- 158,620
Operating income (loss)................................................... $ 27,152 $ 37,753 $ 42,513 $(1,209,788)
Loss before extraordinary item 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)
Primary and fully diluted per share amounts applicable to common
shareholders:
Loss before extraordinary item 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)
Year Ended December 31, 1994:
Operating Revenues........................................................ $626,273 $679,563 $700,589 $ 659,541
Operating expenses:
Product costs........................................................... 217,607 234,770 239,479 227,231
Payroll & benefits...................................................... 227,318 241,419 238,075 213,116
Depreciation & amortization expense..................................... 31,713 31,765 32,866 33,288
Other................................................................... 110,809 126,304 128,228 128,058
Recovery of restructuring charges....................................... -- -- -- (7,207)
Operating income.......................................................... $ 38,826 $ 45,305 $ 61,941 $ 65,055
Income (loss) before extraordinary items and cumulative effect of change
in accounting principle................................................. $(23,072) $361,619 $ 23,519 $ 13,784
Net income (loss) applicable to common shareholders....................... $(26,616) $347,253 $ 19,976 $ 9,305
Primary per share amounts applicable to common shareholders:
Income (loss) before extraordinary items and cumulative effect of change
in accounting principle.............................................. $ (0.63) $ 7.09 $ 0.47 $ 0.24
Net income (loss)....................................................... $ (0.63) $ 6.88 $ 0.47 $ 0.22
Fully diluted per share amounts applicable to common shareholders:
Income (loss) before extraordinary item and cumulative effect of change
in accounting principle.............................................. $ (0.63) $ 5.78 $ 0.47 $ 0.24
Net income (loss)....................................................... $ (0.63) $ 5.61 $ 0.47 $ 0.22
</TABLE>
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
F-23
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 QUARTERLY DATA (UNAUDITED) -- Continued
of the Securities and Exchange Commission in June 1993 concerning the accounting
for environmental and other contingent liabilities.
During the second quarter of 1994, the Company sold its food and vending
subsidiary (see Note 14) and recorded a $383.9 million net gain on the sale of
the discontinued operation. During the fourth quarter of 1994, the Company
increased its gain by $15.3 million to reflect the final settlement of such
sale.
During the fourth quarter of 1994, the Company recognized a reduction in
operating expenses of approximately $15.0 million principally due to favorable
claims trends associated with the Company's self-insurance liabilities.
The effect of the Company's other potentially dilutive securities (see Note
11) on the computations of fully diluted loss per share amounts for the 1993
quarters and first, third, and fourth quarters of 1994 were anti-dilutive.
Accordingly, the primary and fully diluted loss per share amounts for such
quarters are equivalent.
F-24
<PAGE>
EXHIBIT 3.5
BY-LAWS(1)
OF
FLAGSTAR COMPANIES, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in
the State of Delaware shall be in the City of Wilmington.
SECTION 2. OTHER OFFICES. The Corporation may have other offices, either
within or without the state of Delaware, at such place or places as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may stated in the notice of
the meeting shall be held at such place, either within or without the state of
Delaware, and at such time and date, commencing in the year 1989, as the Board
of Directors, by resolution, shall determine and as set forth in the notice of
the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next business day. At each annual meeting, the
stockholders entitled to vote shall elect a Board of Directors and they may
transact such other corporate business as shall be stated in the notice of the
meeting.
SECTION 2. OTHER MEETINGS. Special meetings of stockholders for any purpose
may be held at such time and place, within or without the state of Delaware, as
may be fixed by the Board of Directors and shall be stated in the notice of
meeting.
SECTION 3. INSPECTOR OF ELECTION. At each meeting of stockholders at which
an election of directors is to be held, the chairman of the meeting may, but
shall not be required to, appoint one person, who need not be a stockholder, to
act as inspector of election at such meeting. The inspector so appointed, before
entering on the discharge of his duties, shall take and subscribe to an oath or
affirmation to faithfully execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability, and thereupon
their inspector shall take charge of the polls and after the balloting shall
canvas the votes and make a certificate of the results of the vote taken. No
director or candidate for the office of director shall be appointed inspector.
SECTION 4. VOTING. At each meeting of the stockholders, each stockholder
entitled to vote at such meeting in accordance with the terms of the Certificate
of Incorporation and in accordance with the provisions of these By-Laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. Every proxy must
be executed in writing by the stockholder or by the stockholder's duly
authorized attorney. Upon the demand of any stockholder, the vote for directors
and the vote upon any question before the meeting, shall be by ballot. All
elections for directors and all other questions shall be decided by majority
vote except as otherwise provided by the Certificate of Incorporation or the
laws of the state of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
1. As amended through March 22, 1995.
<PAGE>
SECTION 5. QUORUM. At all meetings of the stockholders, except as otherwise
required by law, by the Certificate of Incorporation or by these By-Laws, the
presence, in person or by proxy, of stockholders of record holding a majority of
the shares of stock of the Corporation issued, outstanding and entitled to vote
thereat shall constitute a quorum for the transaction of business. In case a
quorum shall not be present at any meeting, the holders of record of a majority
of the shares of stock entitled to vote thereat, present in person or by proxy,
shall have the power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until the requisite amount of stock
entitled to vote shall be present. At any such adjourned meeting at which the
requisite amount of stock entitled to vote shall be represented, any business
may be transacted which might have been transacted at the meeting as originally
called; but only those stockholders entitled to vote at the meeting as
originally called shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 6. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board of Directors, the
President or the Secretary, or the resolution of the Board of Directors.
SECTION 7. NOTICE OF MEETINGS. Written notice, stating the place, date and
time of the meeting, and the general nature of the business to be considered,
shall be given to each stockholder entitled to vote thereat at his address as it
appears on the records of the Corporation, not less than ten nor more than sixty
days before the date of the meeting. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Such written consent shall be filled in the
minute book of the Corporation.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors of the Corporation
shall be not less than one nor more than fifteen. Within the limits above
specified, the number of directors shall be determined from time to time by the
stockholders or by the Board of Directors at any meeting thereof. The directors
shall be elected at the annual meeting of the stockholders. Each director shall
be elected to serve until his successor shall be elected and shall qualify or
until his earlier death, resignation or removal as provided in these Bylaws.
Directors need not be stockholders. No person who has attained the age of 70
shall be eligible to stand for election or re-election by the stockholders or
otherwise to be appointed to serve as a director of the Corporation.
SECTION 2. RESIGNATION. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing to the
Board of Directors, the Chairman of the Board of Directors, the President or the
Secretary. Unless otherwise specified therein, such resignation shall take
effect on receipt thereof. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director, member of a committee
or other officer becomes vacant, the remaining directors in office, though less
than a quorum, by a majority vote, may appoint any qualified person to fill such
vacancy, who shall hold office for the unexpired term and until his successor
shall be duly chosen or until his earlier death, resignation or removal. In the
event that the resignation of any director shall specify that it shall take
effect at a future date, the vacancy resulting from such resignation may be
filled prospectively in the same manner as provided in this paragraph.
SECTION 4. REMOVAL. Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by affirmative
vote of the holders of a majority of all the shares of stock outstanding and
entitled to vote, at a special meeting of the stockholders called for the
purpose, and the vacancies thus created may be filled, at the
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meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Any director may be removed at any time for cause by the action of the
directors, at a special meeting called for that purpose, by the vote in favor of
removal of a majority of the total number of directors.
SECTION 5. INCREASE OF NUMBER. The maximum number of directors may be
increased by amendment of these By-Laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by affirmative vote of a majority
interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be chosen
at such meeting to hold office until the next annual election and until their
successors are elected and qualify or until earlier death, resignation or
removal.
SECTION 6. POWERS. The Board of Directors shall exercise all of the powers
of the Corporation except such as are by law, by the Certificate of
Incorporation of the Corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation; and, unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed [by] consent in writing of all
the directors.
Regular meetings of the directors may be held without notice at such places
and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors, the President or the Secretary on the written request of
any two directors on at least two day's notice to each director and shall be
held at such place or places as may be determined by the directors, or shall be
stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM. A majority of the total number of directors shall
constitute a quorum for the transaction of business. If a quorum shall be
present, the act of a majority of the directors present shall be the act of the
Board of Directors, except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws. If at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need by given other than by announcement at the meeting which
shall be so adjourned.
SECTION 10. COMPENSATION. Directors shall not receive any stated salary for
their services as directors or as members of committees, but by resolution of
the Board of Directors a fixed fee and expenses of attendance may be
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allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, if prior to such action a written consent thereto is
signed by all members of the Board of Directors, or of such committee as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or committee.
SECTION 12. RULES AND REGULATIONS. The Board of Directors may adopt such
rules and regulations for the conduct of its meetings and for the management of
the property, affairs and business of the Corporation as it may deem proper,
except as otherwise provided by law, by the Certificate of Incorporation or by
these By-Laws.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of
the Board of Directors, if any shall have been elected, a President, a
Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and who shall hold office until their successors are elected and
qualified or until their earlier death, resignation or removal. In addition, the
Board of Directors may elect one or more Vice Presidents and such Assistant
Secretaries and Assistant Treasurers as they may deem proper. None of the
officers of the Corporation need be directors (except for the Chairman of the
Board of Directors, if any) or stockholders. The officers shall be elected at
the first meeting of the Board of Directors after each annual meeting. Any
person may hold one or more offices. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors. The Board of
Directors may delegate to any officer or officers the power to appoint any such
officer, to fix their respective terms of office, to prescribe their respective
powers and duties, to remove them and to fill vacancies in any such offices.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders, and absent instructions to the contrary by the Board of Directors,
shall exercise general supervision over the property, affairs and business of
the Corporation, shall authorize the other officers of the Corporation to
exercise such powers as he may deem to be in the best interests of the
Corporation and shall have and perform such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall have such duties as may from time
to time be delegated to him by the Board of Directors. In the event there shall
be no Chairman, the President shall exercise all powers conferred on the
Chairman by Section 3 of this Article. In the event a Chairman is elected, the
President shall be the Chief Executive Officer of the Corporation and, in the
absence or disability of the Chairman, shall have the powers of the Chairman.
SECTION 5. VICE PRESIDENTS. Each Vice President shall have such power[s]
and shall perform such duties as shall be assigned to him by the directors. The
Board of Directors may further designate the area or areas of responsibility
assigned to a Vice President by appropriate words, such as Senior Vice President
or Group Vice President added to the title of the office or offices held by such
Vice President.
SECTION 6. TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the Corporation in such
depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation in such manner as
may be ordered by the Board of Directors, the Chairman or the President, taking
proper vouchers for such disbursements. He shall render to the Chairman, the
President and the Board of Directors at the regular meetings of the Board of
Directors, or whenever they may request it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
SECTION 7. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman, the President, or the directors, or
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stockholders, upon whose requisition the meeting is called as provided in these
By-Laws. He shall record all the proceedings of the meetings of the Corporation
and of the directors, in a book to be kept for that purpose, and shall perform
such other duties as may be assigned to him by the directors, the Chairman or
the President. He shall have the custody of the seal of the Corporation and
shall affix the same to all instruments requiring it, when authorized by the
directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
SECTION 9. RESIGNATION. Any officer may resign at any time, unless
otherwise provided in any contract with the Corporation, by giving written
notice to the Chairman, if any, or the President or the Secretary. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof.
SECTION 10. REMOVAL. Any officer may be removed at any time by an
affirmative vote of a majority of the Board of Directors, with or without cause.
Any officer not elected by the Board of Directors may be removed in such manner
as may be determined by, or pursuant to delegation from, the Board of Directors.
SECTION 11. VACANCIES. If a vacancy shall occur in any office, such vacancy
may be filled for the unexpired portion of the term by the Board of Directors.
SECTION 12. SURETY BONDS. In the event the Board of Directors shall so
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sum and with such surety or sureties as the Board of
Directors may direct, conditioned on the faithful performance of the officer's
duties to the Corporation.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. A certificate or certificates of stock,
signed by the Chairman of the Board of Directors, if one be elected, the
President or a Vice President, and the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, and sealed with the seal of the
Corporation, shall be issued to each stockholder certifying the number of shares
owned by him in the Corporation. Any of or all of the signatures may be
facsimiles. The certificate or certificates or stock shall be in such form as
the Board of Directors may from time to time adopt and shall be countersigned
and registered in such manner, if any, as the Board of Directors may prescribe.
In case any officer who shall have signed, or whose facsimile signature shall
have been used on any such certificate, shall cease to be such officer of the
Corporation before such certificate shall have been issued by the Corporation,
such certificate may nevertheless be adopted by the Corporation and be issued
and delivered as though the person who signed such certificate, or whose
facsimile signature shall have been used thereon, had not ceased to be such
officer; and such issuance and delivery shall constitute adoption of such
certificate by the Corporation.
There shall be entered on the books of the Corporation the number of each
certificate issued, the number (and class or series, if any) of shares
represented thereby, the name and address of the person to whom such certificate
was issued and the date of issuance thereof.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. A new certificate of
stock may be issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, and the directors
may, in their discretion, require the owner of the lost, stolen or destroyed
certificate, or his legal representatives, to give the Corporation a bond, in
such sum as they may direct, not exceeding double the value of the stock, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate and to provide such evidence of loss, theft or destruction as
the Board of Directors may require.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the Corporation shall
be transferable only upon its books by the holders of record thereof in person
or by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificates shall be surrendered, along with such evidence of
the authenticity of such transfer, authorization and other matters as the
Corporation or its agents may reasonably require, to the Corporation by the
delivery thereof to the person in charge of the stock and transfer books, or to
such other person as the directors may designate, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A record shall be
made of each transfer
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and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
SECTION 4. REGULATIONS, TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may make such rules and regulations as it may deem expedient
concerning the issuance and transfer of certificates for shares of the stock of
the Corporation, may appoint transfer agents or registrars, or both, and may
require all certificates of stock to bear the signature of either or both.
Nothing herein shall be construed to prohibit the Corporation from acting as its
own transfer agent at any of its offices.
SECTION 5. STOCKHOLDERS RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance a record date, which shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. SHAREHOLDERS RECORD OWNERSHIP. The Corporation shall be entitled
to recognize the exclusive right of a person registered as such on the books of
the Corporation as the owner of shares of the Corporation's stock to receive
dividends and to vote as such owner. The Corporation shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, regardless of whether the Corporation shall have express or
other notice thereof, except as otherwise provided by law.
SECTION 7. DIVIDENDS AND RESERVES. Subject to the applicable provisions of
law or of the Certificate of Incorporation, the Board of Directors may, out of
funds legally available therefor, at any regular or special meeting, declare
dividends upon the capital stock of the Corporation as and when they deem
expedient. Before declaring any dividend there may be set apart out of any funds
of the Corporation available for dividends, such sum or sums as the directors
from time to time in their discretion deem proper for working capital, or as a
reserve fund to meet contingencies, or for equalizing dividends, or for the
purpose of repairing, maintaining or increasing the property or business of the
Corporation or for such other purposes as the directors shall deem conducive to
the interests of the Corporation. The Board of directors may, in its discretion,
modify or abolish any such reserve at any time.
SECTION 8. SEAL. The corporate seal shall be circular in form and shall
contain the name of the Corporation, the year of its creation and the words
"CORPORATE SEAL, DELAWARE". Said seal may be used by causing it or a facsimile
thereof to be impressed, affixed, reproduced, engraved, printed or otherwise
represented.
SECTION 9. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 10. EXECUTION OF INSTRUMENTS. All agreements, deeds, contracts,
proxies, covenants, bonds, checks, drafts or other orders for the payment of
money, bills of exchange, notes, acceptances and endorsements, and all evidences
of indebtedness and other documents, instruments or writings of any nature
whatsoever, issued in the name of the Corporation, shall be signed by such
officers, agents or employees of the Corporation, or by any one of them, and in
such manner, as from time to time may be determined, either generally or in
specific instances, by the Board of Directors or by such officer or officers to
whom the Board of Directors may delegate the power to so determine.
SECTION 11. STOCK OF OTHER CORPORATIONS. Subject to such limitations as the
Board of Directors may from time to time prescribe, any officer of the
Corporation shall have full power and authority on behalf of the Corporation to
attend, to act and vote at, and to waive notice of, any meeting of stockholders
of any corporations, shares of stock of which are owned by or stand in the name
of the Corporation, and to execute and deliver proxies and actions in writing
for the voting of any such shares, and at any such meeting or by action in
writing may exercise on behalf of the Corporation any and all rights and powers
incident to the ownership of such shares.
SECTION 12. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by
these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United states mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
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such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
Corporation or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting, whether of stockholders (in person or
by proxy) or of directors or of any committee of the Board of Directors, shall
constitute a waiver of notice of such meeting, except when such person attends
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not legally called or convened.
SECTION 13. BOOKS, ACCOUNTS AND OTHER RECORDS. Except as otherwise provided
by law, the books, accounts and other records of the Corporation shall be kept
at such place or places (within or without the state of Delaware) as the Board
of Directors, the Chairman or the President may form time to time designate.
SECTION 14. INDEMNIFICATION. The Corporation shall, to the fullest extent
permitted by the Section 145 of the Delaware General Corporation Law, as the
same exists or may hereafter be amended, indemnify all persons whom it may
indemnify pursuant thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed and By-Laws may be made
at any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
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EXHIBIT 4.28
[Execution Copy]
SIXTH AMENDMENT, WAIVER AND CONSENT
SIXTH AMENDMENT, WAIVER AND CONSENT, dated as of June 17, 1994 (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. Pursuant to the Fourth Amendment, Waiver and Consent dated as of April
26, 1994 (the "Fourth Amendment") to the Credit Agreement, the Lenders have
agreed to grant the requisite waivers and consents to permit the consummation of
the Sale Transaction (as defined in the Fourth Amendment), subject to the
satisfaction of the conditions set forth in the Fourth Amendment. Pursuant to
Section 2.04(b) of the Credit Agreement, the Working Capital Facility is
required to be permanently reduced by an amount equal to the excess of the Net
Cash Proceeds of the Sale Transaction over the aggregate amount of the Term
Advances.
3. The Borrowers have determined that the proceeds of the Sale Transaction
will be in excess of the amount required by the terms of the Credit Agreement to
be applied to prepay in full the Term Advances and have requested that the
Lenders agree (a) to clarify the application of the proceeds of the Sale
Transaction to the Obligations outstanding under the Loan Documents and (b) to
waive the required reduction of the Working Capital Facility.
4. The Borrowers have asked the Lenders to waive the condition set forth in
Section 1(b)(ii) of the Fourth Amendment to permit certain of the Letters of
Credit to remain outstanding for a period of up to 60 days after the date of the
consummation of the Sale Transaction.
5. Canteen Holdings, Inc. ("Canteen") proposes to sell its Recreational and
Volume Services Businesses by selling in one or more transactions its direct and
indirect Subsidiaries listed on Schedule A hereto (the "Subject Subsidiaries")
(the "Recreational and Volume Services Sale Transactions"). In anticipation of
the Recreational and Volume Services Sale Transactions, the Borrowers have
requested the amendment of Section 5.02(e) of the Credit Agreement.
6. The Borrowers have requested that the Credit Agreement be amended, among
other things, to permit the Loan Parties to retire a portion of their Funded
Debt in an amount equal to the portion of the proceeds of the Sale Transaction
not required to be delivered to the Managing Agent pursuant to the Credit
Agreement as amended hereby.
7. The Lenders have expressed their willingness to grant the Borrowers'
requests 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. WAIVER AND CONSENT CONCERNING THE SALE TRANSACTION. (a) The
Lenders hereby agree that the condition set forth in Section 1(b)(i) of the
Fourth Amendment shall be satisfied if the Managing Agent shall have
received for application to the reduction of Commitments under the Credit
Agreement an amount sufficient (i) to repay in full the outstanding Term
Advances, (ii) to reduce the Working Capital Facility to an amount equal to
$150,000,000 plus the Extension Amount (as defined below) and (iii) to
reduce all other Commitments outstanding under the Credit Agreement, if
any, to zero.
(b) The Lenders hereby agree that the condition set forth in Section
1(b)(ii) of the Fourth Amendment shall be satisfied if Flagstar shall have
returned to the Issuing Banks for cancellation all Letters of Credit set
forth on Schedule B hereto having an Available Amount in excess of
$300,000, provided that the aggregate Available Amount of such Letters of
Credit not so returned shall not exceed $662,500; provided further, that
within 60 days after the consummation of the Sale Transaction, the
Borrowers shall have returned to the Issuing Banks for cancellation all of
the Letters of Credit set forth on Schedule B hereto or shall have
deposited cash collateral with the Issuing Bank of each such outstanding
Letter of Credit in an amount equal to the Available Amount of such
outstanding Letter of Credit.
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SECTION 2. 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 4 hereof, hereby amended as
follows:
(a) Section 2.14(b) is amended by adding at the end thereof "or for
the purposes permitted by Section 5.02(n)(i)(G)."
(b) Section 4.01(g) is amended by deleting the date "1991" and
substituting therefor the date "1993".
(c) Section 5.02(e) is amended by deleting from the end of clause
(vi) thereof the word "and", adding to the end of clause (vii) thereof
the word "and" and adding a new clause (viii) thereto to read as
follows:
"(viii) dispositions of IM Parks, Inc., IM Stadium, Inc. and
their respective Subsidiaries on or before March 31, 1995, PROVIDED
that (i) on or prior to the date of disposition of each such
Subsidiary, 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 such Subsidiary, (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) and (v)" and
substituting therefor the phrase "clauses (iv), (v) and (viii)".
(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 result of (I) $175,000,000 minus (II) the excess of
$300,000,000 over the amount of the Working Capital Facility on the
day after the consummation of the sale of IM Vending, Inc. and its
Subsidiaries, provided that, both before and after giving effect to
any transaction permitted by this clause (G), (aa) the Borrowers shall
have an aggregate of (i) Cash Equivalents and the balance of cash in
the Funding Cash Concentration Account and (ii) an amount equal to the
excess of the amount of the Working Capital Facility over the sum of
(x) the aggregate principal amount of the Working Capital Advances
plus (y) the Working Capital Reserve Amount of not less than
$100,000,000 and (bb) no Default shall have occurred and be
continuing".
SECTION 3. EXTENSION OF WORKING CAPITAL COMMITMENTS.
(a) Definitions. As used in this Section 3, the following terms are
defined as follows:
"ELECTED PREPAYMENT WAIVER" of a Lender means the amount of such
Lender's Working Capital Commitment in excess of such Lender's
Remaining Commitment that such Lender elects to maintain as its
Working Capital Commitment after giving effect to the application of
the proceeds of the Sale Transaction, as indicated on such Lender's
signature page hereof.
"EXTENSION AMOUNT" means the aggregate amount of the Elected
Prepayment Waivers of the Lenders.
"REMAINING COMMITMENT" of a Lender means such Lender's pro rata
share, determined by reference to such Lender's Working Capital
Commitment prior to the effectiveness of this Amendment, of
$150,000,000.
(b) DETERMINATION OF ELECTED PREPAYMENT WAIVERS.
(i) On or before June 16, 1994, each Lender that elects an
Elected Prepayment Waiver 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 such Lender's Elected Prepayment Waiver.
(ii) Promptly upon receipt of the signature pages as contemplated
by clause (i) above, the Managing Agent shall notify the Borrowers of
the Extension Amount. If the Extension Amount is less than
$150,000,000, the Borrowers may elect not to accept the Elected
Prepayment Waivers, whereupon the
2
<PAGE>
Working Capital Facility shall be $150,000,000. The Managing Agent
shall promptly notify each Lender that has an Elected Prepayment
Waiver of its Working Capital Commitment after giving effect to this
Amendment and shall promptly 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. Subject to the
satisfaction of the conditions precedent set forth in Section 4 hereof,
each Lender that has an Elected Prepayment Waiver hereby waives Section
2.04(b) of the Credit Agreement to the extent of such Elected Prepayment
Waiver, whereupon (i) that portion of the Working Capital Facility equal
to the Extension Amount that would otherwise be reduced by application
of the proceeds of the Sale Transaction shall instead remain
outstanding, and (ii) the amount of the Working Capital Facility shall
be equal to the sum of $150,000,000 and the Extension Amount.
SECTION 4. CONDITIONS OF EFFECTIVENESS. (a) This Amendment and Section
1 hereof 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
Waiver and (ii) the Managing Agent shall have received the Consent attached
hereto, signed by each Subsidiary of Flagstar.
(b) Sections 2 and 3 hereof shall become effective on and as of the
date on or prior to July 31, 1994 when, in addition to the conditions
set forth in clause (a) above, the following conditions shall have been
satisfied or duly waived:
(i) The Sale Transaction shall have been consummated.
(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, an extension fee equal to 0.5% of such
Lender's Elected Prepayment Waiver.
(iii) If the Extension Amount is less than $150,000,000, the
Managing Agent shall have received a notice from the Borrowers that
the Borrowers have not made the election pursuant to Section 3(b)(ii)
above to not accept the Elected Prepayment Waivers.
(iv) The Borrowers shall have accepted Elected Prepayment Waivers
in an aggregate amount of not less than $100,000,000.
(v) 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 5 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.
SECTION 5. 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,
3
<PAGE>
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 6. 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 7. GOVERNING LAW. This Waiver shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 8. EXECUTION IN COUNTERPARTS. This Waiver 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 Waiver by telecopier shall be effective as delivery of a
manually executed counterpart of this Waiver.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWERS
FLAGSTAR CORPORATION
By /s/ C. BURT DUREN
Title: Vice President and Treasurer
TWS FUNDING, INC.
By /s/ C. BURT DUREN
Title: Treasurer
LENDERS
<TABLE>
<S> <C>
CITIBANK, N.A.
Elected Prepayment Waiver
$12,589,232.67 By: /s/ DOUGLAS P. FLETCHER
Title: Attorney-in-fact
</TABLE>
<TABLE>
<S> <C>
THE BANK OF NOVA SCOTIA
Elected Prepayment Waiver
$5,775,908.19 By: /s/ J. ALAN EDWARDS
Title: Vice President
</TABLE>
<TABLE>
<S> <C>
BANKERS TRUST COMPANY
Elected Prepayment Waiver
$0 By: /s/ MARY JO JOLLY
Title: Assistant Vice President
</TABLE>
<TABLE>
<S> <C>
THE CHASE MANHATTAN BANK, N.A.
Elected Prepayment Waiver
$27,874,914.00 By: /s/ DAVID B. TOWNSEND
Title: Managing Director
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
CHEMICAL BANK
ELECTED PREPAYMENT WAIVER
$24,897,174.00 By: /s/ WILLIAM P. RINDFUSS
Title: Vice President
</TABLE>
<TABLE>
<S> <C>
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED -- NEW YORK BRANCH
Elected Prepayment Waiver
$0 By: /s/ SHUNKO UCHIDA
Title: Vice President
</TABLE>
<TABLE>
<S> <C>
NATIONSBANK OF NORTH CAROLINA, N.A.
Elected Prepayment Waiver
$23,897,349.98 By: /s/ CYNTHIA A. GRIM
Title: Senior Vice President
</TABLE>
<TABLE>
<S> <C>
EATON VANCE PRIME RATE RESERVES
Elected Prepayment Waiver
$0 By: /s/ MICHAEL J. CANNON
Title: Vice President
</TABLE>
<TABLE>
<S> <C>
GIROCREDIT BANK AG DER SPARKASSEN
Elected Prepayment Waiver
$1,169,044.00 By: /s/ ANCA TRIFAN
Title: Vice President
/s/ R. F. STONE
Title: First Vice President
</TABLE>
<TABLE>
<S> <C>
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION
Elected Prepayment Waiver
$0 By: /s/ JOAN M. CHIAPPE
Title: Vice President
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
THE MITSUBISHI TRUST AND BANKING CORPORATION
Elected Prepayment Waiver
$2,481,203.00 By: /s/ PATRICIA M. LORET DE MOLA
Title: Senior Vice President
</TABLE>
<TABLE>
<S> <C>
RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS, B.V.
Elected Prepayment Waiver By: Chancellor Sr. Secured Mgmt., Inc., as Portfolio Advisor
$0 By: /s/ CHRISTOPHER A. BONDY
Title: Assistant Vice President
</TABLE>
<TABLE>
<S> <C>
THE SAKURA BANK, LTD.
Elected Prepayment Waiver
$1,315,174.19 By: /s/ YASUHIRO TERADA
Title: S.V.P. & A.G.M.
</TABLE>
<TABLE>
<S> <C>
STICHTING RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS 2
(ROSA2)
Elected Prepayment Waiver By: Chancellor Sr. Secured Mgmt., Inc., as Portfolio Advisor
$0 By: /s/ CHRISTOPHER A. BONDY
Title: Assistant Vice President
</TABLE>
7
<PAGE>
SCHEDULE A
SUBJECT SUBSIDIARIES
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)
8
<PAGE>
SCHEDULE E TO SIXTH AMENDMENT, WAIVER AND CONSENT
CANTEEN HOLDINGS, INC.
FOOD & VENDING DIVISION
ESTIMATED LEVEL OF LETTERS OF CREDIT TO BE OUTSTANDING ON JUNE 20, 1994
<TABLE>
<CAPTION>
ISSUED BY: ISSUED TO: DESCRIPTION: AMOUNT:
<S> <C> <C> <C>
ScotiaBank Transportation Ins. Co. Workers compensation, General liability and Auto liability
(periods prior to 1993) $25,712,897(1)
Citibank Transportation Ins. Co. Workers compensation and Auto liability (1994) 6,609,513(2)
ScotiaBank CNA Performance Bonds 6,700,000
Citibank Industrial Commission of Ohio State of Ohio workers compensation 100,000
Citibank AMWEST Surety Performance Bond 137,500
ScotiaBank Met Life Leases -- Wometco 125,000
ScotiaBank Gables Capital Leases -- Wometco 300,000
ESTIMATED TOTAL $39,684,910
</TABLE>
(1) Estimated Food & Vending allocation of gross L/C of $42,990,000 securing all
such obligations of Flagstar and its subsidiaries.
(2) Estimated Food & Vending allocation of gross L/C of $37,010,000 securing all
such obligations of Flagstar and its subsidiaries. This L/C began the year
at $3.1 million and increases at the rate of approximately $3.1 million each
succeeding month through December. The Food & Vending portion increases at
the rate of approximately $1.1 million per month.
9
<PAGE>
CONSENT
DATED AS OF JUNE 17, 1994.
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
Sixth Amendment, Waiver and Consent, hereby consents to said Sixth Amendment,
Waiver and Consent 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 Sixth Amendment, Waiver
and Consent, 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 Sixth
Amendment, Waiver and Consent 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/ JOHN A. GERSON
President or Vice President of each
of
the corporations listed above
10
<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/ C. BURT DUREN
Vice President or Treasurer of each
of the corporations listed above
11
<PAGE>
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.
DENNY'S REALTY, INC.
DFC TRUCKING CO.
EAVES PACKING COMPANY, INC.
EL POLLO LOCO, INC.
By /s/ ROBERT L. WYNN, III
President or Vice President of each
of
the corporations listed above
DENNY'S RESTAURANTS OF IDAHO, INC.
By /s/ ROBERT L. WYNN, III
Title: Assistant Treasurer
12
<PAGE>
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 /s/ ROBERT L. WYNN, III
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, III
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
13
<PAGE>
SPARTAN SUBSIDIARY GROUP
QUINCY'S REALTY, INC.
QUINCY'S RESTAURANTS, INC.
FLAGSTAR ENTERPRISES, INC.
SPARDEE'S REALTY, INC.
FLAGSTAR SYSTEMS, INC.
SPARTAN REALTY, INC.
By /s/ C. BURT DUREN
Treasurer of each of the
corporations listed above
SPARTAN MANAGEMENT, INC.
By /s/ C. BURT DUREN
Title: Treasurer
ADDITIONAL GUARANTOR:
AMS HOLDINGS, INC.
By /s/ JOHN A. GERSON
Title: President or Vice President
14
<PAGE>
EXHIBIT 4.29
EXECUTION COPY
SEVENTH AMENDMENT
SEVENTH AMENDMENT dated as of October 7, 1994 (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. The Borrowers have requested that the Credit Agreement be amended, among
other things, to amend the ratio of Total Debt to EBITDA.
3. 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. 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 2 hereof, hereby amended as follows:
(a) Section 1.01 is amended by adding thereto, in proper alphabetical
sequence, the following defined term:
"ADJUSTED CASH CAPITAL EXPENDITURES" means, for any period, Cash
Capital Expenditures less, for each of the fiscal quarters set forth
below, the amount set opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED AMOUNT
<S> <C>
December 31, 1994................................... $ 75,000,000
March 31, 1995...................................... 105,000,000
June 30, 1995....................................... 125,000,000
September 30, 1995.................................. 125,000,000
December 31, 1995................................... 110,000,000
March 31, 1996...................................... 65,000,000
</TABLE>
(b) Section 2.01(g) is amended in full to read as follows:
(g) Clean-up. Notwithstanding the provisions of Sections 2.01(d)
and 2.10(e), no Borrowings may be made under Section 2.01(d) or 2.01(e)
unless there shall have been, during the 13 months immediately preceding
the proposed date thereof, a period of at least 30 consecutive days
during which the aggregate principal amount of Working Capital Advances
and Swing Line Advances outstanding (other than Working Capital Advances
resulting from drawings under Letters of Credit pursuant to Section
2.13(c) that are repaid or prepaid within three Business Days) did not
exceed $0.
(c) Section 5.02(n) is amended by deleting the comma at the end of
clause (i)(E) thereof, substituting the word "and" therefor, deleting the
word "and" at the end of clause (i)(F) thereof and deleting therefrom the
following:
(G) prepayments, redemptions, purchases, defeasances or other
satisfactions of Funded Debt, in an aggregate principal amount not to
exceed the result of (I) $175,000,000 minus (II) the excess of
$300,000,000 over the amount of the Working Capital Facility on the day
after the consummation of the sale of IM Vending, Inc. and its
Subsidiaries, provided that, both before and after giving effect to any
transaction permitted by this clause (G), (aa) the Borrowers shall have
an aggregate of (i) Cash Equivalents and the balance of cash in the
Funding Cash Concentration Account and (ii) an amount equal to the
excess of the amount of the Working Capital
<PAGE>
Facility over the sum of (x) the aggregate principal amount of the
Working Capital Advances plus (y) the Working Capital Reserve Amount of
not less than $100,000,000 and (bb) no Default shall have occurred and
be continuing.
(d) Section 5.04(a) is amended in full to read as follows:
(a) Total Debt to EBITDA. Permit the ratio of (i) Adjusted Total
Debt outstanding on the last day of any fiscal quarter to (ii) EBITDA of
Flagstar and its Subsidiaries on a Consolidated basis for the Rolling
Period then ended to be more than the amount for such Rolling Period set
forth below:
<TABLE>
<CAPTION>
ROLLING PERIODS ENDING RATIO
<S> <C>
On or after March 31, 1994 and on or prior to December
31, 1994................................................ 5.70:1.00
On or after March 31, 1995.............................. 5.90:1.00
</TABLE>
(e) Section 5.04(c) is amended by adding the word "Adjusted"
immediately before the phrase "Cash Capital Expenditures".
(f) Section 5.04(d) is amended by deleting the amounts set opposite
the Fiscal Years Ending In December 1994 and December 1995 and substituting
therefor the amounts set opposite such periods as set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING IN AMOUNT
<S> <C>
December 1994............................................ $200,000,000
December 1995............................................ $175,000,000
</TABLE>
SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when (a) 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, a fee equal to 0.15% of such Lender's Working Capital
Commitment, (b) 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, (c) the Managing Agent shall have received the Consent
attached hereto, signed by each Subsidiary of Flagstar and (d) 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:
(i) The representations and warranties contained in each Loan Document
and in Section 3 hereof are correct on and as of the date of such
certificate as though made on and as of such date, and
(ii) No event has occurred and is continuing that constitutes a
Default.
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 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.
2
<PAGE>
(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.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
Borrowers
FLAGSTAR CORPORATION
By /s/ C. BURT DUREN
Title: Vice President and Treasurer
TWS FUNDING, INC.
By /s/ C. BURT DUREN
Title: Treasurer
Lenders
CITIBANK, N.A.
By /s/ DOUGLAS P. FLETCHER
Title: Attorney-in-fact
THE BANK OF NOVA SCOTIA
By /s/ J. ALAN EDWARDS
Title: Authorized Signatory
BANKERS TRUST COMPANY
By /s/ MARY JO JOLLY
Title: Assistant Vice President
THE CHASE MANHATTAN BANK, N.A.
By /s/ MARC D. GALLIGAN
Title: Vice President
4
<PAGE>
CHEMICAL BANK
By /s/ WILLIAM P. RINDFUSS
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED -- NEW YORK BRANCH
By /s/ SHUNKO UCHIDA
Title: Vice President
NATIONSBANK OF NORTH CAROLINA, N.A.
By /s/ CYNTHIA A. GRIM
Title: Senior Vice President
GIROCREDIT BANK
By /s/ SHARAD GUPTA
Title: Senior Vice President
By /s/ R. F. STONE
Title: First Vice President
THE NIPPON CREDIT BANK, LTD.
By /s/ CLIFFORD ABRAMSKY
Title: Vice President & Manager
THE SAKURA BANK, LTD.
By /s/ MASAHIRO NAKAJO
Title: S.V.P. & Manager
5
<PAGE>
SUN LIFE INSURANCE COMPANY OF AMERICA
By /s/ LYNN A. HOPTON
Title: Vice President, Sun America
Investments, Inc.
VAN KAMPEN MERRITT PRIME RATE INCOME
TRUST
By /s/ JEFFREY W. MAILLET
Title: Vice President & Portfolio
Manager
6
<PAGE>
CONSENT
DATED AS OF OCTOBER 7, 1994.
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
Seventh Amendment, hereby consents to said Seventh 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 Seventh 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 Seventh 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/ JOHN A. GERSON
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 /s/ C. BURT DUREN
Vice President or Treasurer of each
of the corporations listed above
7
<PAGE>
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.
DENNY'S REALTY, INC.
DFC TRUCKING CO.
EAVES PACKING COMPANY, INC.
EL POLLO LOCO, 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
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 /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.
8
<PAGE>
By /s/ ROBERT L. WYNN
President or Vice President of each of
the corporations listed above
EAVES PACKING COMPANY, INC.
By /s/ H. STEPHEN MCMANUS
Vice President and Secretary
CB DEVELOPMENT #9, LTD.
DENNY'S OF CANADA LTD.
DENNY'S RESTAURANTS OF CANADA, LTD.
By /s/ GAYLON SMITH
Title: Vice President
SPARTAN SUBSIDIARY GROUP
QUINCY'S REALTY, INC.
QUINCY'S RESTAURANTS, INC.
FLAGSTAR ENTERPRISES, INC.
SPARDEE'S REALTY, INC.
FLAGSTAR SYSTEMS, INC.
SPARTAN REALTY, INC.
By /s/ C. BURT DUREN
Treasurer of each of the
corporations listed above
SPARTAN MANAGEMENT, INC.
By /s/ C. BURT DUREN
Title: Treasurer
ADDITIONAL GUARANTOR:
AMS HOLDINGS, INC.
By /s/ JOHN A. GERSON
Title: President or Vice President
9
<PAGE>
EXHIBIT 10.6
AMENDMENT TO STOCKHOLDERS' AGREEMENT
This Amendment dated as of January 1, 1995, to the Stockholders' Agreement
dated as of August 11, 1992 as previously amended by amendments thereto dated
September 30, 1992 and April 6, 1993 (the "Stockholders' Agreement") is made by
all of the parties to the Stockholders' Agreement. Capitalized terms used herein
unless otherwise defined shall have the meanings set forth in the Stockholders'
Agreement.
RECITALS
A. GTO is in the process of distributing to its investors shares of Common
Stock pursuant to Section 4.4 of the Stockholders' Agreement.
B. GTO desires to have the Stockholders' Agreement terminate as to GTO but
the provisions of Section 6.2 of the Stockholders' Agreement are not generally
effective with respect to all of the various entities comprising GTO because,
even after giving effect to GTO's contemplated distribution to its investors,
GTO will still own more than 2% of the outstanding Common Stock on a fully
diluted basis.
C. The other parties to the Stockholders' Agreement are willing to enter
into this Amendment to terminate the Stockholders' Agreement as to GTO at this
time.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions herein contained, the parties hereto mutually agree as follows:
The Stockholder's Agreement is hereby amended to delete GTO as a party
thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
GOLLUST, TIERNEY AND OLIVER
By: /s/ AUGUSTUS K. OLIVER
Title: General Partner
CONISTON PARTNERS
By: /s/ AUGUSTUS K. OLIVER
Title: General Partner
CONISTON INSTITUTIONAL INVESTORS, L.P.
By: GOLLUST, TIERNEY AND OLIVER
General Partner
By: /s/ AUGUSTUS K. OLIVER
Title: General Partner
<PAGE>
SABRE ASSOCIATES OF NEW JERSEY, L.P.
By: SABRE MANAGEMENT CO.,
General Partner
By: GOLLUST, TIERNEY AND OLIVER,
General Partner
By: /s/ AUGUSTUS K. OLIVER
Title: General Partner
HELSTON INVESTMENT INC.
By: GOLLUST, TIERNEY AND OLIVER
INCORPORATED,
Investment Manager
By: /s/ AUGUSTUS K. OLIVER
Title: Managing Director
SABRE OPERATIONS, INC.
By: GOLLUST, TIERNEY AND OLIVER
INCORPORATED,
Investment Manager
By: /s/ AUGUSTUS K. OLIVER
Title: Managing Director
NACO-NORTH ATLANTIC CONTINENTAL CAPITAL
LTD.
By: /s/
Title: Attorney-In-Fact
SAURER GROUP INVESTMENTS LTD.
By: /s/
Title: Attorney-In-Fact
2
<PAGE>
THE COMMON FUND FOR NONPROFIT
ORGANIZATIONS
By: GOLLUST, TIERNEY AND OLIVER
INCORPORATED,
Investment Manager
By: /s/ AUGUSTUS K. OLIVER
Title: Managing Director
DLJ CAPITAL CORPORATION
By: /s/
Director, Vice President
TW ASSOCIATES, L.P.
By: KKR ASSOCIATES,
General Partner
By: /s/ MICHAEL T. TOKARZ
Title: General Partner
KKR PARTNERS, II, L.P.
By: KKR ASSOCIATES,
General Partner
By: /s/ MICHAEL T. TOKARZ
Title: General Partner
FLAGSTAR COMPANIES, INC.,
(formerly TW Holdings, Inc.)
By: /s/ RHONDA J. PARISH
Senior Vice President & General
Counsel
/s/ JEROME J. RICHARDSON
Jerome J. Richardson
3
<PAGE>
EXHIBIT 10.9
TW HOLDINGS, INC.
1989 NON-QUALIFIED STOCK OPTION PLAN
AS ADOPTED DECEMBER 1, 1989*
1. PURPOSE OF THE PLAN
This TW Holdings, Inc. 1989 Non-Qualified Stock Option Plan is intended to
promote the interests of the Company by providing the employees of the Company,
who are largely responsible for the management, growth and protection of the
business of the Company, with incentives and rewards to encourage them to
continue in the employ of the Company.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Board of Directors" shall mean the Board of Directors of TW
Holdings, Inc.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of
the Participant's employment by the Company on account of (A) an act or
acts by him, or any omission by him, constituting a felony, if the
Participant has entered a guilty plea or confession to, or has been
convicted of, such felony, (B) any proven act of fraud or dishonesty by the
Participant which results or is intended to result in any material
financial or economic harm to the Company or (C) a breach of a material
provision of any employment agreement between the Participant and the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" shall mean the Committee designated by the Board of
Directors pursuant to Section 4 hereof from time to time.
(e) "Common Stock" shall mean TW Holdings, Inc. common stock, $0.10
par value per share.
(f) "Company" shall mean TW Holdings, Inc., a Delaware corporation,
and each of its Subsidiaries.
(g) "Disability" shall mean any physical or mental condition which
would qualify a Participant for a disability benefit under the long-term
disability plan maintained by the Company and applicable to him.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) the "Fair Market Value" of a share of Common Stock on any day
shall be (A) the closing sales price on the immediately preceding day of a
share of Common Stock as reported on the principal securities exchange on
which shares of Common Stock are then listed or admitted to trading or (B)
if not so reported, the average of the closing bid and ask prices on the
immediately preceding business day as reported on the National Association
of Securities Dealers Automated Quotation System or (C) if not so reported,
as furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Committee. In the event that the price of a
share of Common Stock shall not be so reported, the Fair Market Value of a
share of Common Stock shall be determined by the Committee in its absolute
discretion.
(j) "Option" shall mean an option to purchase shares of Common Stock
granted pursuant to Section 6 hereof. Each Option shall be identified as a
non-qualified stock option in the agreement by which it is evidenced.
(k) "Participant" shall mean an employee of the Company who is
eligible to participate in the Plan and to whom an Option is granted
pursuant to the Plan, and, upon his death, his successors, heirs, executors
and administrators, as the case may be.
(l) "Plan" shall mean this TW Holdings, Inc. 1989 Non-Qualified Stock
Option Plan, as it may be amended from time to time.
(m) "Securities Act" shall mean the Securities Act of 1933, as
amended.
* As amended through June 7, 1994.
<PAGE>
(n) "Subsidiary" shall mean any corporation in which at the time of
reference TW Holdings, Inc. owns, directly or indirectly, stock comprising
more than fifty percent of the total combined voting power of all classes
of stock of such corporation.
(o) "Voluntary Termination" shall mean any voluntary termination by
the Participant of his employment with the Company.
3. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7 hereof, the Committee may
grant Options under the Plan with respect to a number of shares of Common Stock
that in the aggregate does not exceed 4,500,000 shares. In the event that any
outstanding Option expires, terminates or is cancelled for any reason, the
shares of Common Stock subject to the unexercised portion of such Option shall
again be available for grants under the Plan. Shares of Common Stock issued
under the Plan may be either newly issued shares or treasury shares, at the
discretion of the Committee.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a Committee of the Board of Directors
consisting of three or more persons, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3 promulgated under Section 16 of the
Exchange Act. The Committee shall from time to time designate the key employees
of the Company who shall be granted Options and the number of shares of Common
Stock covered by such Option.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Option issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its absolute discretion, accelerate the date on which
any Option becomes exercisable. In addition, the Committee may, in its absolute
discretion, grant Options to Participants on the condition that such
Participants surrender to the Committee for cancellation such other Options
(including, without limitation, Options with higher exercise prices) as the
Committee specifies. Notwithstanding Section 3 herein, prior to the surrender of
such other Options, Options granted pursuant to the preceding sentence of this
Section 4 shall not count against the limits set forth in such Section 3.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and TW Holdings, Inc. shall indemnify and
hold harmless each member of the Committee and each other director or employee
of the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of TW Holdings, Inc.) arising out of any action,
omission or determination relating to the Plan, unless, in either case, such
action, omission or determination was taken or made by such member, director or
employee in bad faith and without reasonable belief that it was in the best
interests of the Company.
5. ELIGIBILITY
The persons who shall be eligible to receive Options pursuant to the Plan
shall be such employees of the Company who are responsible for the management,
growth and protection of the business of the Company (including officers of TW
Holdings, Inc., whether or not they are directors of TW Holdings, Inc.) as the
Committee shall select from time to time.
6. OPTIONS
Options granted pursuant to the Plan shall be evidenced by agreements in
such form as the Committee shall from time to time approve. Options shall comply
with and be subject to the following terms and conditions:
(a) Identification of Options
All Options granted under the Plan shall be identified in the
agreement evidencing such Options as non-qualified stock options that are
not intended to be incentive stock options within the meaning of Section
422A of the Code.
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<PAGE>
(b) Exercise Price
The exercise price in respect of each share of Common Stock covered by
any Option granted under the Plan shall be such price as the Committee
shall determine on the date on which such Option is granted; PROVIDED, that
in the case of any Option granted prior to December 31, 1989 such exercise
price shall be Four Dollars ($4.00) per share of Common Stock covered by
such Option; and PROVIDED, FURTHER, that such exercise price may not be
less than the minimum price required by law.
(c) Term and Exercise of Options
(1) Each Option shall be exercisable on such date or dates, during
such period and for such number of shares of Common Stock as shall be
determined by the Committee on the day on which such Option is granted
and set forth in the Option agreement with respect to such Option;
PROVIDED, HOWEVER, that no Option shall be exercisable after the
expiration of ten years from the date such Option was granted; and,
PROVIDED, FURTHER, that each Option shall be subject to earlier
termination, expiration or cancellation as provided in this Plan.
(2) Each Option shall be exercisable in whole or in part; PROVIDED,
that no partial exercise of an Option shall be for an aggregate exercise
price of less than $1,000 or in respect of less than 100 shares of
Common Stock. The partial exercise of an Option shall not cause the
expiration, termination or cancellation of the remaining portion
thereof. Upon the partial exercise of an Option, the agreement
evidencing such Option shall be returned to the Participant exercising
such Option together with the delivery of the certificates described in
Section 6(c)(5) hereof.
(3) Subject to the provisions of Section 11 hereof, an Option shall
be exercised by delivering notice to TW Holdings, Inc.'s principal
office, to the attention of its Secretary, no less than three business
days in advance of the effective date of the proposed exercise. Such
notice shall be accompanied by the agreement evidencing the Option,
shall specify the number of shares of Common Stock with respect to which
the Option is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the proposed
exercise, in which case such agreement shall be returned to him. Payment
for shares of Common Stock purchased upon the exercise of an Option
shall be made on the effective date of such exercise either (i) in cash,
by certified check, bank cashier's check or wire transfer, or (ii)
subject to the prior written approval of the Committee, in shares of
Common Stock owned by the Participant and valued at their Fair Market
Value on the effective date of such exercise, or partly in shares of
Common Stock with the balance in cash, by certified check, bank
cashier's check or wire transfer. Any payment in shares of Common Stock
shall be effected by the delivery of such shares to the Secretary of TW
Holdings, Inc., duly endorsed in blank or accompanied by stock powers
duly endorsed in blank, together with any other documents and evidences
as the Secretary of TW Holdings, Inc. shall require from time to time.
(4) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the broker-dealer
has received from the Participant or the Company a fully- and
duly-endorsed agreement evidencing such Option and instructions signed
by the Participant requesting TW Holdings, Inc. to deliver the shares of
Common Stock subject to such Option to the broker-dealer on behalf of
the Participant and specifying the account into which such shares should
be deposited, (ii) adequate provision has been made with respect to the
payment of any withholding taxes due upon such exercise and (iii) the
broker-dealer and the Participant have otherwise complied with Section
220.3(e)(4) of Regulation T, 12 CFR Part 220.
(5) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant and
delivered to the Participant as soon as practicable following the
effective date on which the Option is exercised.
(6) During the lifetime of a Participant, each Option granted to
him shall be exercisable only by him. No Option shall be assignable or
transferable otherwise than by will or by the laws of descent and
distribution.
(d) Effect of Termination of Employment
Except as otherwise provided in the agreement evidencing the grant of
an Option:
(1) In the event that the employment of a Participant with the
Company shall terminate for any reason other than for Cause or by reason
of Voluntary Termination (i) Options granted to such Participant, to the
extent
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<PAGE>
that they were exercisable at the time of such termination of
employment, shall remain exercisable until the expiration of one year
after such termination of employment, on which date they shall expire
and terminate and (ii) Options granted to such Participant, to the
extent that they were not exercisable at the time of such termination,
shall expire and terminate at the close of business on the date of such
termination of employment; PROVIDED, HOWEVER, that no Option shall be
exercisable after the expiration of its term.
(2) In the event of the termination of a Participant's employment
for Cause or by reason of Voluntary Termination, all outstanding Options
granted to such Participant shall expire and terminate at the
commencement of business on the date of such termination of employment.
(e) Certain Restrictions
(1) Without limiting the provisions of Section 10 hereof, unless
otherwise specified in the agreement pursuant to which an Option is
granted, in the event a Participant's employment by the Company is
terminated for Cause prior to July 5, 1994, such Participant shall be
required to offer to sell to TW Holdings, Inc. or its designee all
shares of Common Stock acquired by him pursuant to the exercise of such
Option and at the time of such termination of employment owned by him,
and TW Holdings, Inc. shall have the right to require such Participant
to sell such shares to it or its designee, at a price per share equal to
the exercise price with respect to each such share under such Option.
Such offer and right shall be on the basis that the purchase and sale
shall occur on a business day selected by TW Holdings, Inc. by written
notice to the Participant, which business day shall be at least five
calendar days after TW Holdings, Inc. gives the Participant written
notice of its intent to purchase such shares and which business day
shall be not more than ninety (90) days following such termination of
employment. At the time of such purchase and sale, the Participant shall
deliver to TW Holdings, Inc. the certificates representing the shares of
Common Stock to be so purchased against payment of the purchase price
therefor in cash or by certified check, wire transfer or bank cashiers
check, as selected by TW Holdings, Inc. or its designee.
(2) Without limiting the provisions of Section 10 hereof,
certificates representing shares of Common Stock issued pursuant to this
Plan shall bear such legends as the Committee, its sole discretion,
deems necessary or desirable to reflect the restrictions described in
this Section 6(e).
7. ADJUSTMENT UPON CHANGES IN COMMON STOCK
(a) Shares Available for Grants
In the event of any change in the number of shares of Common Stock
outstanding by reason of any stock dividend or split, recapitalization,
merger, consolidation, combination or exchange of shares or similar
corporate change, the maximum aggregate number of shares of Common Stock
with respect to which the Committee may grant Options shall be
appropriately adjusted by the Committee. In the event of any change in the
number of shares of Common Stock outstanding by reason of any other event
or transaction, the Committee may, but need not, make such adjustments in
the number and class of shares of Common Stock with respect to which
Options may be granted as the Committee may deem appropriate.
(b) Outstanding Options - Increase or Decrease in Issued Shares
Without Consideration
Subject to any required action by the shareholders of TW Holdings,
Inc., in the event of any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of
shares of Common Stock or the payment of a stock dividend (but only on the
shares of Common Stock), or any other increase or decrease in the number of
such shares effected without receipt of consideration by TW Holdings, Inc.,
the Committee shall proportionally adjust the number of shares of Common
Stock subject to each outstanding Option and the exercise price per share
of Common Stock in respect of each such Option.
(c) Outstanding Options - Certain Mergers
Subject to any required action by the shareholders of TW Holdings,
Inc., in the event that TW Holdings, Inc. shall be the surviving
corporation in any merger or consolidation (except a merger or
consolidation as a result of which the holders of shares of Common Stock
receive securities of another corporation), each Option outstanding on the
date of such merger or consolidation shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject
to such Option would have received in such merger or consolidation.
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<PAGE>
(d) Outstanding Options - Certain Other Transactions
In the event of (i) a dissolution or liquidation of TW Holdings, Inc.,
(ii) a sale of all or substantially all of TW Holdings, Inc.'s assets,
(iii) a merger or consolidation involving TW Holdings, Inc. in which TW
Holdings, Inc. is not the surviving corporation or (iv) a merger or
consolidation involving TW Holdings, Inc. in which TW Holdings, Inc. is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option outstanding immediately prior to such event (whether
or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option was granted an
amount in cash, for each share of Common Stock subject to such Option,
equal to the excess of (A) the value, as determined by the Committee in
its absolute discretion, of the property (including cash) received or to
be received by the holder of a share of Common Stock as a result of such
event over (B) the exercise price in respect of each share of Common
Stock covered by such Option; or
(ii) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for an
option on some or all of the property for which each share of Common
Stock subject to such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its absolute
discretion in the exercise price of the option, or the number of shares
or amount of property subject to the option or, if appropriate, provide
for a cash payment to the Participant to whom such Option was granted in
partial consideration for the exchange of the Option.
(e) Outstanding Options - Other Changes
In the event of any change in the capitalization of TW Holdings, Inc.
or corporate change other than those specifically referred to in Sections
7(a), (b), (c) or (d) hereof, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares subject
to Options outstanding on the date on which such change occurs and in the
per share exercise price of each such Option as the Committee may consider
appropriate to prevent dilution or enlargement of rights.
(f) No Other Rights
Except as expressly provided in the Plan, no Participant shall have
any rights by reason of any subdivision or consolidation of shares of stock
of any class, the payment of any dividend, any increase or decrease in the
number of shares of stock of any class or any dissolution, liquidation,
merger or consolidation of TW Holdings, Inc. or any other corporation.
Except as expressly provided in the Plan, no issuance by TW Holdings, Inc.
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number of shares of Common Stock subject to an
Option or the exercise price of any Option.
8. RIGHTS AS A STOCKHOLDER
No person shall have any rights as a stockholder with respect to any shares
of Common Stock covered by or relating to any Option granted pursuant to this
Plan until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in Section 7 hereof, no
adjustment to any Option shall be made for dividends or other rights for which
the record date occurs prior to the date on which such stock certificate is
issued.
9. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO OPTION
Nothing contained in the Plan or any Option shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Option.
No person shall have any claim or right to receive an Option hereunder. The
Committee's granting of an Option to a Participant at any time shall neither
require the Committee to grant an Option to such Participant or any other
Participant or other person at any time nor preclude the Committee from making
subsequent grants to such Participant or any other Participant or other person.
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<PAGE>
10. SECURITIES MATTERS
(a) TW Holdings, Inc. shall be under no obligation to effect the
registration pursuant to the Securities Act of any shares of Common Stock
to be issued hereunder or to effect similar compliance under any state
laws. Notwithstanding anything herein to the contrary, TW Holdings, Inc.
shall not be obligated to cause to be issued or delivered any certificates
evidencing shares of Common Stock pursuant to the Plan unless and until TW
Holdings, Inc. is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities exchange on
which shares of Common Stock are traded. The Committee may require, as a
condition of the issuance and delivery of certificates evidencing shares of
Common Stock pursuant to the terms hereof, that the recipient of such
shares make such covenants, agreements and representations, and that such
certificates bear such legends, as the Committee, in its sole discretion,
deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to TW Holdings, Inc. shall have
determined that the issuance and delivery of shares of Common Stock
pursuant to such exercise is in compliance with all applicable laws,
regulations of governmental authority and the requirements of any
securities exchange on which shares of Common Stock are traded. TW
Holdings, Inc. may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of
shares of Common Stock pursuant thereto to be made pursuant to an effective
registration statement or an exemption from such registration or other
methods for compliance available under federal or state securities laws. TW
Holdings, Inc. shall inform the Participant in writing of its decision to
defer the effectiveness of the exercise of an Option granted hereunder.
During the period that the effectiveness of the exercise of an Option has
been deferred, the Participant may, by written notice, withdraw such
exercise and obtain the refund of any amount paid or delivered with respect
thereto.
11. WITHHOLDING TAXES
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the exercise of
an Option, the Participant shall be required, as a condition to the
exercise of the related Option, to remit to the Company in cash an amount
sufficient to satisfy federal, state and local withholding tax
requirements, if any, attributable to such exercise prior to the delivery
of any certificate or certificates for such shares.
(b) Stock Remittance
At the election of the Participant, subject to the approval of the
Committee (which approval may be withheld for any reason whatsoever or for
no reason), when shares of Common Stock are to be issued upon the exercise
of an Option, in lieu of the cash remittance required by Section 11(a)
hereof, the Participant may tender to the Company a number of shares of
Common Stock determined by such Participant, the Fair Market Value of which
at the tender date the Committee determines, in its sole discretion, to be
sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise and not greater than
the Participant's estimated total federal, state and local tax obligations
associated with such exercise.
(c) Stock Withholding
At the election of the Participant, subject to the approval of the
Committee (which approval may be withheld for any reason whatsoever or for
no reason), when shares of Common Stock are to be issued upon the exercise
of an Option, in lieu of the cash remittance required by Section 11(a)
hereof, the Company shall withhold a number of such shares determined by
such Participant, the Fair Market Value of which at the exercise date the
Committee determines (in its sole discretion) to be sufficient to satisfy
the federal, state and local withholding tax requirements, if any,
attributable to such exercise and not greater than the Participant's
estimated total federal, state and local tax obligations associated with
such exercise.
(d) Participants Subject to Section 16(b)
Notwithstanding Section 6(c)(5) hereof, the Company shall hold as
custodian for any Participant who is subject to the provisions of Section
16(b) of the Exchange Act and who has not made an election pursuant to
Section 83(b) of the Code stock certificates evidencing the total number of
shares of Common Stock required to be issued pursuant to the exercise of an
Option until the expiration of six months following the date of such
exercise. Upon the expiration of such six-month period, the Participant
shall remit to the Company in cash an amount sufficient to satisfy federal,
6
<PAGE>
state and local withholding tax requirements, if any, attributable to such
exercise prior to the delivery of any certificate or certificates for such
shares, unless the Participant has made an election, and the Committee has
approved such election, pursuant to Section 11(b) or (c) hereof, in which
case the Participant shall tender a number of shares prior to such
delivery, or the Company shall withhold a number of shares, as the case may
be, determined pursuant to such Section.
(e) Timing and Method of Elections
Notwithstanding any provision of the Plan to the contrary, a
Participant who is subject to Section 16(b) of the Exchange Act may not
make either of the elections described in Sections 11(b) and (c) hereof
prior to the expiration of six months after the date on which the
applicable Option was granted, except in the event of the death or
Disability of the Participant. In addition, notwithstanding any provision
of the Plan to the contrary, a Participant who is subject to Section 16(b)
of the Exchange Act may not make such elections other than (i) during the
10-day window period beginning on the third business day following the date
of release for publication of TW Holdings, Inc.'s quarterly and annual
summary statements of sales and earnings and ending on the twelfth business
day following such date or (ii) at least six months prior to the date as of
which the income attributable to the exercise of such Option is recognized
under the Code. Such elections shall be irrevocable and shall be made by
the delivery to TW Holdings, Inc.'s principal office, to the attention of
its Secretary, of a written notice signed by the Participant.
12. AMENDMENT OF THE PLAN
The Board of Directors may at any time suspend or discontinue the Plan or
revise or amend it in any respect whatsoever; PROVIDED, HOWEVER, that without
approval of the shareholders no revision or amendment shall (a) except as
provided in Section 7 hereof, increase the number of shares of Common Stock that
may be issued under the Plan, (b) materially increase the benefits accruing to
individuals holding Options granted pursuant to the Plan or (c) materially
modify the requirements as to eligibility for participation in the Plan.
13. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.
14. TRANSFERS UPON DEATH
Upon the death of a Participant, outstanding Options granted to such
Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Option, or the
right to exercise any Option, shall be effective to bind the Company unless the
Committee shall have been furnished with (a) written notice thereof and with a
copy of the will and/or such evidence as the Committee may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee to
comply with all the terms and conditions of the Option that are or would have
been applicable to the Participant and to be bound by the acknowledgment made by
the Participant in connection with the grant of the Option.
15. EXPENSES
The expenses of the Plan shall be paid by the Company.
16. FAILURE TO COMPLY
In addition to the remedies of the Company elsewhere provided for herein,
if a Participant shall fail to comply with any of the terms or conditions of the
Plan or the agreement executed by such Participant evidencing an Option, the
Committee may cancel such Option and cause such Option to be forfeited, in whole
or in part, as the Committee, in its absolute discretion, may determine, unless
such failure is remedied by such Participant within ten days after such
Participant's receipt of written notice of such failure from the Committee or
the Company.
17. EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board of Directors on December 1, 1989, subject
to approval by the shareholders of TW Holdings, Inc. in accordance with
applicable law and the requirements of Rule 16b-3 promulgated under Section
16(b) of the Exchange Act. Options may be granted under the Plan at any time
prior to the receipt of such shareholder approval; provided, however, that each
such grant shall be subject to such approval. Without limitation on the
foregoing, no Option may be exercised prior to the receipt of such approval. If
the Plan is not so approved prior to November 30, 1990, then the Plan and all
Options then outstanding hereunder shall forthwith automatically terminate and
be of no force and effect.
7
<PAGE>
EXHIBIT 10.10
TW HOLDINGS, INC.
1990 NON-QUALIFIED STOCK OPTION PLAN
AS ADOPTED JULY 31, 1990*
1. PURPOSE OF PLAN.
This TW Holdings, Inc. 1990 Non-Qualified Stock Option Plan is intended to
promote the interests of the Company by providing the Participants (defined
below), who serve as independent directors of the Company, with incentives and
rewards to encourage them to continue as directors of the Company.
2. DEFINITIONS.
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Board of Directors" shall mean the Board of Directors of TW
Holdings, Inc.
(b) "Cause," when used in connection with the termination of a
Participant's service as director of the Company, shall mean the
termination of the Participant's directorship on account of (A) an act or
acts by him, or any omission by him, constituting a felony, if the
Participant has entered a guilty plea or confession to, or has been
convicted of, such felony, or (B) any proven act of fraud or dishonesty by
the Participant which results or is intended to result in any material
financial or economic harm to the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" shall mean the committee designated by the Board of
Directors pursuant to Section 4 hereof from time to time.
(e) "Common Stock" shall mean TW Holdings, Inc. common stock, $0.10
par value per share.
(f) "Company" shall mean TW Holdings, Inc., a Delaware corporation,
and each of its Subsidiaries.
(g) "Disability" shall mean any physical or mental condition of a
Participant which, in the sole discretion of the Committee, renders the
Participant unable to fulfill his duties as a director of the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) The "Fair Market Value" of a share of Common Stock on any day
shall be (A) the closing sales price on the immediately preceding day of a
share of Common Stock as reported on the principal securities exchange on
which shares of Common Stock are then listed or admitted to trading or (B)
if not so reported, the closing sales price on the immediately preceding
day of a share of Common Stock as published in the NASDAQ National Market
Issues report in the Eastern Edition of THE WALL STREET JOURNAL or (C) if
not so reported, the average of the closing bid and ask prices on the
immediately preceding business day as reported on the National Association
of Securities Dealers Automated Quotation System or (D) if not so reported,
as furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Committee. In the event that the price of a
share of Common Stock shall not be so reported, the Fair Market Value of a
share of Common Stock shall be determined by the Committee in its absolute
discretion.
(j) "Option" shall mean an option to purchase shares of Common Stock
granted pursuant to Section 6 hereof. Each Option shall be identified as a
non-qualified stock option in the agreement by which it is evidenced.
(k) "Participant" shall mean a director of the Company who is eligible
to participate in the Plan and to whom an Option is granted pursuant to the
Plan, and, upon his death, his successors, heirs, executors and
administrators, as the case may be.
(l) "Plan" shall mean this TW Holdings, Inc. 1990 Non-Qualified Stock
Option Plan, as it may be amended from time to time.
(m) "Securities Act" shall mean the Securities Act of 1933, as
amended.
* As amended through April 28, 1992.
<PAGE>
(n) "Subsidiary" shall mean any corporation in which, at the time of
reference, TW Holdings, Inc. owns, directly or indirectly, stock comprising
more than fifty percent of the total combined voting power of all classes
of stock of such corporation.
(o) "Voluntary Termination" shall mean any voluntary termination by
the Participant of his service as director of the Company, resulting either
from his resignation or declining to stand for re-election as director.
Disability shall not be deemed a Voluntary Termination.
3. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 7 hereof, the Committee may
grant Options under the Plan with respect to a number of shares of Common Stock
that in the aggregate does not exceed 110,000 shares. In the event that any
outstanding Option expires, terminates or is cancelled for any reason, the
shares of Common Stock subject to the unexercised portion of such Option shall
again be available for grants under the Plan. Shares of Common Stock issued
under the Plan may be either newly issued shares or treasury shares, at the
discretion of the Committee.
4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a Committee of the Board of Directors
consisting of three or more persons, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3 promulgated under Section 16 of the
Exchange Act. The Committee shall designate the directors of the Company who
shall be granted Options and the number of shares of Common Stock covered by
such Options.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Option issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties. The Committee may, in its absolute
discretion, accelerate the date on which any Option becomes exercisable.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and TW Holdings, Inc. shall indemnify and
hold harmless each member of the Committee and each other director or employee
of the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of TW Holdings, Inc.) arising out of any action,
omission or determination relating to the Plan, unless, in either case, such
action, omission or determination was taken or made by such member, director or
employee in bad faith and without reasonable belief that it was in the best
interests of the Company.
5. ELIGIBILITY.
The persons who shall be eligible to receive Options pursuant to the Plan
shall be directors of the Company not affiliated with: (a) management of the
Company; or (b) Gollust, Tierney & Oliver, a general partnership, or affiliated
entities.
6. OPTIONS.
Options granted pursuant to the Plan shall be evidenced by agreements in
such form as the Committee shall approve. Options shall comply with and be
subject to the following terms and conditions:
(a) IDENTIFICATION OF OPTIONS. All Options granted under the Plan
shall be identified in the agreement evidencing such Options as
non-qualified stock options that are not intended to be incentive stock
options within the meaning of Section 422A of the Code.
(b) EXERCISE PRICE. The exercise price in respect of each share of
Common Stock covered by any Option granted under the Plan shall be such
price as the Committee shall determine on the date on which such Option is
granted; provided that such exercise price may not be less than the Fair
Market Value on the date of grant.
(c) Term and Exercise of Options.
(1) Each Option shall be exercisable on such date or dates, during
such period and for such number of shares of Common Stock as shall be
determined by the Committee on the day on which such Option is granted
and set forth in the Option agreement with respect to such Option;
PROVIDED, HOWEVER, that no Option shall be exercisable after the
expiration of ten years from the date such Option was granted; and,
PROVIDED, FURTHER, that each Option shall be subject to earlier
termination, expiration or cancellation as provided in this Plan.
<PAGE>
(2) Each Option shall be exercisable in whole or in part; PROVIDED,
that no partial exercise of an Option shall be for an aggregate exercise
price of less than $1,000 or in respect of less than 100 shares of
Common Stock. The partial exercise of an Option shall not cause the
expiration, termination or cancellation of the remaining portion
thereof. Upon the partial exercise of an Option, the agreement
evidencing such Option shall be returned to the Participant exercising
such Option together with the delivery of the certificates described in
Section 6(c) (5) hereof.
(3) Subject to the provisions of Section 11 hereof, an Option shall
be exercised by delivering notice to TW Holdings, Inc.'s principal
office, to the attention of its Secretary, no less than three business
days in advance of the effective date of the proposed exercise. Such
notice shall be accompanied by the agreement evidencing the Option,
shall specify the number of shares of Common Stock with respect to which
the Option is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the proposed
exercise, in which case such agreement shall be returned to him. Payment
for shares of Common Stock purchased upon the exercise of an Option
shall be made on the effective date of such exercise either (i) in cash,
by certified check, bank cashier's check or wire transfer or (ii)
subject to the prior written approval of the Committee, in shares of
Common Stock owned by the Participant and valued at their Fair Market
Value on the effective date of such exercise, or partly in shares of
Common Stock with the balance in cash, by certified check, bank
cashier's check or wire transfer. Any payment in shares of Common Stock
shall be effected by the delivery of such shares to the Secretary of TW
Holdings, Inc., duly endorsed in blank, together with any other
documents and evidences as the Secretary of TW Holdings, Inc. shall
require from time to time.
(4) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the broker-dealer
has received from the Participant or the Company a fully- and
duly-endorsed agreement evidencing such Option and instructions signed
by the Participant requesting TW Holdings, Inc. to deliver the shares of
Common Stock subject to such Option to the broker-dealer on behalf of
the Participant and specifying the account into which such shares should
be deposited, (ii) adequate provision has been made with respect to the
payment of any withholding taxes due upon such exercise and (iii) the
broker-dealer and the Participant have otherwise complied with Section
220.3(e)(4) of Regulation T, 12 CFR Part 220.
(5) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant and
delivered to the Participant as soon as practicable following the
effective date on which the Option is exercised.
(6) During the lifetime of a Participant, each Option granted to
him shall be exercisable only by him. No Option shall be assignable or
transferable otherwise than by will or by the laws of descent and
distribution.
(d) EFFECT OF TERMINATION OF DIRECTORSHIP. Except as otherwise
provided in the agreement evidencing the grant of an Option:
(1) In the event that the service of a Participant as director of
the Company shall terminate by reason of Disability or for any reason
other than for Cause or by reason of Voluntary Termination (i) Options
granted to such Participant, to the extent that they were exercisable at
the time of such termination of service, shall remain exercisable until
the expiration of one year after such termination of service, on which
date they shall expire and terminate, and (ii) Options granted to such
Participant, to the extent that they were not exercisable at the time of
such termination, shall expire and terminate at the close of business on
the date of such termination of service; PROVIDED, HOWEVER, that no
Option shall be exercisable after the expiration of its term.
(2) In the event of the termination of a Participant's service as
director for Cause or by reason of Voluntary Termination, all
outstanding Options granted to such participant shall expire and
terminate at the commencement of business on the date of such
termination of service.
(e) CERTAIN RESTRICTIONS.
(1) Without limiting the provisions of Section 10 hereof, unless
otherwise specified in the agreement pursuant to which an Option is
granted, in the event a Participant's service as director of the Company
is terminated for Cause prior to July 5, 1994, such Participant shall be
required to offer to sell to TW Holdings, Inc. or its designee all
shares of Common Stock acquired by him pursuant to the exercise of such
Option and at the time of such termination of service owned by him, and
TW Holdings, Inc. shall have the right to require such Participant to
sell such shares to it or its designee, at a price per share equal to
the exercise price with respect to each
<PAGE>
such share under such Option. Such offer and right shall be on the basis
that the purchase and sale shall occur on a business day selected by TW
Holdings, Inc. by written notice to the Participant, which business day
shall be at least five calendar days after TW Holdings, Inc. gives the
Participant written notice of its intent to purchase such shares and
which business day shall be not more than ninety (90) days following
such termination of service. At the time of such purchase and sale, the
Participant shall deliver to TW Holdings, Inc. the certificates
representing the shares of Common Stock to be so purchased against
payment of the purchase price therefor in cash or by certified check,
wire transfer or bank cashiers check, as selected by TW Holdings, Inc.
or its designee.
(2) Without limiting the provisions of Section 10 hereof,
certificates representing shares of Common Stock issued pursuant to this
Plan shall bear such legends as the Committee, its sole discretion,
deems necessary or desirable to reflect the restrictions described in
this Section 6(e).
7. ADJUSTMENT UPON CHANGES IN COMMON STOCK
(a) SHARES AVAILABLE FOR GRANTS. In the event of any change in the
number of shares of Common Stock outstanding by reason of any stock
dividend or split, recapitalization, merger, consolidation, combination or
exchange of shares or similar corporate change, the maximum aggregate
number of shares of Common Stock with respect to which the Committee may
grant Options shall be appropriately adjusted by the Committee. In the
event of any change in the number of shares of Common Stock outstanding by
reason of any other event or transaction, the Committee may, but need not,
make such adjustments in the number and class of shares of Common Stock
with respect to which Options may be granted as the Committee may deem
appropriate.
(b) OUTSTANDING OPTIONS -- INCREASE OR DECREASE IN ISSUED SHARES
WITHOUT CONSIDERATION. Subject to any required action by the shareholders
of TW Holdings, Inc., in the event of any increase or decrease in the
number of issued shares of Common Stock resulting from a subdivision or
consolidation of shares of Common Stock or the payment of a stock dividend
(but only on the shares of Common Stock), or any other increase or decrease
in the number of such shares effected without receipt of consideration by
TW Holdings, Inc., the Committee shall proportionally adjust the number of
shares of Common Stock subject to each outstanding Option and the exercise
price per share of Common Stock in respect of each such Option.
(c) OUTSTANDING OPTIONS -- CERTAIN MERGERS. Subject to any required
action by the shareholders to TW Holdings, Inc., in the event that TW
Holdings, Inc. shall be the surviving corporation in any merger or
consolidation (except a merger or consolidation as a result of which the
holders of shares of Common Stock receive securities of another
corporation), each Option outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder
of the number of shares of Common Stock subject to such Option would have
received in such merger or consolidation.
(d) OUTSTANDING OPTIONS -- CERTAIN OTHER TRANSACTIONS. In the event of
(i) a dissolution or liquidation of TW Holdings, Inc., (ii) a sale of all
or substantially all of TW Holdings, Inc.'s assets, (iii) a merger or
consolidation involving TW Holdings, Inc. in which TW Holdings, Inc. is not
the surviving corporation or (iv) a merger or consolidation involving TW
Holdings, Inc. in which TW Holdings, Inc. is the surviving corporation but
the holders of shares of Common Stock receive securities of another
corporation and/or other property, including cash, the Committee shall, in
its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option outstanding immediately prior to such event (whether
or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option was granted an
amount in cash, for each share of Common Stock subject to such Option,
equal to the excess of (A) the value, as determined by the Committee in
its absolute discretion, of the property (including cash) received or to
be received by the holder of a share of Common Stock as a result of such
event over (B) the exercise price in respect of each share of Common
Stock covered by such Option; or
(ii) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for an
option on some or all of the property for which each share of Common
Stock subject to such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its absolute
discretion in the exercise price of the Option, or the number of shares
or amount of property subject to the Option or, if appropriate, provide
for a cash payment to the Participant to whom such Option was granted in
partial consideration for the exchange of the Option.
(e) OUTSTANDING OPTIONS -- OTHER CHANGES. In the event of any change
in the capitalization of TW Holdings, Inc. or corporate change other than
those specifically referred to in Sections 7(a), (b), (c) or (d) hereof,
the Committee may, in its absolute discretion, make such adjustments in the
number and class of shares subject to Options
<PAGE>
outstanding on the date on which such change occurs and in the per share
exercise price of each such Option as the Committee may consider
appropriate to prevent dilution or enlargement of rights.
(f) NO OTHER RIGHTS. Except as expressly provided in the Plan, no
Participant shall have any rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend,
any increase or decrease in the number of shares of stock of any class or
any dissolution, liquidation, merger or consolidation of TW Holdings, Inc.
or any other corporation. Except as expressly provided in the Plan, no
issuance by TW Holdings, Inc. of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number
of shares of Common Stock subject to an Option or the exercise price of any
Option.
8. RIGHTS AS A STOCKHOLDER.
No person shall have any rights as a stockholder with respect to any shares
of Common Stock covered by or relating to any Option granted pursuant to this
Plan until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in Section 7 hereof, no
adjustment to any Option shall be made for dividends or other rights for which
the record date occurs prior to the date on which such stock certificate is
issued.
9. NO RIGHT TO OPTION.
No person shall have any claim or right to receive an Option hereunder. The
Committee's granting of an Option to a Participant at any time shall neither
require the Committee to grant an Option to such Participant or any other
Participant or other person at any time nor preclude the Committee from making
subsequent grants to such Participant or any other Participant or other person.
10. SECURITIES MATTERS.
(a) TW Holdings, Inc. shall be under no obligation to effect the
registration pursuant to the Securities Act of any shares of Common Stock
to be issued hereunder or to effect similar compliance under any state
laws. Notwithstanding anything herein to the contrary, TW Holdings, Inc.
shall not be obligated to cause to be issued or delivered any certificates
evidencing shares of Common Stock pursuant to the Plan unless and until TW
Holdings, Inc. is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities exchange on
which shares of Common Stock are traded. The Committee may require, as a
condition of the issuance and delivery of certificates evidencing shares of
Common Stock pursuant to the terms hereof, that the recipient of such
shares make such covenants, agreements and representations, and that such
certificates bear such legends, as the Committee, in its sole discretion,
deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to TW Holdings, Inc. shall have
determined that the issuance and delivery of shares of Common Stock
pursuant to such exercise is in compliance with all applicable laws,
regulations of governmental authority and the requirements of any
securities exchange on which shares of Common Stock are traded. TW
Holdings, Inc. may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of
shares of Common Stock pursuant thereto to be made pursuant to an effective
registration statement or an exemption from such registration or other
methods for compliance available under federal or state securities laws. TW
Holdings, Inc. shall inform the Participant in writing of its decision to
defer the effectiveness of the exercise of an Option granted hereunder.
During the period that the effectiveness of the exercise of an Option has
been deferred, the Participant may, by written notice, withdraw such
exercise and obtain the refund of any amount paid or delivered with respect
thereto.
11. WITHHOLDING TAXES.
(a) CASH REMITTANCE. Whenever shares of Common Stock are to be issued
upon the exercise of an Option, the Participant shall be required, as a
condition to the exercise of the related Option, to remit to the Company in
cash an amount sufficient to satisfy federal, state and local withholding
tax requirements, if any, attributable to such exercise prior to the
delivery of any certificate or certificates for such shares.
(b) STOCK REMITTANCE. At the election of the Participant, subject to
the approval of the Committee (which approval may be withheld for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of an Option, in lieu of the cash remittance
required by Section 11(a) hereof, the Participant may tender to the Company
a number of shares of Common Stock determined by the Committee, the Fair
Market Value of which at the tender date the Committee determines, in its
sole discretion, to be sufficient to exercise such
<PAGE>
Option and to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise and not greater than
the Participant's estimated total federal, state and local tax obligations
associated with such exercise.
(c) STOCK WITHHOLDING. At the election of the Participant, subject to
the approval of the Committee (which approval may be withheld for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of an Option, in lieu of the cash remittance
required by Section 11(a) hereof, the Company shall withhold a number of
such shares determined by the Committee, the Fair Market Value of which at
the exercise date the Committee determines, in its sole discretion, to be
sufficient to exercise such Option and to satisfy the federal, state and
local withholding tax requirements, if any, attributable to such exercise
and not greater than the Participant's estimated total federal, state and
local tax obligations associated with such exercise.
(d) PARTICIPANTS SUBJECT TO SECTION 16(B). Notwithstanding Section
6(c)(5) hereof, the Company shall hold as custodian for any Participant who
is subject to the provisions of Section 16(b) of the Exchange Act and who
has not made an election pursuant to Section 83(b) of the Code stock
certificates evidencing the total number of shares of Common Stock required
to be issued pursuant to the exercise of an Option until the expiration of
six months following the date of such exercise. Upon the expiration of such
six-month period, the Participant shall remit to the Company in cash an
amount sufficient to satisfy federal, state and local withholding tax
requirements, if any, attributable to such exercise prior to the delivery
of any certificate or certificates for such shares, unless the Participant
has made an election, and the Committee has approved such election,
pursuant to Section 11(b) or (c) hereof, in which case the Participant
shall tender a number of shares prior to such delivery, or the Company
shall withhold a number of shares, as the case may be, determined pursuant
to such Section.
(e) TIMING AND METHOD OF ELECTIONS. Notwithstanding any provision of
the Plan to the contrary, a Participant who is subject to Section 16(b) of
the Exchange Act may not make either of the elections described in Sections
11(b) and (c) hereof prior to the expiration of six months after the date
on which the applicable Option was granted, except in the event of the
death or Disability of the Participant. In addition, notwithstanding any
provision of the Plan to the contrary, a Participant who is subject to
Section 16(b) of the Exchange Act may not make such elections other than
(i) during the 10-day window period beginning on the third business day
following the date of release for publication of TW Holdings, Inc.'s
quarterly and annual summary statements of sales and earnings and ending on
the twelfth business day following such date or (ii) at least six months
prior to the date as of which the income attributable to the exercise of
such Option is recognized under the Code. Such elections shall be
irrevocable and shall be made by the delivery to TW Holdings, Inc.'s
principal office, to the attention of its Secretary, of a written notice
signed by the Participant.
12. AMENDMENT OF THE PLAN.
The Board of Directors may at any time suspend or discontinue the Plan
or revise or amend it in any respect whatsoever; PROVIDED, HOWEVER, that
without approval of the shareholders no revision or amendment shall (a)
except as provided in Section 7 hereof, increase the number of shares of
Common Stock that may be issued under the Plan, (b) materially increase the
benefits accruing to individuals holding Options granted pursuant to the
Plan or (c) materially modify the requirements as to eligibility for
participation in the Plan.
13. NO OBLIGATION TO EXERCISE.
The grant to a Participant of an Option shall impose no obligation
upon such Participant to exercise such Option.
14. TRANSFERS UPON DEATH.
Upon the death of a Participant, outstanding Options granted to such
Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired
such right to exercise by will or by the laws of descent and distribution.
No transfer by will or the laws of descent and distribution of any Option,
or the right to exercise any Option, shall be effective to bind the Company
unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee
may deem necessary to establish the validity of the transfer and (b) an
agreement by the transferee to comply with all the terms and conditions of
the Option that are or would have been applicable to the Participant and to
be bound by the acknowledgements made by the Participant in connection with
the grant of the Option.
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15. EXPENSES.
The expenses of the Plan shall be paid by the Company.
16. FAILURE TO COMPLY.
In addition to the remedies of the Company elsewhere provided for
herein, if a Participant shall fail to comply with any of the terms or
conditions of the Plan or the agreement executed by such Participant
evidencing an Option, the Committee may cancel such Option and cause such
Option to be forfeited, in whole or in part, as the Committee, in its
absolute discretion, may determine, unless such failure is remedied by such
Participant within ten days after such Participant's receipt of written
notice of such failure from the Committee or the Company.
17. EFFECTIVE DATE AND TERM OF PLAN.
The Plan was adopted by the Board of Directors on July 31, 1990,
subject to approval by the shareholders of TW Holdings, Inc. as and to the
extent such stockholder approval may be required, at the time of the next
annual meeting of stockholders of the Company, in order for the Plan to
comply with the requirements of Rule 16b-3 of the Securities and Exchange
Commission promulgated under Section 16(b) of the Exchange Act, as amended.
Options may be granted under the Plan at any time prior to the receipt of
such shareholder approval; PROVIDED, HOWEVER, that each such grant shall be
subject to such approval. The Plan and all Options granted prior to such
shareholder approval shall automatically terminate and be of no force and
effect unless (1) the Plan receives the requisite shareholder approval, or
(2) the Committee has made a written determination, in consultation with TW
Holdings, Inc.'s legal counsel, that such approval is not required in order
for the Plan to comply with the foregoing Rule 16b-3, at or prior to the
annual meeting of the shareholders of TW Holdings, Inc. next succeeding the
grant of such Options. Without limitation on the foregoing, no Option may
be exercised, in whole or in part, prior to the receipt of such approval or
such written determination.
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EXHIBIT 10.41
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN FLAGSTAR CORPORATION AND JEROME J. RICHARDSON
This Amended and Restated Employment Agreement ("Agreement") is entered
into as of January 10, 1995 amending and restating the Employment Agreement
entered into as of August 11, 1992 between Flagstar Corporation (formerly, TW
Services, Inc.), a Delaware corporation (the "Company"), and Jerome J.
Richardson (the "Executive"), residing at 1116 Woodburn Road, Spartanburg, South
Carolina.
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company as its Chairman
and Chief Executive Officer; and
WHEREAS, the Company and the Executive desire to amend and restate the
Employment Agreement dated as of August 11, 1992 and to provide for the
Executive's continuing employment as Chairman of the Company following the
appointment of a new Chief Executive Officer, 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. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT
The Employment Agreement dated as of July 26, 1989 will terminate and be of
no further force or effect upon the closing (the "Closing") of the purchase by
Kohlberg Kravis Roberts & Co. or one or more of its affiliates of common stock
("Common Stock") of Flagstar Companies, Inc. (formerly TW Holdings, Inc.)
("Holdings") and warrants to purchase shares of Common Stock pursuant to that
certain Stock and Warrant Purchase Agreement (the "Purchase Agreement") dated
concurrently herewith; the date on which the Closing occurs is hereinafter
referred to as the "Closing Date"
2. EMPLOYMENT
The Company agrees tp employ the Executive as its Chief Executive Officer
until February 6, 1995, as its Chairman until the close of business on the fifth
anniversary of the Closing Date unless the Board shall elect a successor
Chairman upon at least 30 days prior written notice, and, thereafter as its
Chairman Emeritus until the close of business on the fifth anniversary of the
Closing Date, unless his employment is earlier terminated pursuant to section 6.
(The Executive's period of employment under this Agreement, whether ending on
the fifth anniversary of the Closing Date or earlier pursuant to Section 6 is
hereinafter referred to as the "Employment Term"). The Executive will serve the
Company subject to the general supervision, advice and direction of the
Company's Board of Directors (the "Board") and upon the terms and conditions set
forth in this Agreement.
3. DUTIES
During the Employment Term, while the Executive shall be the Chief
Executive Officer, Chairman and/or Chairman Emeritus of the Company, the
Executive shall serve on the Board and shall have such authority and duties as
are customary in such positions, and shall perform such other services and
duties as the Board may from time to time designate consistent with such
positions.
Until the Executive is replaced as Chief Executive Officer, the Executive
shall devote his full time and best efforts to the business affairs of the
Company; thereafter the Executive shall devote such reasonable time and efforts
to the business affairs of the Company as may be required by the Board; 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) serving as a director or member of a committee of the
corporations or organizations that the Executive presently services and
such corporations and organizations that the Executive upon approval of the
Board may serve in the future;
<PAGE>
(iii) managing his personal investments, including, but not limited
to, Richardson Sports, TriArc Foods, and Isotechnology, Inc.; and
(iv) serving as a director or officer of, or otherwise engaging in
activities related to, the National Football League;
provided, that the Executive may not accept employment with any other individual
or other entity, or engage in any other venture which is in conflict with the
business of the Company.
4. COMPENSATION AND BENEFITS
(a) BASE COMPENSATION. The Company shall pay the Executive an annual base
salary (the "Base Salary") as compensation for his employment, in equal
installments and at least twice in each calendar month. The Base Salary for the
Employment Period shall be at the annual rate of $750,000. In addition,
commencing on January 1, 1995 until February 6, 1995, he shall be paid an
additional $25,342; provided that such additional amount shall not constitute
Base Salary for other purposes of this Agreement.
(b) BONUS. For calendar years after 1994, the Executive's bonus
compensation during the Employment Period shall be determined by the Board in
its reasonable discretion.
(c) LOAN. Within 60 days after the Closing Date, provided that Nations Bank
shall transfer to the Company or Holdings, in accordance with the provisions of
Regulation G under Section 7(a) of the Securities and Exchange Act of 1934
relating to transfers of margin loans, all of the collateral which it shall then
hold to secure its loan (the "NB Loan") made to the Executive in 1989 to finance
the Executive's purchase of 675,475 shares (the "Shares") of Common stock and
which collateral shall consist of at least the Shares and provided that the
Executive shall consent to such transfer of collateral, the Company or Holdings,
respectively, shall extend to the Executive a loan (the "Loan") in an amount
equal to the lesser of the original principal of the NB Loan, approximately
$13.5 Million, or the amount of the outstanding principal of the NB loan on the
date the Executive repays the NB loan. The Executive shall use the proceeds of
the Loan, and such other of his funds which may be required, to pay all of the
current outstanding principal and interest due on the NB Loan. The Loan shall be
evidenced by a recourse promissory note (the "Note") from the Executive to the
Company or Holdings, as the case may be, which shall be secured by the Shares
pursuant to a Pledge Agreement to be entered into by the Executive and the
Company or Holdings. The terms of the Note shall be as follows:
(i) All principal and interest on the Note shall be due and payable on
the fifth anniversary of the Closing Date, provided, however, that in the
event of a payment to the Executive pursuant to Section 7(a), the amount of
such payment, less any applicable federal, state or local taxes payable by
the Executive with respect thereto, shall be immediately offset to pay
principal and interest on the Loan to the extent of such payment, with the
balance of the Loan being payable on the fifth anniversary of the Closing
Date; and provided, further, at the election of the Company or Holdings, as
the case may be, in its sole and absolute discretion, all such principal
and interest shall become due and payable on the termination of the
Executive's employment with the Company in a Termination for Cause or by
reason of a Voluntary Termination, as each is defined in Section 6(c).
(ii) The interest rate shall be fixed at an annual rate equal to the
applicable federal rate pursuant to Internal Revenue Code section 7872 for
five-year term loans as in effect on the date the Note is executed.
(d) STOCK OPTIONS. Effective as soon as practicable after the Closing,
subject to the termination of the Executive's stock option dated as of December
6, 1989 (the "1989 Option") for 160,000 shares of Common Stock, the Company
shall grant to the Executive a new option for 160,000 shares of Common Stock
(the "Exchange Option") and a new option for 440,000 shares of Common Stock (the
Additional Option) (the Exchange Option and the Additional Option are
hereinafter collectively referred to as the "New Options"). The New Options
shall be granted subject to the following terms and conditions: (i) the exercise
price with respect to 100,000 shares under the Exchange Option shall be $15.00
per share, (ii) the exercise price with respect to 60,000 shares under the
Exchange Option and all of the shares under the Additional Option shall be 17.50
per share, (iii) the New Options shall be exercisable at the rate of 20% per
year beginning on the first anniversary of the Closing Date, conditioned on the
Executive's continuing to be employed by the Company, provided, however that if
the Company terminates the Executive's employment other than in a Termination
for Cause, or if the Executive dies, the New Options shall be immediately and
fully exercisable, (iv) the New Options shall be granted under and subject to
Holdings' 1989 Non-Qualified Stock Option Plan (the "Option Plan"), (v) all
shares of Common Stock acquired by the Executive upon any exercise of the New
Options shall be subject to the Richardson Shareholder
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Agreement (the "Shareholder Agreement") entered into the Executive and the
Company, and (vi) the grant of the New Options shall be subject to approval by
Holdings' shareholders.
(e) VACATION. During each calendar year during the Employment Term, the
Executive shall be entitled to no fewer than four weeks paid vacation, as
determined by the Board, unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks paid vacation under the Company's generally applicable vacation policy.
(f) 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 (i) which apply to such other senior executives of
the Company and (ii) which are substantially equivalent on an aggregate basis to
those which are currently in effect, except in any case to the extent the
Executive may otherwise agree in writing. The Executive will continue to be
provided with office space and secretarial assistance at 311 East Main Street,
Spartanburg, South Carolina after he ceases to be Chief Executive Officer.
(g) INSURANCE POLICY. During the Employment Term the Company shall continue
in effect the agreement dated January 2, 1975 between the Executive and Spartan
Food System, Inc. covering Massachusetts Mutual Life Insurance Company policy
number 5-215831 and the Company shall not terminate said agreement without the
written consent of the Executive.
5. REIMBURSEMENT OF EXPENSES
(a) EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT. In addition to the
compensation provided for under section 4 hereof, upon submission of proper
vouchers, the Company will pay or reimburse the Executive for all normal and
reasonable expenses, including travel expenses, incurred by the Executive during
the Employment Term in connection with the Executive's responsibilities to the
Company.
(b) FEES AND EXPENSES IN RELATION HERETO. The Company agrees to reimburse
the Executive for the reasonable professional fees and expenses incurred in
relation to this Agreement, its subject matter, and the attendant agreement(s)
relating to the Executive's Common Stock and stock options of Holdings.
6. TERMINATION
(a) Notwithstanding Section 2 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 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 as a result of a Permanent Disability (as defined in
subsection (c)); provided, however, that the Executive shall be paid
one-half of the Base Salary and Bonus for a period of two years after the
termination of the Executive's employment;
(iii) upon the close of business on the effective date of a "Voluntary
Termination" (as defined in subjection (c)) by the Executive of his
employment with the Company;
(iv) upon the close of business on the date on which the Company gives
the Executive written notice of "Termination for Cause" (as defined in
subsection (c)) of his employment.
(b) In the event of the termination of the Employment Term pursuant to
subsection (a), the Company shall pay the Executive (or, in the case of his
death, 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) of subjection (a)), all accrued but unpaid Base Salary and
Bonus and other accrued benefits pursuant to section 4 through the date of his
termination.
(c) For purposes of this Agreement:
(1) "Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a
physical or mental disability or infirmity which has continued for more
than 180
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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
Executive's employment for "cause". For purposes of this Agreement,
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) breach of a material provision of this Agreement or of
the Shareholder's Agreement by the Executive.
(3) "Voluntary Termination, shall mean any voluntary termination by
the Executive of his employment with the Company; the Executive shall
give the Company at least 120 days' prior written notice of the
effective date of any Voluntary Termination. For the purposes of this
Agreement, the Executive shall not be deemed to have terminated his
employment with the Company voluntarily if (i) the Executive terminates
his employment with the Company as a result of a material breach by the
Company of a material provision of this Agreement which the Company does
not take measures to correct with 60 days after the Executive notifies
the Board in writing of the action or omission which the Executive
believes constitutes such a breach and (ii) the Executive gives 30 days'
prior written to the Company of his intention to terminate his
employment within 90 days after giving notice to the Board of the
purported breach.
7. ACCELERATION OF BENEFITS; NO MITIGATION
(a) 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; for the purposes of this section only, the Executive's
annual Base Salary and Bonus, in the aggregate, shall be deemed to be payable at
a rate of $1,500,000 for each full year of the Employment Term. The Company
shall also be obligated to provide health and welfare benefits to the Executive
and his dependents for the remainder of the Employment Term, on terms no less
favorable than those in effect for continuing senior executives of the Company,
and shall provide the Executive with service credit under any retirement plan in
which the Executive participates for the remainder of the Employment Term. In
the event that the Executive's participation in any health, welfare or
retirement plan is prohibited by law or the terms of the plan after his
termination of employment, the Company shall provide the Executive with the cash
equivalent of the benefits under such plan to which he would be entitled pursuit
to the preceding sentence.
(b) In the event that the Company terminates the Executive's employment
within one year after the Closing Date for any reason other than as set forth in
section 6, if any of the payments or other benefits (collectively, the
"Payments") payable to the Executive hereunder are held to be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, the Company shall pay to the Executive an additional amount such
that the net amount retained by the executive, after deduction of any Excise Tax
on the Payment and any federal, state or local income tax and Excise Tax upon
the payment provided by this section, shall be equal to the Payments.
8. LOCATION OF COMPANY HEADQUARTERS
The Company shall continue to maintain its corporate headquarters in
Spartanburg, South Carolina and the principal place of the Executive's
employment under this Agreement shall be within a 25 mile radius of Spartanburg,
South Carolina and, unless the Executive agrees otherwise, any requirement that
he be based outside of such area shall be a termination of this Agreement as
described in section 7; provided, however, that travel required in connection
with the Executive's duties shall not be deemed a breach of this provision.
9. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(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
Company's expenditure 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
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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.
(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 three years after the later of (1) the termination of the Employment
Term and (2) 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.
(c) The Executive further agrees that, in the event of the Termination for
Cause or the Voluntary Termination of his employment with the Company, he shall
not (except as to the activities described in section 3) for a period of three
years following such termination enter into any relationship whatsoever, either
directly or indirectly, alone or in partnership, or as an officer, director,
employee or stockholder (beneficially owning stock or options to acquire stock
totaling more than five percent of the outstanding shares) of any corporation
(other than the Company or Holdings), 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 or Holdings), which is
engaged in the restaurant or food services business in those states within the
United States in which the Company, holdings and any of its subsidiaries is at
the time of such termination of employment conducting its business and which has
annual sales of at least $50,000,000.
(d) So long as the Executive is employed by the Company and so long as the
restrictions of this section 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 (i) to the extent not described in Section 3, disclose such
engagement in writing to the Company and (ii) disclose to the other entity with
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 and the provisions of section 10.
(e) The restrictions in this section 9 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.
(f) The parties hereby acknowledge that the restrictions in this section 9
have been specifically negotiated and agreed to by the parties hereto and are
limited to only those restrictions necessary to protect the Company from unfair
competition. The parties hereby agree that if the scope or enforceability of any
provision, paragraph or subparagraph of this section 9 is in any way disputed at
any time, and should a court find that such restrictions are overly broad, the
court may modify and enforce the covenant to the extent that it believes to be
reasonable under the circumstances. Each provision, paragraph and subparagraph
of this section 9 is separable from every other provision, paragraph, and
subparagraph and constitutes a separate and distinct covenant.
10. 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 3 and 9 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
shall survive the Employment Term.
11. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs and his
personal representative or representatives, and upon the Company and its
successors and assigns. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Executive.
12. NOTICES
Any notice required or permitted by this Agreement shall be in writing,
sent by registered or certified mail, return receipt requested, addressed to the
Board and the Company at its then principal office, with a copy to TW
Associates,
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L.P., c/o Kohlberg Kravis Roberts & Co., Nine West 57th Street, New York, New
York, Attention: Clifton S. Robbins, 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 or TW Associates, L.P. may from time to time specify in
writing for the purpose in a notice given to the other parties in compliance
with this section. Notices shall be deemed given when received.
13. 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.
14. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall 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 he will be entitled to the protection of any insurance
policies the Company may elect to maintain generally for the benefit of its
directors and officers against all costs, charges and expenses incurred or
sustained by him in connection with any action, suit or proceeding to which he
may be made a party by reason of his being or having been a director, officer or
employee of the Company or any of its subsidiaries or his serving or having
served any other enterprise as a director, officer or employee at the request of
the Company (other than any dispute, claim or controversy described in section
10 of this Agreement except that the Executive shall be entitled to
reimbursement of his reasonable attorneys' fees and expenses if he is the
prevailing party).
15. PUBLIC ANNOUNCEMENTS
The Company and the Executive agree that neither shall make any public
announcement concerning the terms of this Agreement or the relinquishment by the
Executive of the Position of Chief Executive Officer of the Company without the
consent of the other party, unless required to do so by law.
16. 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
hereof. 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 under this Agreement to the Executive
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 or reference only and shall not be a 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 date first written above.
FLAGSTAR CORPORATION
By /s/ PAUL E. RAETHER
Title
/s/ JEROME J. RICHARDSON
Jerome J. Richardson
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EXHIBIT 10.42
EMPLOYMENT AGREEMENT
BETWEEN FLAGSTAR COMPANIES, INC. AND JAMES ADAMSON
This Employment Agreement ("Agreement") is made and entered into as of
January 10, 1995 (the "Effective Date") between Flagstar Companies, Inc., a
Delaware corporation (the "Company"), and James B. Adamson (the "Executive"),
residing at 10040 South West Sixtieth Court, Miami, Florida 33156.
WITNESSETH:
WHEREAS, the Company and the Executive desire to enter into this Agreement
providing for the Executive's employment as President and Chief Executive
Officer of the Company, and, if so elected, for the Executive's service as a
Director of the Company 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 from the first day following the Executive's
termination of his employment with his current employer (the "Commencement
Date") until the close of business on the third anniversary of that date, unless
his employment is earlier terminated pursuant to section 5. (The Executive's
period of employment under this Agreement, whether ending on the third
anniversary of the Commencement Date or earlier pursuant to section 5 is
hereinafter referred to as the "Employment Term," and each twelve consecutive
month period or portion thereof beginning on the Commencement Date and each
anniversary thereof during the Employment Term is hereinafter referred to as a
"Contract Year.") The Executive shall commence providing services hereunder on a
full business time basis within two weeks after the Commencement Date and at
such time (the "Start Date") shall commence to serve as President and Chief
Executive Officer of the Company. During the Employment Term, the Executive, if
elected or appointed thereto, shall also serve as a Director of the Company and
as Chairman of the Board of Directors of the Company (the "Board"). The
Executive will be elected or appointed as a Director of the Company no later
than the first meeting of the Board after the Commencement Date and as Chairman
of the Board of the Company within six (6) months after the Commencement Date.
During the Employment Term and for so long as the Executive is an active
employee of the Company in good standing, the Board shall nominated the
Executive for election as a Director of the Company whenever his term as a
Director of the Company expires. The Executive will serve the Company subject to
the general supervision, advice and direction of the member of the Board other
than the Executive (the "Disinterested Directors") and upon the terms and
conditions set forth in this Agreement.
2. DUTIES
(a) During the Employment Term, and while serving as President and Chief
Executive Officer of the Company the Executive shall have such authority and
duties as are customary in such positions, and shall perform such other services
and duties as the Disinterested Directors may from time to time designate
consistent with such positions. The Executive agrees that the Start Date shall
be no later the February 28, 1995. The Executive agrees to relocate to the
environs of the Company's headquarters as soon as practicable, but in no event
later than the last to occur of (i) the end of the first Contract Year or (ii)
the end of the third calendar month following the completion of any relocation
of the Company's headquarters if such relocation begins during the first
Contract Year (the "Relocation Term"); provided, however, that the Executive
shall not be required to relocate more than once during the Employment Term and
the Company's headquarters shall be in Spartanburg, South Carolina during the
Employment Term, unless as other wise agreed by the Executive.
(b) The Executive shall report solely to the board. All senior officers of
the Company shall report, directly or indirectly through other senior officers,
to the Executive, and the Executive shall be responsible for reviewing the
performance of the other senior officers of the Company, and shall from time to
time advise the Board of his recommendations for any adjustments to the salaries
of and bonus payments to such officers. The Executive shall be responsible for,
and, subject to discussion with and ratification by the Board, have the
authority to enter into, employment contracts on behalf of the Company with
other executives of the Company.
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(c) The Executive shall devote his full business 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; and
(ii) serving as a director or member of a committee of the
corporations or organizations that the Executive presently serves and such
corporations and organizations that the Executive upon approval of the
Board may serve in the future;
provided, that the Executive may not accept employment with any other individual
or other entity, or engage in any other venture which is indirectly or directly
in conflict or competition with the business of the Company.
3. COMPENSATION AND BENEFITS
(a) BASE COMPENSATION. During the Employment Term the Company shall pay the
Executive an annual base salary (the "Base Salary") as compensation for this
employment, in equal installments and at least twice in each calendar month. The
Base Salary shall be at the annual rate of $950,000 for the first Contract Year;
$1,000,000 for the second Contract Year; and $1,050,000 for the third Contract
Year.
(b) BONUS.
(i) SIGN-ON BONUS. The Company shall pay $500,000 to the Executive in
a lump sum on the Effective Date. The Executive shall remit $500,000 to the
Company in a lump sum two weeks after the Commencement Date if he does not
report to work for the Company as set forth in section 1.
(ii) ANNUAL BONUS. For each calendar year ending during the Employment
Term, the Executive's bonus compensation ("Annual Bonus") shall be at an
annual rate equal to a percentage between 0% and 200% of his Base Salary in
effect on December 31 of such calendar year, with a target of 75% of Base
Salary (the "Targeted Bonus") if the Company and the Executive achieve
budgeted financial and other performance targets which shall be established
by the Compensation and Stock Option Committee of the board (the
"Compensation Committee"), and which percentage shall be greater than or
less than 75% if the Company's and the Executive's performance exceeds or
falls short of, respectively, such budgeted targets, as shall be determined
by the Compensation Committee; provided, however, that the minimum Annual
Bonus for calendar year 1995 shall be $500,000. The Executive's Annual
Bonus earned with respect to each year shall be paid at the same time as
annual incentive bonuses with respect to that year are paid to other senior
executives of the Company generally.
(c) RESTRICTED STOCK. On the Commencement Date, the Company shall issue to
the Executive shares of common stock of the Company, $.10 par value per share,
with an aggregate market value (determined as of the close of the trading day
immediately preceding the Effective Date) equal to $400,000 (the "Restricted
Stock"). The Restricted Stock shall be issued subject to the following terms and
conditions: (i) 50% of the Restricted Stock shall vest on the Start Date and the
remaining 50% of the Restricted Stock shall vest on the first anniversary of the
Commencement Date, conditioned upon the Executive's continuing to be employed by
the Company on such dates or as otherwise provided by this Agreement; (ii) all
shares of Restricted Stock shall be subject to the Adamson Shareholder Agreement
(the "Shareholder Agreement") entered into by the Executive and the Company; and
(iii) the Executive shall make an election under Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to his receipt of the
Restricted Stock. On the Start Date the Company shall pay to the Executive in a
lump sum $267,000 to reimburse the Executive in part for his income tax
liabilities with respect to his receipt of the Restricted Stock. The Executive
shall remit $267,000 in a lump sum to the Company if the Executive does not
report to work for the Company as set forth in section 1.
(d) STOCK OPTIONS. On the Effective Date, the Company shall grant to the
Executive an option for 800,000 shares of common stock of the Company, $.10 par
value per share (the "Option"). The Option shall be granted subject to the
following terms and conditions: (i) the exercise price with respect to shares
under the Option shall be the market price per share at the close of the trading
day immediately preceding the Effective Date; (ii) 20% of the Option shall be
exercisable January 9, 1996 and an additional 20% shall be exercisable on each
anniversary thereof, conditioned upon the Executive's continuing to be employed
by the Company on such dates or as otherwise provided by this Agreement; (iii)
the Option shall be granted under and subject to the Company's 1989
Non-Qualified Stock Option Plan, as amended (the "Option Plan"); (iv) the Option
shall be evidenced by, and subject to, the Option Agreement entered into by the
Executive and the Company (the "Option Agreement") having terms described in the
Option Plan, except to the extent otherwise specified
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in this Agreement, and the Option Agreement shall specify that in the event of
the termination of the Employment Term other than a termination by the Company
for "Cause" (as defined in section 5(c) of this Agreement) and pursuant to
section 5(a)(iv) or a "Voluntary Termination" (as defined in section 5(c) of
this Agreement) by the Executive pursuant to section 5(a)(v), the vested portion
of the Executive's Option shall remain exercisable, but not beyond January 9,
2005, until the later of (A) the first anniversary of such termination of the
Employment Term and (B) the date on which the Company is no longer required to
provide the benefits described in section 5(b) (other than any continuation
coverage which the Executive and/or his Family is entitled to elect under
Section 4980B of the Code); and (v) all shares of common stock acquired by the
Executive upon any exercise of the Option shall be subject to the Shareholder
Agreement.
(e) VACATION. During each calendar year of the Employment Term, the
Executive shall be entitled to no fewer than four weeks of paid vacation, as
determined by the Board, unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks paid vacation under the Company's generally applicable vacation policy;
provided, however, that the Executive's paid vacation shall be reduced pro rata
for any partial calendar year during the Employment Term, ignoring, for purposes
of determining a partial year under this subsection (e), the period of time
between January 1, 1995 and the Start Date.
(f) 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.
(g) INSURANCE POLICY. Notwithstanding the provisions of section 3(f),
during the Employment Term the Company shall maintain in effect term life
insurance coverage for the Executive with death benefits of at least $3,250,000
in the aggregate, subject to the Executive's insurability and with the
beneficiary or beneficiaries thereof designated by the Executive.
Notwithstanding section 8 of this Agreement, such life insurance policy or
policies may be assigned to a trust for the benefit of any beneficiary by the
Executive.
(h) COMPANY JET PRIVILEGES. Until the sooner of the end of the Relocation
Term or the Executive's relocation to the environs of the Company headquarters,
the Executive shall be permitted to use the Company jet for at least one return
trip per week to the Miami area.
4. REIMBURSEMENT OF EXPENSES
(a) EXPENSES INCURRED IN RELOCATION. The Company will pay or reimburse the
Executive for all normal and reasonable expenses (including closing costs on the
purchase of the Executive's principal residence) incurred by the Executive in
relocating his family and personal effects to the environs of the Company's
headquarters and shall pay or reimburse the Executive for reasonable temporary
living expenses and rental costs incurred by him maintaining a temporary
residence near the Company headquarters until such relocation, but in no event
beyond the expiration of the Relocation Term. The Company and the Executive
intend that such living arrangements and residence shall be of a first class
nature consistent with the Executive's position with the Company. The Company
shall also reimburse the Executive for all closing costs incurred by him on the
sale of his current residence in Miami and for up to $250,000 in the aggregate
for (1) the real estate commissions incurred in selling the Executive's current
residence in Miami and (2) the amount by which $950,000 exceeds the sale price
of such residence; provided however, that prior to entering into any binding
contract for the sale of such residence, the Executive shall be obligated to
negotiate in good faith with the Company for the Company's purchase of such
residence from the Executive for $950,000.
With respect to the reimbursements set forth in the immediately preceding
paragraph, the Company shall pay, or reimburse the Executive, for the amount of
any federal and state income tax liabilities with respect to his receipt of such
reimbursements from the Company, after taking into account any deductions or
other tax benefits attributable to such reimbursements.
(b) EXPENSES INCURRED IN SECURING THE EXECUTIVE'S MIAMI RESIDENCE. The
Company shall pay, or reimburse the Executive, for the cost of maintaining
security on his current residence in the Miami area consistent with the security
arrangements provided by the Executive's current employer for so long as the
Executive or his family reside there, but in no event beyond the expiration of
the Relocation Term.
(c) EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT. In addition to the
compensation provided for under section 3 hereof, upon submission of proper
vouchers, the Company will pay or reimburse the Executive for all normal and
reasonable expenses incurred by the Executive during the Employment Term in
connection with the Executive responsibilities
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to the Company, including the Executive's first class travel expenses and, for
no more than four (4) trips chosen by the Executive each Contract Year, first
class travel expenses for the Executive's spouse to accompany him on such
business travel.
(d) LEGAL FEES AND EXPENSE IN RELATION HERETO. The Company agrees to
reimburse the Executive for the reasonable legal fees and expenses incurred in
relation to this Agreement, its subject matter, and the attendant agreements
relating to the Executive's Restricted Stock, the Option and the Shareholder
Agreement.
(e) PERSONAL TAX AND FINANCIAL PLANNING EXPENSES. The Company agrees to
reimburse the Executive for reasonable legal, accounting and financial advisor
fees and expenses incurred by the Executive for personal tax, financial and
estate planning services in an amount not to exceed $15,000 for each Contract
Year.
5. TERMINATION
(a) EVENTS OF TERMINATION. Notwithstanding section 1 hereof, the Employment
Term shall terminate upon the first to occur of the following events:
(i) the death of the Executive;
(ii) 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 as a result of his "Permanent Disability" (as defined in
subsection (c));
(iii) the close of business on the date on which the Company gives the
Executive written notice of the Company's termination of his employment as
a "Termination without Cause" (as defined in subsection (c));
(iv) the close of business on the date on which the Company gives the
Executive written notice of the Company's termination of his employment for
"Cause" (as defined in subsection (c)); and
(v) the close of business on the effective date of a "Voluntary
Termination" (as defined in subsection (c)) by the Executive of his
employment with the Company.
(b) TERMINATION BENEFITS. Upon the termination of the Executive's
employment with the Company for any reason set forth in subsection (a), the
Company shall provide the Executive (or, in the case of his death, his estate or
other legal representative), any Annual Bonus earned but not yet paid with
respect to the preceding calendar year, benefits due him under the Company's
benefits plans and policies for his services rendered to the Company prior to
the date of such termination (according to the terms of such plans and
policies), and the Company shall pay the Executive not later than 90 days after
such termination, in a lump sum, all Base Salary earned through the date of such
termination. The Executive shall be entitled to the payments and benefits
described below only as each is applicable to such termination of employment.
(i) In the event of a termination under subsection (a)(i) and in
addition to any other death benefits payable under the Company's benefit
plans or policies, (A) for so long as the Executive's surviving spouse is
receiving any Base Salary payment under clause (B) below, the Executive's
family dependents (collectively, "Family") shall be entitled to receive and
participate in the disability, health, medical and other welfare benefit
plans which the Executive and/or his Family would otherwise have been
entitled to hereunder if the Executive had not terminated employment (the
"Welfare Benefits") in addition to any continuation coverage which the
Executive's Family is entitled to elect under Section 4980B of the Code;
and (B) for a period of one year following the date of the Executive's
death, the Executive's surviving spouse shall be paid (x) the Base Salary
in effect at the date of the Executive's death, payable in monthly
installments, and (y) the Annual Bonus that would have been paid under
section 3(b) (ii) to the Executive during such period, payable as and when
annual incentive bonuses with respect to such period are paid by the
Company to other senior executives of the Company generally.
(ii) In the event of a termination under subsection (a)(ii), for a
period of two years after the date of such termination of the Executive's
employment, (A) the Executive and/or his Family shall be entitled to
receive and participate in the Welfare Benefits in addition to any
continuation coverage which the Executive and/or his Family is entitled to
elect under Section 4980B of the Code; and (B) the Executive shall be paid
(x) one-half of the Base Salary in effect at such date of termination,
payable in monthly installments, and (y) one-half of the Annual Bonus that
would be payable under section 3(b)(ii) for such period, payable as and
when annual incentive bonuses with respect to such period are paid by the
Company to other senior executives of the Company generally.
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(iii) In the event of a "Termination without Cause" under subsection
(a)(iii), (A) the Executive and/or his Family shall be entitled until the
earlier of (x) the second anniversary of the date of such termination of
employment or (y) the commencement of coverage of the Executive and/or his
Family by another group medical benefits plan providing substantially
comparable benefits to the Welfare Benefits and which does not contain any
pre-existing condition exclusions or limitations, to receive and
participate in the Welfare Benefits in addition to any continuation
coverage which the Executive and/or his Family is entitled to elect under
Section 4980B of the Code: (B) the Company shall pay to the Executive in a
lump sum an amount equal to the greater of (x) the product of the number of
months remaining in each Contract Year multiplied by one-twelfth of the
rate of Base Salary scheduled to be in effect during each such month
pursuant to section 3(a) determined without regard to this section 5 or (y)
the product of the number of months remaining in each Contract Year
multiplied by one-twelfth of the rate of Base Salary scheduled to be in
effect during each such month pursuant to section 3(a) plus the difference
between 24 and the number of such remaining months multiplied by $87,500;
(C) the Company shall pay the Executive the Annual Bonus that would have
been payable to the Executive pursuant to section 3(b)(ii) for the calendar
year of the termination of employment multiplied by a fraction, the
numerator of which is the number of full or partial months of the
Employment Term occurring during the calendar year of termination, and the
denominator of which is 12, payable as and when annual incentive bonuses
with respect to such period are paid by the Company to other senior
executives of the Company generally; (D) the Option shall continue to
become exercisable as set forth in section 3(d) for the first, second and
third vesting installments of the Option as if the Executive had not
terminated employment hereunder, and (E) the Restricted Stock shall be 100%
vested on the effective date of such termination of employment; provided,
however, that in the event of any Termination without Cause following a
Change in Control of the Company pursuant to subsection (c)(iv)(D), the
Restricted Stock and the Option shall be 100% vested and exercisable as of
the date of such termination and the Company shall be obligated to pay to
the Executive in a lump sum upon the date of such termination an amount
equal to his Targeted Bonus for the Contract Year of termination of
employment multiplied by the factor two.
(iv) In the event of a termination for Cause under subsection (a)(iv)
and in the event of a Voluntary Termination under subsection (a)(v), the
Executive shall not be entitled to any benefits or payments from the
Company except as provided in the first sentence of subsection (b) above.
(c) For purposes of this Agreement:
(i) "Permanent Disability" shall mean the Executive's inability to
perform the material duties contemplated by this Agreement by reason of a
physical or mental disability or infirmity which has continued for more
than 180 consecutive days. The Executive agrees to submit such medical
evidence regarding such disability or infirmity as is reasonable requested
by the Company.
(ii) A "Change in Control of the Company" shall occur on the date on
which (A) TW Associates, L.P. and KKR Partners II, L.P. (collectively,
"KKR") disposes (whether in one or more transactions) by sale or exchange
(other than to or with any other person or entity that is directly or
indirectly controlled by, in control of or under common control with KKR,
as the term "control" is defined under Rule 405 of the Securities Act of
1933, as amended) of at least seventy-five percent (75%) of the greater of
(x) the amount of common stock of the Company held by KKR as of the
Effective Date, and (y) the amount of common stock of the Company held by
KKR as of any subsequent date during the Employment Term, and (B) KKR no
longer retains the voting power to elect a majority of the Board.
(iii) "Clause" shall mean (A) the Executive's habitual neglect of his
material duties, (B) an act or acts by the Executive, 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, (C) the Executive's
failure to follow any lawful directive of the Board consistent with the
Executive's position and duties, (D) an act or acts of fraud or dishonesty
by the Executive which results or is intended to result in financial or
economic harm to the Company, or (E) breach of a material provision of this
Agreement or of the Shareholder's Agreement by the Executive; provided,
that the Company shall provide the Executive (x) written notice specifying
the nature of the alleged Cause, and, with respect to clauses (A), (C) and
(E), (y) a reasonable opportunity to appear before the Board to discuss the
matter, and (z) a reasonable opportunity to cure any such alleged Cause.
(iv) "Voluntary Termination" shall mean any voluntary termination by
the Executive of his employment with the Company provided that the
Executive shall give the Company at least 120 days' prior written notice of
the effective date of such termination. For purposes of this Agreement, the
Executive shall not be deemed to have incurred a "Voluntary Termination"
upon one of the events set forth below: (A) upon 10 days' prior written
notice from the
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Executive of his voluntary termination of his employment with the Company
following a breach by the Company of a material provision of this Agreement
which the Company does not correct within 30 days or such longer reasonable
amount of time required to correct such breach, not to exceed 90 days,
after the Executive notifies the Board in writing of the action or omission
which the Executive believes constitutes such a breach; (B) upon the
Executive's 30 days' prior written notice to the Board if the Executive has
not been elected or appointed Chairman of the Board within six months after
the Commencement Date; (C) upon the otherwise scheduled expiration of the
Employment Term (or any later date to which the Executive's employment has
been extended pursuant to an offer of employment from the Company as
contemplated by this section 5(c)(iv)(C)) if the Company does not offer to
extend the Executive's employment beyond such date for a period of at least
two years on terms that are substantially comparable to the terms of this
Agreement without regard to the terms of sections (3)(b)(i), 3(c), 3(d),
4(a), and 4(b); or (D) upon the close of business on the effective date of
the Executive's 30 days' prior written notice to the Board of his election
to terminate employment with the Company within 90 days following a Change
in Control of the Company;
(v) "Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause (as defined above), and
shall be deemed to include any termination under the circumstances
described in subsections (c)(iv)(A) through (D).
(d) Notwithstanding any other provision of this Agreement, if any payment
or benefit from the Company would be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Code, the Executive shall designate which
payments or benefits or portion thereof shall be reduced to the extent necessary
so that no portion thereof shall be subject to Section 4999 of the Code; but
only if, by reason of such reduction, the benefit to the Executive of all
amounts payable under section 5 plus all other payments and benefits that the
Executive receives or is then entitled to receive from the Company that would
constitute a "parachute payment" within the meaning of Section 280G of the Code,
net of income and excise taxes with respect thereto (the "Net After Tax
Benefit") is greater than the Net After Tax Benefit if the reduction were not
made.
(e) In the event of any termination of the Executive's employment by the
Company the Executive shall not be required to seek other employment to mitigate
damages, and any income earned by the Executive from other employment or
self-employment or self-employment shall not be offset against any obligations
of the Company to the Executive under this Agreement.
6. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that during the course
of his employment by the Company, the Company 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 Company's
expenditure 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 unless
otherwise required to do so by subpoena or other legal process. No information
otherwise in the public domain shall be considered confidential.
(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 two years after the later of (1) the termination of the Employment Term
and (2) the date on which the Company is no longer required to provide the
payments and benefits described in section 5(b) (other than any continuation
coverage which the Executive and/or his Family is entitled to elect under
Section 4980B of the Code), 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.
(c) The Executive further agrees that, he shall not (except as to the
activities described in section 2(c)) for so long as he is receiving any
benefits under section 5 (b) enter into any relationship whatsoever, either
directly or indirectly, alone or in partnership, or as an officer, director,
employee or stockholder (beneficially owning stock or options to acquire stock
totaling 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
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or any of its subsidiaries is at the time of such termination of employment
conducting its business and which has annual sales of at least $50,000,000.
(d) So long as the Executive is employed by the Company and so long as the
restrictions of this section apply, no later than the date that the Executive
accepts 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 (i) disclose such
engagement in writing to the Company and (ii) disclose to the other entity with
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 and the provisions of section 7.
(e) The restrictions in this section 6 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.
(f) The parties hereby acknowledge that the restrictions in this section 6
have been specifically negotiated and agreed to by the parties hereto and are
limited to only those restrictions necessary to protect the Company from unfair
competition. The parties hereby agree that if the scope or enforceability of any
provision, paragraph or subparagraph of this section 6 is in any way disputed at
any time, and should a court find that such restrictions are overly broad, the
court may modify and enforce the covenant to the extent that it believes to be
reasonable under the circumstances. Each provision, paragraph, and subparagraph
of this section 6 is separable from every other provision, paragraph, and
subparagraph and constitutes a separate and distinct covenant.
7. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or threatened
breach by the Executive of any of the terms set forth in section 6 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
shall survive the Employment Term.
8. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs and his
personal representative or representatives, and upon the Company and its
successors and assigns. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Executive, other than by will or by the laws of
descent and distribution.
9. NOTICES
Any notice required or permitted by this Agreement shall be in writing,
sent by registered or certified mail, return receipt requested, addressed to the
Board and the Company at its then principal office, with a copy to TW
Associates, L.P., c/o Kohlberg Kravis Roberts & Co., Nine West 57th Street, New
York, New York, Attention: Paul Raether, 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 or TW Associates, L.P. may from time to time specify in
writing for the purpose in a notice give to the other parties in compliance with
this section. Notices shall be deemed given when received.
10. 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.
11. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall 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 shall advance to the Executive reasonable attorney's fees
and expenses as such fees and expenses are incurred (subject to an undertaking
from the Executive to repay such advances if it shall be finally determined that
by a judicial decision which is not subject to appeal that the Executive was not
entitled to the reimbursement of such fees and expenses) and he will be entitled
to the protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers against all costs,
charges and expenses incurred or sustained by him in connection with any action,
suit or proceeding to which he may be made a party by reason
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of his being or having been a director, officer or employee of the Company or
any of its subsidiaries or his serving or having served any other enterprise as
a director, officer or employee at the request of the Company (other than any
dispute, claim or controversy arising under or relating to this Agreement).
12. DISPUTES
Any dispute or controversy arising under, out of, in connection with or in
relation to this Agreement shall, at the election and upon written demand of
either the Executive or the Company, be finally determined and settled by
arbitration in the city of the Company's headquarters in accordance with the
rules and procedures of the American Arbitration Association, and judgment upon
the award may be entered in any court having jurisdiction thereof.
13. 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
hereof. 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 under this Agreement to the Executive
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 a part of or control or affect
the meaning of any provision hereof.
[signature page follows]
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
FLAGSTAR COMPANIES, INC.
By: /s/ MICHAEL TOKARZ
Title:
/s/ JAMES. B. ADAMSON
JAMES. B. ADAMSON
8
<PAGE>
EXHIBIT 10.43
ADAMSON SHAREHOLDER AGREEMENT
This Shareholder Agreement (the "Agreement") is entered into as of January
10, 1995 (the "Effective Date") between TW Associates, L.P., ("Associates"), KKR
Partners II, L.P. ("Partners") (collectively, "KKR"), and James B. Adamson
("Adamson").
RECITALS
A. Pursuant to the terms of that certain Employment Agreement entered into
as of January 10, 1995 between Adamson and Flagstar Companies, Inc. (the
"Company"), the Company will issue to Adamson on the "Commencement Date" (as
defined in the Employment Agreement) common stock of the Company ("Common
Stock") with an aggregate market value of $400,000 (the "Restricted Stock") and
will issue to Adamson on the Effective Date an option (the "Option") to purchase
800,000 shares of Common Stock.
B. The parties desire to enter into this Agreement in order to provide for
the voting of KKR's Common Stock for Adamson's election to the Board of
Directors of the Company (the "Board") and to provide Adamson with certain "tag-
along" sale rights with respect to the Restricted Stock and any Common Stock
issued to Adamson upon the exercise of the Option (collectively, the "Stock").
AGREEMENT
In consideration of the foregoing and of the terms below, Associates,
Partners and Adamson agree as follows:
1. VOTING OF KKR SHARES OF COMMON STOCK.
KKR agrees to vote all of its shares of Common Stock in favor of
Adamson's election to the Board and as Chairman of the Board for so long as
Adamson is an active employee of the Company in good standing.
2. TAG-ALONG SALE RIGHTS.
(a) If at any time during the "Employment Term" (as such term is
defined in the Employment Agreement) or for so long as the Executive is an
active employee of the Company in good standing, KKR proposes to sell or
exchange any of its Common Stock to any third party which is not an
affiliate of KKR (a "Tag-Along Sale"), Adamson shall have the right to
participate in such Tag-Along Sale and to include in such Tag-Along Sale a
number of his shares of vested Common Stock determined by multiplying the
total number of shares of Common Stock proposed to be sold or exchanged by
KKR by a fraction, the numerator of which shall equal the aggregate number
of shares of vested Common Stock owned by Adamson and the denominator of
which shall equal the aggregate numbers of shares of vested Common Stock
owned by Adamson and Common Stock owned by KKR.
(b) If KKR intends to enter into a Tag-Along Sale, KKR will give
Adamson at least 14 days' prior written notice of the proposed Tag-Along
Sale, which notice (the "KKR Notice") will include the terms and conditions
of such proposed sale or exchange. Adamson may, within 7 days after
receiving the KKR Notice, notify KKR in writing that he wishes to
participate in such proposed Tag-Along Sale upon the terms and conditions
set forth in the KKR Notice and specifying the number of shares of Common
Stock that he desires to include in such proposed Tag-Along Sale (the
"Adamson Tag-Along Notice"), subject to the foregoing limitations of this
provision. If Adamson does not give KKR a timely Adamson Tag-Along Notice
with respect to the proposed Tag-Along Sale, KKR may sell or exchange its
Common Stock for a period of 90 days after expiration of the 7-day period
during which Adamson was permitted to give the Adamson Tag-Along Novice on
the terms and conditions not materially more favorable to KKR than those
set forth in the KKR Notice, without including Adamson's vested Common
Stock in such transaction. If Adamson gives KKR a timely Adamson Tag-Along
Notice, KKR shall use its reasonable efforts to cause the prospective
transferee(s) of the Common Stock in the Tag-Along Sale to agree to acquire
the Common Stock identified by Adamson in the Adamson Tag-Along Notice upon
the same terms and conditions as are applicable to the Common Stock
proposed to be sold or exchanged by KKR. If the prospective transferee(s)
are unwilling or unable to acquire all of the shares of Common Stock
identified by Adamson upon such terms and conditions, then KKR may elect
either to cancel such proposed transaction or to proceed with the proposed
Tag-Along Sale, provided that it, or its designee, shall be required to
purchase the shares of Common Stock identified in the Adamson Tag-Along
Notice on terms and
<PAGE>
conditions which provide Adamson with an economic benefit which is
equivalent to that which he would have derived had he been permitted to
sell his Common Stock in the proposed Tag-Along Sale.
3. APPLICABLE LAW; JURISDICTION.
The laws of the state of New York shall govern the interpretation,
validity and performance of the terms of this Agreement.
4. TERM.
This Agreement shall terminate upon termination of the Employment
Term.
5. NOTICES.
All notices and other communications provided for herein shall be in
writing and shall be deemed to have been duly given if delivered by hand
(whether by overnight courier or otherwise) or sent by registered or
certified mail, return receipt required, postage prepaid, to the party to
whom it is directed:
(a) if to TW Associates, L.P. or KKR Partners II, L.P.:
c/o Kohlberg Kravis Roberts & Co.
Nine West 57th Street
New York, New York 10019
Attn: Paul Raether
with a copy to:
James D. C. Barrall, Esq.
Latham & Watkins
633 W. 5th St.
Los Angeles, CA 90071
(b) If to Adamson, to him at the following address:
10040 South West Sixtieth Court
Miami, Florida 33156
with a copy to:
John N. Turitzin, Esq.
Battle Fowler LLP
75 East 5th St.
New York, NY 10022
or at such other address as either party shall have specified by notice in
writing to the other.
[signature page follows]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TW ASSOCIATES, L.P.
By /s/ MICHAEL T. TOKARZ
Title:
KKR PARTNERS II, L.P.
By /s/ MICHAEL T. TOKARZ
Title:
/s/ JAMES B. ADAMSON
James B. Adamson
3
<PAGE>
EXHIBIT 10.44
AMENDMENT TO
EMPLOYMENT AGREEMENT
BETWEEN FLAGSTAR COMPANIES, INC. AND JAMES ADAMSON
This Amendment to Employment Agreement ("Amendment") is made and entered
into as of February 27, 1995 between Flagstar Companies, Inc., a Delaware
corporation (the "Company"), and James B. Adamson (the "Executive"), residing at
10040 South West Sixtieth Court, Miami, Florida 33156.
WITNESSETH:
WHEREAS, the Company and the Executive have entered into that certain
Employment Agreement ("Agreement") dated January 10, 1995; and
WHEREAS, the Company and the Executive desire to amend the Agreement in
certain respects, effective as of this date;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties agree as follows:
1. The fifth sentence of Section 1 of the Agreement is amended and restated
to provide as follows:
"The Executive will be elected or appointed as a Director of the
Company no later than the first meeting of the Board after the Commencement
Date and as Chairman of the Board of the Company within six months after
the Commencement Date, provided, however, that the Executive may waive such
right to become Chairman for so long as he may elect, in his sole
discretion, and may thereafter exercise such right by giving the Board
thirty days prior written notice of his desire to become Chairman effective
as of a specified date."
2. Clause (B) of subsection (c) (iv) of Section 5 of the Agreement is
amended and restated to provide as follows:
"(B) upon the Executive's 30 days' prior written notice to the Board
if the Executive has not been elected or appointed Chairman of the Board
within the time period prescribed in section 1, above;"
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Amendment as of the date first written above.
FLAGSTAR COMPANIES, INC.
By: /s/ MICHAEL TOKARZ
Title:
/s/ JAMES B. ADAMSON
James B. Adamson
<PAGE>
EXHIBIT 10.45
May 14, 1993
203 E. Main Street
Spartanburg, S.C. 29319-0001
803-597-8000
Mr. Gregory M. Buckley
324 Trinity Lane
Oak Brook, Illinois 60521
Dear Greg:
We are truly delighted you will join our company as TW Services' Senior
Vice President and Chief Operating Officer of Quincy's. This letter outlines the
terms of our offer as we discussed today.
START DATE
Effective June 1, 1993, you are on the TW payroll, with an expected arrival
date of June 3, 1993. If you are able to start earlier, you will let me know.
BASE SALARY
Your annual base salary will be $225,000.00, to be paid monthly (on the
18th of each month or the nearest Thursday preceding the 18th via direct
deposit).
ANNUAL INCENTIVE
You are eligible for an annual incentive. Your level of participation is
75% of base salary at target EBITDA. This year, any payout will be prorated
based on your length of time with the company. The attached letter outlines
specifics of the plan.
STOCK OPTIONS
Subject to ratification by the TWH Stock Option Committee, you will be
granted 300,000 shares of TWH stock. Details of the plan will be provided to you
after you join us.
BONUS BUYOUT
To compensate for six months of bonus potential with your current employer,
we will pay you $35,000.00 (grossed up for tax purposes) as soon as practical
after you join us.
SIGNING BONUS
We recognize that in making the transition from your current employer to
our company, you are waiving a substantial amount in stock appreciation (to be
realized February 1, 1994). To compensate for this, we will pay you $225,000.00,
subject to normal withholding, as soon as practical after you join us. If you
leave us voluntarily within the next year, you will reimburse us this amount.
BENEFITS
As outlined in the Benefits Summary you have previously received.
<PAGE>
Mr. Gregory M. Buckley
Page Two
May 14, 1993
RELOCATION
We will provide relocation assistance as per the attached.
Additionally, if you have not sold your home after six months, we will
either extend duplicate house payments for an agreed to period of time or offer
third party purchase.
OTHER
For any vested options with your current employer, exercised after
acceptance of our offer and before joining us, we will reimburse you for tax on
the difference between exercise and grant price, up to 40% of the spread
(grossed up for tax purposes). This will be paid to you in March 1994.
If you are in agreement with these terms, please sign one copy of this
letter and return to me.
Greg, please know how happy we all are that you will be joining our team.
We look forward to working with you and to welcoming you, Susan, and your
daughters to Spartanburg.
Please feel free to call if there are any questions. (Office: 803/597-8412;
home : 803/587-6964)
Sincerely,
/s/ EDNA K. MORRIS
Edna K. Morris
Senior Vice President
Human Resources
:dk
Attachments
AGREED AND ACCEPTED:
/s/ GREGORY M. BUCKLEY
Gregory M. Buckley
May 15, 1993
<PAGE>
EXHIBIT 10.46
May 24, 1993
203 E. Main Street
Spartanburg, S.C. 29319-0001
803-597-8000
Mr. Ray Perry
686 Creek View Drive
Orange, CA 92669
Dear Ray:
We are truly delighted to offer you the opportunity to join our company as
TW Services' Senior Vice President and Chief Operating Officer of El Pollo Loco.
This letter outlines the terms of our offer:
START DATE
You will join our company effective June 1, 1993.
BASE SALARY
Your annual base salary will be $240,000.00, to be paid monthly (on the
18th of each month or the nearest Thursday preceding the 18th via direct
deposit).
ANNUAL INCENTIVE
You are eligible for an annual incentive. Your level of participation is
75% of base salary at target EBITDA. This year, any payout will be prorated
based on your length of time with the company. The attached letter outlines
specifics of the plan.
STOCK OPTIONS
Subject to ratification by the TWH Stock Option Committee, you will be
granted 300,000 shares of TWH stock. Details of the plan will be provided to you
after you join us.
BENEFITS
You are eligible for benefits as outlined in the attached Benefits Summary.
<PAGE>
Mr. Ray Perry
Page Two
May 24, 1993
SIGNING BONUS
You will receive a signing bonus of $130,000.00, subject to normal
withholding, as soon as practical after you join us. If you leave us voluntarily
within one year from your hire date, you agree to reimburse us this amount.
Ray, we sincerely hope you will accept our offer and become part of our
team. We would welcome the opportunity to work with you.
If you are in agreement with these terms, please sign one copy of this
letter and return to me.
Please feel free to call if there are any questions. (Office: 803/597-8412;
Home : 803/587-6964)
Sincerely,
/s/ EDNA MORRIS
Edna Morris
Senior Vice President
Human Resources
:nm
Attachments
AGREED AND ACCEPTED:
/s/ RAYMOND J. PERRY
Raymond J. Perry
May 26, 1993
<PAGE>
EXHIBIT 10.47
June 4, 1993
203 E. Main Street
Spartanburg, S.C. 29319-0001
803-597-8000
Mr. Ron Petty
895 Hibiscus Street
Boca Raton, FL 33486
Dear Ron:
We are delighted to offer you the opportunity to join our company as TW
Services' Senior Vice President and Chief Operating Officer of Denny's. This
letter outlines the terms of our offer.
BASE SALARY
Your annual base salary will be $285,000.00, to be paid monthly (on the
18th of each month or the nearest Thursday preceding the 18th via direct
deposit).
ANNUAL INCENTIVE
You are eligible for an annual incentive. Your level of participation is
75% of base salary at target EBITDA. This year, any payout will be prorated
based on your length of time with the company. The attached letter outlines
specifics of the plan.
STOCK OPTIONS
Subject to ratification by the TWH Stock Option Committee, you will be
granted 400,000 shares of TWH stock. Details of the plan will be provided to you
after you join us.
BENEFITS
You are eligible for benefits as outlined in the attached Benefits Summary.
RELOCATION
We will provide relocation assistance as per the attached.
SIGNING BONUS
As a signing bonus, we will pay you $450,000.00 (subject to normal
withholding) as soon as is practical after you join us. If you leave the company
voluntarily within the next year, you agree to reimburse the company the full
amount.
<PAGE>
Mr. Ron Petty
Page Two
June 4, 1993
CHANGE OF CONTROL
If during the first five years of your employment TW Services had a change
of control and your employment with the company was terminated by the company or
by my resignation as a result of this change of control, you would receive pay
equal to two years base pay plus bonus target. We would define change of control
as:
(1) KKR making the decision to sell the company
or
(2) J. J. Richardson terminating his employment with the company.
If you are in agreement with these terms, please sign one copy of this
letter and return to me.
Ron, we are happy to offer you this position and look forward to your
acceptance to be a part of our team. We would welcome the opportunity to work
with you and to welcome you, your spouse, and your children to Spartanburg.
Please feel free to call me if there are any questions. (Office:
803/597-8412; Home : 803/587-6964)
Sincerely,
/s/ H. STEPHEN MCMANUS
H. Stephen McManus
Executive Vice President/
Restaurant Operations
Attachments
AGREED AND ACCEPTED:
/s/ CHARLES R. PETTY
Charles R. Petty
June 7, 1993
<PAGE>
EXHIBIT 10.48
(Flagstar Logo appears here)
October 3, 1994
Dear
This letter is to outline the terms of a severance arrangement offered to
certain key personnel within Flagstar. Under the terms of this arrangement, you
will be entitled to a lump sum payment upon the occurrence of certain triggering
events through November 1997. These triggering events are:
a. Flagstar terminates your employment for any reason other than fraud
or other illegal acts, or
b. The company takes an action resulting in a diminution in your
position, authority, responsibilities or compensation (excluding an
isolated, insubstantial and/or inadvertent action not taken in bad faith
which the company promptly remedies after notice by you), and you leave the
company within 30 days of giving Jerome J. Richardson notice of your intent
to resign under this provision, or
c. Jerome J. Richardson leaves the employment of the company prior to
his currently existing contract expiration date and you leave within six
months thereafter.
This payout will be equal to 200% of your then existing annual base salary
and will be subject to required withholding for income and FICA taxes. Under no
circumstances will you receive more than this amount regardless of the number of
triggering events.
If you are in agreement with these terms, please sign one copy of this
letter and return it to me in an envelope marked "Private and Confidential".
This letter will then become effective.
Sincerely,
/s/ EDNA K. MORRIS
Edna K. Morris
Senior Vice President
Human Resources
AGREED AND ACCEPTED:
<PAGE>
EXHIBIT 10.49
1994 SENIOR MANAGEMENT INCENTIVE PLAN
FLAGSTAR CORPORATION
I. PURPOSE
Flagstar Corporation, including its subsidiaries and affiliated entities
(collectively "Flagstar") hereby adopts the Flagstar 1994 Senior Management
Incentive Plan (the "Plan") to assist Flagstar in retaining and attracting
qualified salaried employees in managerial or other important positions and to
provide an additional incentive to employees in such positions to contribute to
the success of Flagstar.
II. CERTAIN DEFINITIONS
For the purposes of this Plan, the following terms shall have the following
meanings:
A. EMPLOYEE
An individual on the active salaried payroll of Flagstar at any time
during the fiscal year for which an award is made whose compensation is not
governed by a collective bargaining agreement.
B. COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the
"Committee").
C. EBITDA
Earnings (as such term is defined by Generally Accepted Accounting
Principles) before interest, income taxes, depreciation an amortization for
the Plan Year and before accruals for awards pursuant to the provisions of
this Plan. EBITDA shall be calculated by Flagstar's auditors of record.
D. PARTICIPANT
An employee of Flagstar designated by the Committee pursuant to
Article V hereof.
E. FISCAL YEAR/PLAN YEAR
That period of time from January 1, 1994 through December 31, 1994.
F. TARGET AWARD
A Participant's award that is designated by the Committee to be paid
if goals are met at "target" levels as specified in the Plan.
G. TEAM
The group of Participants who participate in a particular
Individual/Team Award Pool as discussed in Article IX.
H. TEAM LEADER
The Participant designated by the Chief Executive Officer to allocate
the Team Pool (as defined in Article IX) to the Team members.
III. EFFECTIVE DATE.
This plan will become effective as of January 1, 1994.
IV. ADMINISTRATION
The Plan will be administered by the Committee. The Committee shall have
the authority to interpret the Plan. All determinations and actions taken by the
Committee with respect to the administration and interpretation of the Plan
shall be final, conclusive, and binding upon the Participants.
<PAGE>
The Committee shall meet at such times as it deems appropriate. Meetings
may be conducted by telephone. The vote of a majority of the Committee and the
actions taken by the Committee shall be a part of the corporate records of
Flagstar.
V. PARTICIPANTS AND TARGET AWARDS
Participants in the Plan for the Year shall be those employees of Flagstar
nominated by the Chief Executive Officer of Flagstar and approved by the
Committee. The Committee shall assign each Participant to one of the following
categories. Categories will have the Target Awards shown.
<TABLE>
<CAPTION>
TARGET AWARD,
PARTICIPANT GROUP AS A % OF BASE SALARY
<S> <C>
Officers of Flagstar (excluding the Chairman and Chief Executive Officer)............................... 75%
Group I................................................................................................. 50%
Group II................................................................................................ 25%
Group III............................................................................................... 15%
</TABLE>
VI. AWARDS
Each Participant shall be designated by the Committee as either a Corporate
Participant or a Concept Participant.
There are three performance elements to the Plan:
1. Flagstar EBITDA
2. Concept EBITDA
3. Individual/Team Award
Amounts are earned under each element without reference to the other
elements.
Corporate Participants will have 75% of their Target Awards earned through
Flagstar EBITDA. Their Flagstar EBITDA Multiple is .75. In addition, they will
be eligible for an Individual/Team Award as discussed in Article IX.
Concept Participants will have 50% of their Target Awards earned through
Flagstar EBITDA, and 25% earned through Concept EBITDA. Their Flagstar EBITDA
Multiple is .50, and their Concept EBITDA Multiple is .25. In addition, they
will be eligible for an Individual/Team Award as discussed in Article IX.
VII. FLAGSTAR EBITDA
A target Flagstar EBITDA will be determined each year by the Chief
Executive Officer and the Committee. Participants earn their Target Award times
their Flagstar EBITDA Multiple, if target Flagstar EBITDA is achieved.
The Chief Executive Officer and Committee will also determine EBITDA levels
above and below the target level that will result in an award more than or less
than Target Award times Flagstar EBITDA Multiple. There is no cap on the amount
that can be earned through Flagstar EBITDA.
The Flagstar EBITDA payout schedule for 1994 is:
<TABLE>
<CAPTION>
PERCENT OF TARGET AWARD TIMES
FLAGSTAR EBITDA ($ MILLIONS) FLAGSTAR EBITDA MULTIPLE EARNED
<S> <C>
Below $ ........................................................................ 0%
At $ ........................................................................... 50%
At $ ........................................................................... 100%
At $ ........................................................................... 200%
Percent earned for each $1 million above $ ..................................... %
</TABLE>
Note: Payout for Flagstar EBITDA achievement between points is interpolated on a
straight-line basis.
VIII. CONCEPT EBITDA
A target Concept EBITDA will be determined for each Concept by the Chief
Executive Officer and the Committee. Participants earn their Target Award times
their Concept EBITDA Multiple, if target Concept EBITDA is achieved.
2
<PAGE>
The Chief Executive Officer and the Committee will also determine Concept
EBITDA levels above and below the target level that will result in an award more
than or less than Target Award times the Concept EBITDA Multiple. The maximum
award possible is 200% of Target Award times the Concept EBITDA Multiple.
Each Concept will have a performance/payout schedule consistent with the
following:
<TABLE>
<CAPTION>
PERCENT OF TARGET AWARD TIMES
CONCEPT EBITDA ($ MILLIONS) CONCEPT EBITDA MULTIPLE EARNED
<S> <C>
Below $ ........................................................................ 0%
At $ ........................................................................... 50%
At $ ........................................................................... 100%
At or above $ .................................................................. 200%
</TABLE>
Note: Payout for Concept EBITDA achievement between points is interpolated on a
straight-line basis.
IX. INDIVIDUAL/TEAM AWARD
Each Participant will be assigned to a Team by the Chief Executive Officer
and the Committee. The Target Awards for Participants within each Team will be
summed and multiplied by 25%. The result equals the Initial Team Pool for each
Team under the Individual/Team Award.
After the Plan Year has ended, the Chief Executive Officer will determine
the amounts of the Final Team Pools. He will make reference to expectations set
with each Team during the Plan Year in making this determination. A Final Team
Pool can range in size from zero to 150% of the Initial Team Pool.
The Chief Executive Officer will determine the amount from each Final Team
Pool that will be paid as the Individual/Team Award to the Team Leader. Each
Team Leader will allocate the remaining Final Team Pool to the other
Participants on his or her Team. The allocation will be made in the Team
Leader's discretion, in consultation with the Chief Executive Officer.
Individual/Team Awards to any single Participant have no limit, except that the
total of all such awards for any Team must be less than or equal to the Final
Team Pool. Individual payouts may be zero.
X. PAYMENT OF AWARDS
Any award made to a Participant shall be paid as soon as practicable after
the close of the Plan Year.
XI. RESERVE
In connection with determining awards for a Plan Year as herein provided,
in addition to other allocations made pursuant to the Plan, the Board may direct
the creation of a Reserve and credit thereto a sum of money for the purpose of
making awards as determined by the Committee to any Employee who was not a
Participant under the Plan, or who otherwise would not receive an award under
the Plan.
The creation of a Reserve by the Board shall not obligate the Committee to
make awards for the Reserve. Awards from the Reserve shall be made at such times
and in such amounts as the Committee deems appropriate.
XII. TERMINATION OF EMPLOYMENT
The Committee shall determine the award, if any, to be paid to a
Participant whose employment is terminated during a Plan Year. Awards vest on
the January 1 following the end of the Plan Year.
XIII. NEW HIRES OR PROMOTIONS
Employees hired or promoted during a Plan Year shall be eligible to receive
such award for that Plan Year as the Committee may determine.
XIV. ASSIGNMENTS AND TRANSFERS
A Participant may not assign, transfer, pledge, or otherwise encumber
amounts accruing to such Participant under the Plan.
3
<PAGE>
XV. NO CREATION OF EMPLOYEE RIGHTS UNDER THE PLAN
No employee or other person shall have any claim or right to be named a
Participant or granted an award under the Plan. Neither the Plan nor any action
taken thereunder shall be construed as giving any Employee or Participant under
the Plan any right to be retained in the employ of Flagstar.
XVI. WITHHOLDING TAX
Flagstar shall deduct from all amounts paid as awards to Participants all
taxes required by law to be withheld with respect to such payments.
XVII. DEATH OF A PARTICIPANT PRIOR TO PAYMENT OF AN AWARD
If a Participant shall die before the payment of any award under the Plan,
the award shall be paid only to the executor, administrator or other legal
representative of the deceased Participant following the receipt of a court
certificate of the appointment thereof. The allocation of awards, if any, to a
Participant who dies prior to the end of the Plan Year shall be in the sole
discretion of the Committee.
XVIII. CANCELLATION OF AND MODIFICATIONS TO THE PLAN
The Board shall have the right to cancel, amend or modify this Plan in its
sole discretion. Such cancellation, amendment or modification that takes place
during a Plan Year may be retroactive to the beginning of that Plan Year, as the
Board determines.
XIX. OTHER EMPLOYEE BENEFIT PLANS
Nothing herein contained shall be construed to affect any right of
Participants in this Plan to participate in other employee benefits plans of
Flagstar.
XX. MISCELLANEOUS
Any award under the Plan will not affect the amount of any insurance
coverage available to the Participant under any group insurance plan maintained
by Flagstar.
Each person who is or shall have been a member of the Committee or a member
of the Board shall be indemnified and held harmless by Flagstar against and from
any and all loss, cost, liability or expense that may be imposed upon or
reasonably incurred in connection with or resulting from any claim, action, suit
or proceeding to which such person may be a party or in which such person may be
involved by reason of any action taken or failure to act under the Plan. Upon
the institution of any claim, action, suit or proceeding against such person,
immediate written notice shall be given to Flagstar and Flagstar shall, at its
sole expense, defend the same.
All expenses and costs in connection with the operation of the Plan shall
be borne by Flagstar.
4
EXHIBIT 10.50
DEVAL L. PATRICK MARI MAYEDA
ASSISTANT ATTORNEY GENERAL TERESA DEMCHAK
PAUL F. HANCOCK ANTONIO LAWSON
BRIAN F. HEFFERNAN SAPERSTEIN, MAYEDA & GOLDSTEIN
FERNANDO M. OLGUIN 1300 Clay Street, 11th Floor
Housing and Civil Oakland, CA 94612
Enforcement Section (510) 763-9800
Civil Rights Division
U.S. DEPARTMENT OF JUSTICE PATRICIA G. PRICE
P.O. Box 65998 AMANDA K. WILSON
Washington, D.C. 20035-5998 PUBLIC INTEREST LAW FIRM
(202) 514-8034 111 West St. John, Suite 315
San Jose, CA 95113
MICHAEL J. YAMAGUCHI (408) 293-4790
UNITED STATES ATTORNEY
MARY BETH UITTI Attorneys for Plaintiff
CHIEF, CIVIL DIVISION Kristina Ridgeway
Assistant U.S. Attorney Individually and on Behalf
450 Golden Gate Avenue of all Persons Similarly
San Francisco, CA 94102 Situated
Attorneys for Plaintiff
United States of America
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA, ) Civ. No. 93-20208-JW
)
Plaintiff, )
)
v. ) AMENDED CONSENT DECREE
)
FLAGSTAR CORPORATION and )
DENNY'S, INC., )
)
Defendants. )
)
___________________________________)
) Consolidated With
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KRISTINA RIDGEWAY, Individually )
and on Behalf of all Persons )
Similarly Situated, )
)
Plaintiffs, ) Civ. No. 93-20202-JW
)
v. )
)
FLAGSTAR CORPORATION and )
DENNY'S, INC., )
)
Defendants. )
___________________________________)
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TABLE OF CONTENTS
I INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
II PURPOSES OF THIS DECREE. . . . . . . . . . . . . . . . . . . . . .3
III THE PARTIES' CONTENTIONS. . . . . . . . . . . . . . . . . . . . .3
A. Plaintiffs' Contentions . . . . . . . . . . . . . . . . . .3
B. Defendants' Contentions . . . . . . . . . . . . . . . . . .8
IV DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
V JURISDICTION, SCOPE AND TERM OF DECREE. . . . . . . . . . . . . . 12
VI GENERAL NONDISCRIMINATORY PROVISIONS . . . . . . . . . . . . . . 13
VII COMPLIANCE PROVISIONS . . . . . . . . . . . . . . . . . . . . . 15
A. General Compliance. . . . . . . . . . . . . . . . . . . . 15
B. Policies. . . . . . . . . . . . . . . . . . . . . . . . . 16
C. Notice to Employees and Agents and Training and
Education Program. . . . . . . . . . . . . . . . . . . . 17
1. Notification to Employees and Agents . . . . . . . . 17
2. Training of Employees and Agents . . . . . . . . . . 19
3. Notice to and Training of Franchisees. . . . . . . . 25
D. Notice to the Public and Advertising. . . . . . . . . . . 29
VIII TESTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
IX MONITORING. RECORD-KEEPING AND REPORTING REQUIREMENTS. . . . . . 35
A. Civil Rights Monitor. . . . . . . . . . . . . . . . . . . 35
B. Record-Keeping. . . . . . . . . . . . . . . . . . . . . . 43
1. Record-Keeping in General. . . . . . . . . . . . . . 43
2. Application of Attorney-Client Privilege And
Work-Product Doctrine. . . . . . . . . . . . . . . . 44
3. Civil Rights Monitor . . . . . . . . . . . . . . . . 45
4. Denny's. . . . . . . . . . . . . . . . . . . . . . . 46
5. Complaints of Discrimination Under the
Original Decree. . . . . . . . . . . . . . . . . . . 46
C. Reporting Provisions. . . . . . . . . . . . . . . . . . . 47
1. Preliminary Meeting. . . . . . . . . . . . . . . . . 47
2. Semi-Annual Reports. . . . . . . . . . . . . . . . . 48
3. Reports To Testing Organizations . . . . . . . . . . 49
4. Reports Re: Complaints Of Discrimination . . . . . . 49
D. Dispute Resolution Procedure. . . . . . . . . . . . . . . 49
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X. CLASS MONETARY RELIEF. . . . . . . . . . . . . . . . . . . . . . 50
A. Monetary Settlement Fund. . . . . . . . . . . . . . . . . 51
1. Establishment of Monetary Settlement Fund. . . . . . 51
2. Allocation of Monetary Settlement Fund . . . . . . . 51
3. Reduction of Opt-Outs. . . . . . . . . . . . . . . . 52
B. Definition of the Class . . . . . . . . . . . . . . . . . 52
2. Certification. . . . . . . . . . . . . . . . . . . . 53
3. Class Counsel. . . . . . . . . . . . . . . . . . . . 53
C. Claims Administrator. . . . . . . . . . . . . . . . . . . 53
1. Selection of Third Party Claims Administrator. . . . 53
2. Duties and Responsibilities. . . . . . . . . . . . . 54
3. Maintenance of Toll Free "800" Lines . . . . . . . . 54
4. Reports from the Administrator . . . . . . . . . . . 55
5. Payment of the Administrator . . . . . . . . . . . . 55
D. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . 55
1. Mailed Notice. . . . . . . . . . . . . . . . . . . . 56
2. Tracing of Mailed Notice . . . . . . . . . . . . . . 56
3. Published Notice . . . . . . . . . . . . . . . . . . . 56
a. Preliminary Approval. . . . . . . . . . . . . . 56
b. Final Approval. . . . . . . . . . . . . . . . . 57
E. Provisions for Objections and Exclusions. . . . . . . . . 57
1. Objections . . . . . . . . . . . . . . . . . . . . . 57
3. Filing of Completed Claim Forms. . . . . . . . . . . 58
4. Initial Review of Claim Forms. . . . . . . . . . . . 58
5. Approval of Claims . . . . . . . . . . . . . . . . . 59
6. Disputed Claims. . . . . . . . . . . . . . . . . . . 59
7. Unresolved Claims. . . . . . . . . . . . . . . . . . 59
8. Rejected Claims. . . . . . . . . . . . . . . . . . . 60
9. Deadline for Administrator Review of All Claims. . . 60
G. Special Master. . . . . . . . . . . . . . . . . . . . . . 61
1. Selection and Appointment. . . . . . . . . . . . . . 61
2. Review of Appeals by the Special Master. . . . . . . 61
3. Payment. . . . . . . . . . . . . . . . . . . . . . . 61
H. Class Monetary Distribution . . . . . . . . . . . . . . . 61
1. Named Plaintiffs Monetary Distribution . . . . . . . 61
2. Class Monetary Distribution List . . . . . . . . . . 62
3. Payment of Class Shares. . . . . . . . . . . . . . . 62
4. Undeliverable Claim Checks . . . . . . . . . . . . . 62
5. Class Fund Balance . . . . . . . . . . . . . . . . . 63
a. Determination of Fund Balance . . . . . . . . . 63
I. Attorneys' Fees and Costs . . . . . . . . . . . . . . . . 63
1. Stage One Fees and Costs . . . . . . . . . . . . . . 63
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2. Stage Two Fees and Costs . . . . . . . . . . . . . . 64
3. Costs. . . . . . . . . . . . . . . . . . . . . . . . 64
J. Release Of Claims By Plaintiff Class. . . . . . . . . . . 64
XI NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
XII INCIDENTS OF DISCRIMINATION . . . . . . . . . . . . . . . . . . 66
XIII ENTIRE AGREEMENT; MODIFICATION AND SEVERABILITY. . . . . . . . 66
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I
INTRODUCTION
On March 26, 1993, plaintiff United States filed a complaint
simultaneously with a Consent Decree ("Original Decree") against
defendants TW Services, Inc. (now Flagstar Corporation) and
Denny's, Inc. The Original Decree was approved by this Court on
April l, 1993.
On March 24, 1993, Plaintiff Class filed a complaint against
defendants TW Services, Inc., TW Holdings Inc. (now Flagstar
Companies, Inc.) and Denny's, Inc. and Denny's Holdings, Inc.
(collectively referred to as "defendants").
On July 2, 1993, the Court, on its own motion, consolidated
both actions for pretrial purposes.
The complaints of both plaintiffs allege violations of Title
II of the Civil Rights Act of 1964, 42 U.S.C. (section
mark)(section mark) 2000a, et seq. ("Public Accommodations Act").
In addition, the complaint filed by Plaintiff Class alleges
violations of 42 U.S.C. (section mark) 1981, 42 U.S.C. (section
mark 1985(3), California Business and Professions Code (section
mark)(section mark) 17200 et seq., California Civil Code (section
mark)(section mark) 51 et seq. and California Civil Code (section
mark)(section mark) 1750 et seq.
Defendant Flagstar Corporation is a Delaware corporation with
its principal place of business in Spartanburg, South Carolina.
Flagstar Corporation, through its subsidiary Denny's, conducts
business across the United States, including the State of
California. Defendant Flagstar Companies, Inc. wholly owns
defendant Flagstar Corporation. Denny's, Inc. is a California
corporation with its principal place of business in Spartanburg,
South Carolina.
Defendant Denny's Holdings is a subsidiary of Flagstar
Corporation and owns
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defendant Denny's, Inc.
The complaints of the United States and the Plaintiff Class
allege that Denny's, a subsidiary of Flagstar Corporation, has
engaged in a pattern or practice of denying to African-American
persons, and their companions on the basis of race or color, the
use and enjoyment of the facilities, services, and accommodations
of Denny's Restaurants on the same basis as they make such
available to white persons. More specifically, the United States
and the Plaintiff Class allege that Denny's: (1) implemented terms
and conditions for service to African-American persons and their
companions that are less favorable than the terms and conditions
for service to white persons; (2) treats African-American customers
and their companions less favorably than white customers; and (3)
discourages African-American persons from visiting its restaurants.
Following the execution of the Original Decree on April 1,
1993, numerous complaints of racial discrimination were submitted
to Plaintiff Class and the United States. The United States
investigated many of these complaints and, based on those
investigations, the United States has determined that an amendment
of the Original Decree is necessary to expand the procedures
designed to ensure that defendants are taking appropriate action to
address alleged violations of the Public Accommodations Act and to
prevent discrimination in the future. In addition, to further the
public interest, a description of plaintiffs' contentions and the
evidence on which they would rely if this case were adjudicated
will be recited below in Section III.
Denny's and Flagstar Corporation continue to deny the
allegations set forth in the complaints of the United States and
the Plaintiff Class. However, the parties have agreed that, in
order to avoid protracted and costly litigation, this controversy
should be resolved through
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the amendment of the Original Decree. This Amended Consent Decree
shall constitute a resolution of all claims asserted or which could
have been asserted on the basis of race or color by African
Americans and their companions with regard to discrimination in
public accommodations by both the United States and Plaintiff Class
through May 24, 1994. As indicated by the signature of counsel at
the end of this document, the parties have consented to the entry
of this Amended Consent Decree (hereinafter "Decree").
II
PURPOSES OF THIS DECREE
The parties have entered into this Decree for the following
purposes:
A. To ensure, by means set forth in this Decree, that all
future customers of Denny's Restaurants and franchisees are
accorded equal treatment and service regardless of race and/or
color.
B. To provide injunctive relief in furtherance of the public
interest, and injunctive and monetary relief to all class members
by means of the goals, timetables, and other procedures set forth
in this Decree.
C. To avoid further protracted, expensive, and disruptive
litigation.
III
THE PARTIES' CONTENTIONS
A. Plaintiffs' Contentions
Plaintiffs contend that they would produce, at a minimum,
testimonial evidence at trial substantially as follows, and that,
if such testimony were elicited as described, it would demonstrate
a violation of Title II of the Civil Rights Act of 1964, 42 U.S.C.
(section mark)(section mark) 2000a et seq.
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In addition, Plaintiff Class contends that it would produce, at a
minimum, testimonial evidence at trial substantially as follows,
and that, if such testimony were elicited as described, it would
demonstrate a violation of 42 U.S.C. (section mark) 1981, 42 U.S.C.
(section mark) 1985(3), California Business and Professions Code
(section mark)(section mark) 17200 et seq., California Civil Code
(section mark)(section mark) 51 et seq. and California Civil Code
(section mark)(section mark) 1750 et seq.
1. As of the date of this Amended Consent Decree,
Denny's, Inc., a subsidiary of defendant Flagstar Corporation,
owns, operates and franchises Denny's Restaurants across the United
States, including the State of California.
2. The testimony would establish that defendants
required pre-payment and/or cover charges as a precondition for
African-American persons to receive service or food at defendants'
restaurants. In one such incident, in December, 1991, a group of
approximately eighteen (18) African-American high school and
college students visited a Denny's Restaurant in San Jose,
California. The group was told by defendants' manager that, prior
to being seated, they would have to pay for their meals in advance
and/or a $2.00 "cover charge" or "minimum." During this visit,
there was a group of white students in defendants' restaurant that
had not been asked to prepay and/or pay a cover charge. The
African-American students, despite their offer to break up into
smaller groups, were denied service by defendants.
3. The testimony would further establish that, in
November, 1991, at a Denny's Restaurant in San Diego, California, a
group of eleven (11) African-American persons, most of them
related, were required to prepay for their meals in advance.
Witnesses observed several non-African-American persons pay at the
cash register.
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4. The testimony would further establish that on two
separate occasions, in 1991, at a Denny's Restaurant in San Jose,
California, two different groups of African-American persons were
required to prepay prior to being served. The first group consisted
of seven (7) to ten (10) African-American students. The second
group, which consisted of approximately fifteen (15) to (20)
African-American high school students, waited for more than an hour
without having their orders taken. A waitress finally came over and
told the group that they would have to pay for their meals before
they could be served. Approximately half of the group left the
restaurant. A few minutes later, the other half of the group was
escorted out of the restaurant by police at defendants'
restaurant's request.
5. The same restaurant referenced in paragraph 4 above,
in 1992, was responsible for the removal from the restaurant by the
police of a group of four female high school students, three
African American and one East Indian. The females, who were not
allowed to finish their meals, were removed because, according to
the testimony that would be provided, there were "too many of you
people here."
6. The testimony would further establish that, in 1992,
at one of defendants' restaurants in Santa Clara, California, an
African-American person was required to prepay and treated poorly
by the waiter on duty, while a white male was seated -- without
prepayment -- by the same waiter.
7. The evidence and testimony would further establish
that, in 1992, at a Denny's Restaurant in Sacramento, California,
African-American customers were required to prepay for their meals
and provide identification prior to being allowed into the
restaurant.
8. The evidence and testimony would further establish
that, in 1991, an
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African-American family of five (two parents and three children)
who visited one of defendant's restaurants in Vallejo, California,
to celebrate the birthday of one of the children was denied a "free
birthday meal." The family was made to wait an excessively long
period of time for service, was treated discourteously, and
required to produce burdensome proof of their child's date of
birth. The family eventually left the restaurant because of the
embarrassment and humiliation they had suffered.
9. The evidence and testimony would further establish
that a Denny's Restaurant in San Jose also does not provide "free
birthday meals" to African-American customers on the same terms and
conditions as those provided to non-African-American customers.
10. The evidence and testimony would further establish
that on April 1, 1993, the same day the Original Decree was
entered, a group of 21 United States Secret Service officers (7
African-American and 14 white), in uniform, drove to Annapolis,
Maryland early in the morning to prepare for a trip by the
President of the United States to the Naval Academy. The officers
stopped for breakfast at a Denny's Restaurant in Annapolis. Six
African-American officers sat together at a table, and the other
officers sat elsewhere. The six African-American officers who sat
together did not get served in the 55 minutes they were in the
restaurant; the other officers, including an African-American
officer sitting with white officers, did get served.
11. The evidence and testimony would further establish
that several months after the execution of the Original Decree, at
a Denny's Restaurant in Mojave, California, an African-American
family was denied seating and service. Non-African-American
witnesses
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observing the incident would testify that during the approximately
fifty (50) minutes that the African-American family waited to be
seated, they and numerous other non-African-Americans who arrived
after the African-American family were seated and served. The
witnesses would further testify that although seating was
available, the African-American family was not offered seating and
eventually left the restaurant.
12. The evidence and testimony would further establish
that on or about June 23, 1993, an African-American man and
Caucasian woman ("military couple"), both members of the United
States Armed Services, visited a Denny's Restaurant in Shreveport,
Louisiana. The Restaurant was not crowded. There were perhaps ten
(10) other people sitting in a section at the back of the
Restaurant. A Caucasian group, comprised of a couple, a baby and an
elderly man, were sitting and eating at the table diagonally to the
right of the direction the couple was facing. Approximately ten
(10) minutes after they were seated, a Caucasian couple was seated
at a table diagonal and to the left of the direction the couple was
facing. A Caucasian waitress took their order immediately. The
waitress delivered their food within approximately five minutes and
refilled their coffee cups. The waitress had been so close to the
military couple's table when she was delivering the Caucasian
couple's food that she bumped up against their table. She did not
take the military couple's order at that time, although their menus
were laying closed at the edge of their table. In addition to
taking the second Caucasian couple's orders and serving their food,
the waitress refilled the coffee cups at the tables of both the
Caucasian couple and group at least twice during this period. Both
of the tables were so close to the military couple's table that the
waitress brushed up against their table when she went to refill the
coffee cups of both the Caucasian couple and group.
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The military couple eventually left the restaurant without being
served.
13. The evidence and testimony would further establish
that Denny's managers in San Jose, California were instructed
individually and at district meetings to limit patronage by
African-American customers by ignoring African-American customers,
telling them that tables were not available when, in fact, tables
were available, requiring customers to pay for their meals in
advance and closing down the restaurant when too many
African-American customers attempted to visit the restaurant.
14. The evidence and testimony would further establish
that Denny's managers in Los Angeles were instructed to seat
African-American customers in certain areas of the restaurant,
require groups of African-American customers to pay for their meals
in advance, deny separate checks for African-American groups when
the same was provided to non-African- American groups, charge a 15%
gratuity to the checks of African-American customers and discourage
African-American customers by denying seating and/or requiring them
to wait for prolonged periods prior to being seated.
B. Defendants' Contentions
Denny's and Flagstar Corporation deny the allegations set
forth in the complaints of the United States and the Plaintiff
Class. Denny's has investigated many of these incidents of alleged
discrimination, and although some involved problems with customer
service, Denny's does not believe that the Claimants were
discriminated against on the basis of race. However, Denny's and
Flagstar Corporation recognize that some individual employees may
act in a discriminatory manner towards customers even though such
actions are contrary to Company policy. Consequently, Denny's and
Flagstar Corporation are willing to adopt the procedures
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set forth in this Decree to prevent incidents of discrimination
from arising in the future. Denny's and Flagstar Corporation
believe it is in their best interest to enter into this Decree and
resolve the monetary claims of Plaintiff Class in order to avoid
the costs of continuing to litigate this matter. Denny's and
Flagstar Corporation continue to be committed to investigating
claims of discrimination, and to remedy any incidents of
discrimination promptly.
ORDER
IT IS HEREBY ORDERED, ADJUDGED and DECREED as follows:
IV
DEFINITIONS
The following terms (whether or not underscored) when used in
this Decree, in addition to the terms defined elsewhere in this
Decree, shall have the following meanings:
A. "African-Americans" shall include all black persons.
B. "Agent" shall mean any person including, but not limited
to, security personnel, involved in the treatment and service of
customers at Denny's Restaurants.
C. "Claim Form" shall mean the printed form, which is
Exhibit G to this Decree, in English by which claimants assert
their claims, or any equivalent form or document that contains
substantially all of the information sought in the printed form.
D. "Claim Period" shall be defined as the period commencing
on November 14, 1988 and ending on May 24, 1994.
E. "Claimant" shall mean all eligible class members who have
not opted out of the lawsuit and have filed a claim form which
states facts upon which the Claims Administrator
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and/or Class Counsel and/or a Special Master can determine that
during the liability period, the claimant was subjected to
differential treatment and/or services as a customer at a Denny's
Restaurant in California on account of race or color of the
claimant or his or her companion.
F. "Complaint" includes any oral or written, formal or
informal complaint, to any administrative or official body or to
any officer, employee, agent or franchisee of Denny's.
G. "Denny's" shall refer to Denny's Inc., all company-owned
"Denny's Restaurants" and all officers, employees and agents of
Denny's, Inc. and company-owned "Denny's Restaurants."
H. "Original Decree" shall refer to the Decree entered in
Civil No. 93-20208-JW on April 1, 1993.
I. "Plaintiff Class" shall refer to all African-American
customers of Denny's Restaurants and franchised Denny's Restaurants
in California and their companions who at any time between November
14, 1988 and May 24, 1994 were subjected to discriminatory customer
treatment and/or service practices based on race or color,
including but not limited to:
1. Payment for meals prior to service or consumption
("pre-payment") based on race or color;
2. Payment of a "cover charge" prior to service based
on race or color;
3. Denial of or delay in seating based on race or
color;
4. Denial of a complimentary "birthday meal" or other
promotional items or programs based on race or color;
5. Forced or threatened removal from the restaurant
based on race or color;
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6. Charges for services or food items for which non
African-American customers were not charged based on race or color;
and
7. Other forms of differential service based on race or
color.
J. "Principal" or "Principally Featured" shall refer to: (i)
anyone who is seen and who speaks a line or lines of dialogue,
whether directly employed for such work or after being hired as an
extra performer; or (ii) anyone whose face appears silent, alone in
a stationary camera shot, and is identified with the product or
service; or (iii) anyone whose face appears silent and is
identifiable and whose foreground performance demonstrates or
illustrates a product or service or illustrates or reacts to the on
or off-camera narrations or commercial message. Persons appearing
in the foreground solely as atmosphere and not otherwise covered by
the foregoing shall be deemed extra performers.
K. "Testing" shall refer to an investigative process in
which similarly situated pairs of individuals, or groups of
individuals, are sent to a Denny's Restaurant at predetermined
times under controlled circumstances to determine if employees at
the restaurant are discriminating against customers on the basis of
race or color. Although the precise requirements of a given test
will differ depending upon the type of discrimination under
examination and the practical limitations of the test situation, it
is expected that (1) test pairs or groups will be carefully matched
so as to be similar in all respects except in race or color; (2)
test pairs or groups will visit the test site as close together in
tune as logistically possible; and (3) test pairs or groups will be
trained to seek similar service in a similar manner from the same
restaurant employee(s).
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V
JURISDICTION, SCOPE AND TERM OF DECREE
A. The parties have consented to the entry of this Decree.
To this end, the parties stipulate and the Court finds that: (1)
Denny's Restaurants are places of public accommodation within the
meaning of 42 U.S.C. (section mark) 2000a(b)(1); (2) Denny's
Restaurants' operations affect interstate commerce within the
meaning of 42 U.S.C. (section mark) 2000a(c)(1); and (3) this Court
has personal jurisdiction over defendants for purposes of this
action and jurisdiction over this action pursuant to 42 U.S.C.
(section mark) 2000a-6 and 28 U.S.C. (section mark)(section mark)
1331, 1343 and 1345.
B. The parties agree and the Court ORDERS that the Original
Decree entered in Civil No. 93-20208-JW on April 1, 1993 is hereby
AMENDED. This Decree supersedes the Original Decree entered in
Civil No. 93-20208-JW.
C. The provisions of this Decree shall apply as follows:
1. All provisions of this Decree, unless otherwise
indicated, shall apply to Denny's, its subsidiaries, officers,
employees, agents, assigns, successors in interest in the ownership
and/or operation of Denny's Restaurants, and anyone acting in whole
or in part under the direction of Denny's or any of Denny's
subsidiaries in connection with the treatment and/or service of
customers in Denny's Restaurants. The provisions of Sections II,
IV, VI, VIIA., VIIC.3., VIID.2. and VIII shall apply to franchisees
to the extent stated in those sections.
2. Flagstar Corporation, its subsidiaries, officers,
employees, agents, assigns, and successors in interest, or anyone
acting in whole or in part under the direction of Flagstar
Corporation or any of Flagstar Corporation's subsidiaries shall be
bound by sections
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VI, IXB1. and IXC4. of this Decree.
D. The provisions of this Decree are effective immediately
upon the entry of the Decree by the Court. The Decree shall be
effective for a period of seven (7) years from May 24, 1994, unless
the case is dismissed earlier as provided in the next paragraph.
E. Within sixty (60) days preceding the fifth anniversary of
the entry of the Decree by the Court, or at any time thereafter,
Denny's may apply to the Court for an order dismissing the case.
The United States and/or Plaintiff Class may respond to Denny's
application in accordance with the Local Rules of this District.
The Court may determine that an early dismissal of the case is
appropriate based upon Denny's satisfaction of the terms,
provisions and purposes of this Decree. Absent an early dismissal
of this case or extensions by the Court, defendants may move for
dismissal of this case at the close of the seven (7) year period.
The United States and/or counsel for the Plaintiff Class may oppose
defendants' motion on any grounds appropriate under applicable law.
VI
GENERAL NONDISCRIMINATORY PROVISIONS
Flagstar Corporation and Denny's, together with their
respective subsidiaries, officers, employees, agents, assigns,
successors in interest in the ownership and/or operation of their
respective places of public accommodation, and those persons in
active concert or participation with them in connection with the
treatment and/or service of customers who receive actual notice of
the Decree by Personal service or otherwise, and franchisees who
receive actual notice of the Decree by personal service or
otherwise, are HEREBY PERMANENTLY ENJOINED from:
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A. Denying to any person, on the ground of race or color,
the full and equal enjoyment of the goods, services, facilities,
privileges, advantages, and accommodations of its restaurants;
B. Denying service, or offering less favorable terms and
conditions of service, to any person on the ground of race or
color;
C. Requiring prepayment, a cover charge or identification as
a condition of service, on the ground of race or color;
D. Implementing different terms and conditions, on the
ground of race or color, concerning Denny's promotional offers,
including, but not limited to, any future offer of "free birthday
meals";
E. Making statements, on the ground of race or color, that
would discourage a reasonable person from visiting defendants'
restaurants;
F. Instructing or encouraging employees or staff members to
discourage any person, on the ground of race or color, from
visiting defendants' facilities or from enjoying the full benefits
of defendants' facilities;
G. Making, printing, or publishing, or causing to be made,
printed, or published, any notice, statement, or advertisement with
respect to the service or equal enjoyment of defendants'
restaurants that indicates any preference, limitation, or
discrimination based on race or color, or an intention to make any
such limitation or discrimination;
H. Representing to any person, because of race or color,
that service or enjoyment of defendants' facilities is not
available, when such is in fact so available;
I. Denying service, or offering less favorable terms or
conditions of service, to
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any non-African-American customers because they patronize
defendants' facilities as part of a group which includes
African-American customers;
J. Retaliating against any officer, employee or agent for
opposing or reporting alleged discrimination in the service and/or
treatment of customers, in violation of applicable law and/or this
Decree.
VII
COMPLIANCE PROVISIONS
Denny's shall take the following steps to insure that its
restaurants are operated in a nondiscriminatory manner:
A. General Compliance
Denny's shall implement the plan described below to ensure
compliance with federal law by Denny's, its subsidiaries,
franchisees, agents, officers and employees. The plan includes, but
is not limited to, provisions for the development and
implementation of a non-discrimination training program for
personnel, the retention of a Civil Rights Monitor ("Monitor"),
testing of Denny's franchise and company-owned restaurants to
monitor and ensure compliance with this Decree, and notifying the
public that Denny's Restaurants will operate in a nondiscriminatory
manner. In order that compliance with this Decree may be monitored
appropriately, Denny's shall maintain appropriate records. Denny's
shall cooperate with the United States and counsel for the
Plaintiff Class in providing complete, accurate and current
information as required under this Decree regarding its restaurants
and compliance with this Decree.
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B. Policies
Denny's customer service policies shall be uniformly applied
to all customers, regardless of their race or color. This Decree
shall not restrict Denny's from revising or modifying its policies
concerning the treatment and service of customers, provided the
revisions or modifications do not discriminate on the basis of race
or color, or conflict with any provision of this Decree.
During the period in which this Decree is in effect, Denny's
shall deliver to the Monitor, the United States and counsel for the
Plaintiff Class any proposed, new, revised or amended customer
service policies prior to their implementation so that the Monitor,
the United States and counsel for the Plaintiff Class may review
such policies to ensure that they are consistent with the
non-discrimination provisions of Section VI above. If the Monitor
does not object or propose any amendments and/or revisions within
fifteen (15) days of receipt of Denny's policies or any proposed
amendments and/or revisions to those policies, Denny's may
implement such policies. If the Monitor objects, Denny's proposed
revisions and/or amendments to Denny's policies may not be adopted
until after Denny's and the Monitor have endeavored, in good faith,
to resolve all disputed issues concerning such policies pursuant to
the Dispute Resolution Procedure.
In the event that the Monitor objects to any of Denny's
existing or proposed customer service policies on the basis that
they conflict with or undermine the provisions and purposes of this
Decree, and Denny's does not modify such policy to the satisfaction
of the Monitor, the United States may seek to address the issue
through the Dispute Resolution Procedure, or, if a satisfactory
resolution is not reached through that procedure, through the
Court. In the
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event that the Monitor objects to any of Denny's existing or
proposed customer service policies on the basis that they conflict
with or undermine the provisions or purposes of this Decree, and
Denny's does not modify such policy to the satisfaction of the
Monitor, and the United States does not address the objection to
the satisfaction of the Monitor, counsel for the Plaintiff Class
may seek to address the issue through the Dispute Resolution
Procedure, or, if a satisfactory resolution of the issue is not
reached through the procedure, through the Court.
C. Notice to Employees and Agents and Training and Education
Program
1. Notification to Employees and Agents
a. Within sixty (60) days of the effective date of
this Decree, Denny's shall send each of its officers, employees and
agents a letter accompanied by: (i) a Summary of the Decree as set
forth in Exhibit A and (ii) a copy of the Notice set forth in
Exhibit B, explaining the employee's and/or agent's duties and
obligations under Title II of the Civil Rights Act of 1964 and this
Consent Decree. In addition, Denny's shall inform its officers,
employees and agents that any breach of, or failure to comply with,
the terms and conditions set forth in section VI of this Decree
shall subject them to dismissal or other appropriate disciplinary
action. Each person receiving the Summary and Notice shall execute
a statement acknowledging that he or she has received and read the
Summary and Notice, and that he or she agrees to act in accordance
therewith. Such statement shall be in the form of Exhibit C to this
Decree and copies thereof shall be retained at the unit where the
employee works or, in the case of district, regional or divisional
employees, at the divisional office, or, in the case of corporate
officers, at Denny's corporate office. During the term of this
Decree, copies of such statements shall be made available, upon ten
(10) days notice, to the United
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States and/or counsel for the Plaintiff Class.
b. Within sixty (60) days of the effective date of
this Decree, Denny's shall inform its current officers, employees
and agents that if the officer, employee or agent wants a copy of
the Consent Decree, one will be provided to him or her at Denny's
expense. Where this Decree requires defendant to provide its
officers, employees or agents a copy of a document (e.g., Exhibit
B), the officers, employees or agents are entitled to keep
permanently a copy of that document. Merely showing the officer,
employee or agent a copy of the document does not comply with the
requirements of this Decree.
c. Within sixty (60) days of the effective date of
this Decree, Denny's shall inform each current officer, employee
and agent that Denny's cannot and will not reprimand, penalize, or
otherwise retaliate in any way against any officer, employee or
agent for opposing or reporting alleged discrimination in the
service and/or treatment of customers, in violation of applicable
law and/or this Decree. This notice may be a separate document or
incorporated as a part of Exhibit B, concerning the employee's or
agent's duties and obligations under Title II.
d. With respect to new officers, employees or
agents, Denny's shall comply with the provisions of subparagraphs
a., b. and c. above within seven (7) days of commencement of
employment of the new officer, employee or agent.
e. All Denny's officers, employees and agents
shall be notified of the entry of this Decree in the first issue of
the Denny's Newsletter, published subsequent to the effective date
of this Decree. However, such publication shall not be later than
six (6) months following the effective date of this Decree. The
notice shall be printed on the cover
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page of the Denny's Newsletter. The notice shall be submitted to
the United States and counsel for the Plaintiff Class within thirty
(30) days of the effective date of this Decree. If the United
States and/or counsel for the Plaintiff Class does not object
within fifteen (15) days of receipt of the proposed notice, Denny's
may publish the proposed notice. If either the United States and/or
counsel for the Plaintiff Class objects, the parties shall
endeavor, in good faith, to resolve all issues concerning the
proposed notice pursuant to the Dispute Resolution Procedure,
before bringing such matters before the Court.
f. Within sixty (60) days of the effective date of
this Decree, Denny's shall notify all employees that failure to
comply with the obligations of this Decree shall affect the
eligibility of any management employee to receive any benefits
under any of Denny's incentive programs for management employees to
the extent management discretion is involved in deciding such
benefits. Denny's shall notify all employees that failure to comply
with the obligations of this Decree shall affect the eligibility of
any employee to receive a promotion to any position at Denny's.
2. Training of Employees and Agents
a. Provided the Monitor approves Denny's existing
non-discrimination training program, within sixty (60) days after
entry of the Decree or retention of the Monitor, whichever is
later, Denny's, through the Monitor, shall submit to the United
States for comment and approval and the Plaintiff Class for comment
that non-discrimination training program and identify the person(s)
and/or organization(s) conducting the non-discrimination training
program for the instruction of all currently employed personnel
including, but not limited to, all Denny's officers, division
vice-presidents, regional directors
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of operations, regional specialists, regional training managers,
regional human resource managers, district leaders, general
managers, restaurant managers, managers in training, servers,
hosts/hostesses, bus persons and security personnel ("All
Employees"). If the Monitor does not approve of the existing non
discrimination training program, within ninety (90) days subsequent
to the entry of this Decree or retention of the Monitor, whichever
is later, Denny's, through the Monitor, shall submit to the United
States for approval and counsel for the Plaintiff Class for comment
a proposed non-discrimination training program for instruction of
All Employees.
If the United States approves the existing
non-discrimination training program, within ninety (90) days of the
date of approval by the United States, the existing
non-discrimination training program shall be presented live to all
management personnel who have not had non-discrimination training
pursuant to the Original Decree, including, but not limited to, all
Denny's officers, division vice-presidents, regional directors of
operations, regional specialists, regional training managers,
regional human resource managers, district leaders, general
managers, restaurant managers and managers in training. If a new
non-discrimination training program is approved pursuant to this
Decree and the Monitor determines that the existing
non-discrimination training program, though not approved by the
Monitor, provided adequate training, within one hundred and eighty
(180) days of the date of approval by the United States, the new
non-discrimination training program shall be presented live to all
management personnel who have not had non-discrimination training
pursuant to the Original Decree, including, but not limited to, all
Denny's officers, division vice-presidents, regional directors of
operations, regional specialists, regional training
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managers, regional human resource managers, district leaders,
general managers, restaurant managers and managers in training.
If a new non-discrimination training program is
approved pursuant to this Decree and the Monitor determines that
the existing non-discrimination training program was inadequate,
within one hundred and eighty (180) days of the date of approval by
the United States, the new non-discrimination training program
shall be presented live to all management personnel including, but
not limited to, all Denny's officers, division vice-presidents,
regional directors of operations, regional specialists, regional
training managers, regional human resource managers, district
leaders, general managers, restaurant managers and managers in
training.
The non-discrimination training program may be
provided via the use of videotape to non-management personnel
(e.g., hosts, servers, buspersons, security personnel), provided:
(i) the videotape entitled "What Color Am I" (which has been
approved for purposes of this litigation by the United States) is
approved by the Monitor, or if Denny's proposes to use another tape
in the place of "What Color Am I," it is developed in consultation
with the Monitor and is submitted to the United States and
Plaintiff Class as provided below; and (ii) the employees are
provided with the opportunity to contact, via telephone or letter,
a person who has been trained to respond to the employees'
questions or concerns regarding the training. The Monitor shall
provide such persons with the training that the Monitor deems
appropriate to satisfy the question-and-answer requirement of this
paragraph. Pursuant to the Original Decree, the first training
session in each Region in California has been attended by the
Monitor under the Original Decree to ensure compliance
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with the Decree. Non-management employees who were trained using
"What Color Am I" under the terms of the Original Decree are not
required to undergo training under this Decree, provided, however,
that if the Monitor determines that "What Color Am I" is inadequate
for the purposes of training non-management employees, all such
non-management employees will have to be retrained.
If Denny's proposes to replace "What Color Am I"
with another videotape, Denny's shall submit the outline and a
script of a proposed videotape to the United States for preliminary
approval and counsel for the Plaintiff Class for review. If the
United States does not object within fifteen (15) days of receipt
of the outline and script of any videotape proposed for use in
training non-management employees, Denny's may produce the proposed
videotape. If the United States objects, the parties shall
endeavor, in good faith, to resolve all issues concerning the
proposed videotape pursuant to the Dispute Resolution Procedure,
before bringing such matters before the Court. After the videotape
is produced from the approved outline and script, Denny's shall
submit the videotape to the United States for approval and counsel
for the Plaintiff Class for review. If the United States does not
object within fifteen (15) days of receipt of the videotape
proposed for use in training non-management employees, Denny's may
utilize the proposed videotape. If the United States objects, the
parties shall endeavor, in good faith, to resolve all issues
concerning the proposed videotape pursuant to the Dispute
Resolution Procedure, before bringing such matters before the
Court.
Defendants shall have proprietary rights in all
training materials and programs developed pursuant to the Decree.
All non-discrimination training programs pursuant
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to this Decree shall be created by or under the supervision of the
Monitor or such other person(s) experienced in handling interracial
problems or who have received or will receive instruction or
training to handle such problems. The programs shall explain to all
currently employed personnel their duties and obligations under
Title II of the 1964 Civil Rights Act and this Consent Decree. At a
minimum, the non-discrimination training programs shall include the
following: (i) instruction on the requirements of all applicable
federal public accommodations laws; (ii) a review of Denny's
non-discrimination policies and of the specific requirements of
this Consent Decree; (iii) notice that Denny's cannot and will not
reprimand, penalize, or otherwise retaliate in any way against any
officer, employee or agent for opposing or reporting alleged
discrimination in the service and/or treatment of customers, in
violation of applicable law and/or this Decree; (iv) instruction in
procedures designed to ensure that neither race nor color enters,
either directly or indirectly, into the process of making decisions
concerning the treatment and/or service of customers; (v) a
discussion of the business advantages of serving all persons on a
non-discriminatory basis; (vi) training in racial sensitivity;
(vii) provided the non-discrimination training program is presented
live, a question and answer session for the purpose of reviewing
each of the foregoing areas; and (viii) training of management in
dealing with complaints.
If the United States does not object within fifteen
(15) days of receipt of any proposed non-discrimination training
program, to the program or to the person or organization conducting
the training program, Denny's may implement the non-discrimination
training program. If the United States objects, the parties shall
endeavor, in good faith, to resolve all issues concerning the
proposed non-discrimination training programs pursuant to
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the Dispute Resolution Procedure, before bringing such matters
before the Court.
In the event that counsel for the Plaintiff Class
objects to any proposed non-discrimination training program or to
the person or organization conducting the training program, and the
United States does not address the objection to the satisfaction of
counsel for the Plaintiff Class, counsel for the Plaintiff Class
may seek to address the issue through the Dispute Resolution
Procedure, or, if a satisfactory resolution of the issue is not
reached through the procedure, through the Court.
b. Within thirty (30) days of the approval of any
videotapes other than "What Color Am I" by the United States,
Denny's, with the assistance of the Monitor, shall implement the
non-discrimination training program required by subparagraph a.
above.
c. Each newly hired officer, employee or agent
shall also receive training of the type described in subparagraph
a. above. The additional training shall be provided within
forty-five (45) days of the new officer, employee or agent's
commencement date.
d. Each officer, employee or agent who
participates and receives instruction through the
non-discrimination training program set forth in subparagraphs a. -
c. above shall sign a statement in the form of Exhibit D to this
Consent Decree, acknowledging that they have participated in and
completed the non-discrimination training program.
e. For the duration of this Decree, Denny's also
shall include instruction regarding Denny's duties and obligations
under Title II of the 1964 Civil Rights Act and this Consent
Decree, in all written training materials and formal training
sessions dealing with treatment of the public provided in the
ordinary course of business to its officers,
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employees or agents. Such instruction shall be developed by the
Monitor and include a statement that Denny's cannot and will not
reprimand, penalize, or otherwise retaliate against any officer,
employee or agent for opposing or reporting alleged discrimination
in the service and/or treatment of customers, in violation of
applicable law and/or this Decree.
f. Articles selected by the Monitor on the
subjects of diversity, racial sensitivity and/or race relations
shall be published a minimum of four (4) times per year in the
Denny's Newsletter during the period in which this Decree is in
effect.
3. Notice to and Training of Franchisees
a. Within thirty (30) days of the entry of this
Decree, Denny's shall provide each of its franchisees nationwide
with a copy of the Decree (and obtain a return receipt) and a
letter informing them of their obligation to comply with Title II
of the Civil Rights Act of 1964 and Section VI of this Decree. The
letter shall explain that Denny's has entered into the Decree and
is committed to a policy of non-discrimination. The letter shall
explain the requirements of the Decree and, specifically, that
appropriate employees of the franchisees will be required to attend
training sessions as set forth in the Decree.
b. All new franchise agreements as to which
offering circulars are distributed by Denny's on or after June 1,
1994, shall expressly provide that a failure by the franchisee to
comply with Title II of the Civil Rights Act of 1964 and this
Consent Decree will constitute an act which reflects materially and
unfavorably upon the operation and reputation of Denny's business
and trademark and, if not corrected, shall subject the franchisee
to sanctions by Denny's including, but not limited to, cancellation
of the franchise agreement. During the term of this Decree, Denny's
must inform the Monitor, the United
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States and counsel for the Plaintiff Class within fifteen (15) days
of obtaining knowledge that any franchisee has failed to comply
with the Public Accommodations Act and/or the applicable provisions
of this Decree and the action, if any, taken by Denny's. If the
United States and/or counsel for the Plaintiff Class objects to the
action (or inaction) taken by Denny's, the parties shall endeavor,
in good faith, to resolve all issues concerning the franchisee s
violation of this Decree pursuant to the Dispute Resolution
Procedure, before bringing such matters before the Court.
c. No later than thirty (30) days following the
effective date of this Decree, Denny's shall amend its Franchise
Operations Manual pursuant to the applicable section of Denny's
franchise agreements to expressly require all franchisees to comply
with Title II of the Civil Rights Act of 1964 and the provisions of
this Decree that are applicable to franchisees. Pursuant to the
applicable sections of Denny's franchise agreements, a franchisee's
failure to comply with this amendment to the Franchise Operations
Manual shall subject the franchisee to sanctions by Denny's
including, but not limited to, cancellation of the franchise
agreement. During the term of this Decree, Denny's must inform the
Monitor, the United States and counsel for the Plaintiff Class
within fifteen (15) days of obtaining knowledge of any franchisee
who has failed to comply with this amendment to the Franchise
Operations Manual and the action, if any, taken by Denny's. If the
United States and/or counsel for the Plaintiff Class objects to the
action (or inaction) taken by Denny's, the parties shall endeavor,
in good faith, to resolve all issues concerning the franchisee's
compliance with this amendment to the Franchise Operations Manual
pursuant to the Dispute Resolution Procedure, before bringing such
matters before the Court.
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d. In addition to the provisions of subparagraphs
a. through c. above, pursuant to the applicable sections of Denny's
franchise agreements, Denny's shall consider any failure of a
franchisee to comply with Title II of the Civil Rights Act of 1964,
as determined by a final judgment of a court of competent
jurisdiction, to be conduct which reflects materially and
unfavorably upon the operation and reputation of Denny's business
and trademark, and Denny's shall therefore consider any such
violation of the law by a franchisee to be sufficient grounds for
immediate termination of the franchise agreement in accordance with
the terms of the franchise agreement; provided, however, that
nothing herein shall require Denny's to terminate the franchise
agreement where Denny's and the Monitor are satisfied that the
franchisee has taken appropriate steps to avoid future violations
of the Public Accommodations Act. If the United States and/or
counsel for the Plaintiff Class objects to the action (or inaction)
taken by Denny's, the parties shall endeavor, in good faith, to
resolve all issues concerning the franchisee pursuant to the
Dispute Resolution Procedure, before bringing such matters before
the Court.
e. Pursuant to the appropriate section of the
Denny's franchise agreement, Denny's shall apply the
non-discrimination training program requirements set forth in
subsections 2.a. - d. above to its franchisees. Accordingly, within
thirty (30) days of the implementation of the non-discrimination
training program outlined in subsections 2.a. - d. above, Denny's
shall give each franchisee written notice, pursuant to the
appropriate section of the franchise agreement, of the commencement
of such non-discrimination training program. Denny's shall require
all existing and newly hired General Managers, Restaurant Managers,
Managers in Training, Servers, Hosts/Hostesses, buspersons and
security personnel
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employed by Denny's franchisees to attend the non-discrimination
training program as set forth in subsections 2.a. - d. With respect
to live training of management personnel, Denny's shall satisfy
this provision by providing timely notice to franchisees of the
dates and locations of live training sessions in their division and
informing them that management personnel are required to attend the
live training. However, the Monitor may excuse a franchisee from
the requirement that management personnel receive live training,
and may instead require such management personnel to undergo
training in a different manner, such as video and/or
tele-conference training. In determining whether a franchisee's
manager may be excused from receiving live training, the Monitor
shall consider the burden and cost to the franchisee as well as the
purposes of the Decree and the franchisee's restaurant's past
record of complaint activity and testing results. Denny's shall
impose no charge on the franchisees for conducting such
non-discrimination training program. All management personnel of
Denny's franchisees whose restaurant location is 100 miles or less
from a site where live training is provided must attend live
training.
f. The United States and the Plaintiff Class shall
not seek to hold Denny's in violation of the Consent Decree for the
refusal of a franchisee to participate in the non-discrimination
training program set forth above, provided that Denny's has made
best efforts to secure compliance on the part of the franchisee.
However, Denny's shall provide the Monitor, the United States and
counsel for the Plaintiff Class with the name and location of any
Denny's franchisee which refuses or fails to participate in the
training sessions within fifteen (15) days of when Denny's first
receives knowledge of such refusal or failure.
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D. Notice to the Public and Advertising
Denny's shall inform the public generally and all potential
customers specifically of their non-discrimination policies as
follows:
1. Pursuant to the Original Decree, Denny's has posted
at each public entrance to its restaurants, and in a location
clearly visible to patrons, a sign indicating that the facilities
are open and that service will be provided to all persons without
regard to Race or color. The sign has dark letters at least one
inch (1") high on a contrasting background. Denny's and any
successor in interest shall maintain these signs at all times that
this Decree is in effect. Denny's or any successor-in-interest
shall cause to be posted in any new company-owned restaurants such
signs when any such restaurants open.
2. Pursuant to the appropriate provision of the
franchise agreement, Denny's shall require each of its franchise
restaurants to display the sign in accordance with the requirements
of paragraph 1. The United States and counsel for the Plaintiff
Class shall not seek to hold Denny's in violation of the Consent
Decree for the refusal of a franchisee to display the sign,
provided that Denny's has made best efforts to secure compliance on
the part of the franchisee. However, Denny's shall provide the
Monitor, the United States and counsel for the Plaintiff Class with
the name and location of any Denny's franchisee which refuses or
fails to display the sign within fifteen (15) days of Denny's
knowledge of such refusal or failure.
3. With the exception of highway billboards, Department
of Transportation highway signs, and advertisements or promotional
materials that appear in individual Denny's restaurants, the
non-discrimination statement described above in paragraph 1 shall
be readily
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legible in all written media (newspapers, magazines, posters,
brochures, fliers, etc.). The statement shall appear in a type size
that conforms to the following requirements:
a. Where other parts of the advertisement or
promotional statement appear in only one type size, the
non-discrimination statement must also appear in the same type
size;
b. Where other parts of the advertisement or
promotional statement appear in two sizes, the non-discrimination
statement may appear in either type size; and
c. Where other parts of the advertisement or
promotional statement appear in three or more type sizes, the
non-discrimination statement shall appear in the next to smallest
type size.
4. All menus and nationally distributed brochures
(e.g., Denny's Travel Guide) shall contain the non-discrimination
statement described in paragraph 1 above. The statement shall
appear in a type size that conforms to the requirements set forth
in subparagraphs 3.a. - c. above.
5. Pursuant to the Original Decree, Denny's has
developed and placed newspaper advertisements in the San Jose
Mercury News, San Francisco Chronicle, Sacramento Bee, Oakland
Tribune, San Diego Union, and Los Angeles Times that comply with
Paragraph 3 above, and such advertisements have run for four (4)
days at least twice juring the period of April 1, 1993 through
March 31, 1994. To help ensure that non-white persons are notified
that they are welcome as customers of Denny's Restaurants, Denny's,
for the period that this Decree is in effect, shall, in
consultation with the Civil Rights Monitor, continue to place
newspaper advertisements for Denny's Restaurants in the San Jose
Mercury
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News, San Francisco Chronicle, Sacramento Bee, Oakland Tribune, San
Diego Union, and Los Angeles Times, that comply with paragraph 3
above. The first set of advertisements shall be developed no later
than sixty (60) days following the retention of the Monitor. The
placement of such advertisements shall begin no later than thirty
(30) days following She development of the advertisements, and
shall be run for four (4) days at least two (2) times per year. The
size of the advertisement shall equal or exceed a quarter of a
page. The advertisements containing the non-discrimination
statement may be of the type and nature customarily used by Denny's
to advertise its products and/or services.
6. Beginning with the effective date of this Decree, a
minimum of thirty (30%) of the aggregate total of persons appearing
annually in all newspaper advertisements and all other promotional
materials including, but not limited to, brochures, flyers,
coupons, or any other materials (collectively "advertisements")
that depict persons shall be identifiably non-white. At least
twenty-five percent (25%) of the aggregate total shall be
identifiably African-American. With the exception of advertisements
that feature a sole spokesperson, advertisements that solely
feature non-white persons shall not be utilized in the computation
of the above percentages. The computation of the percentage shall
specifically exclude advertisements in which the "Corlick Sisters"
are the only persons that are featured.
a. with respect to television commercials,
African-American persons shall be principally featured as employees
or customers a minimum of twenty-five percent (25%) of the time
during which any employees or customers of Denny's are depicted.
This percentage shall be computed by dividing the number of seconds
each African-American person is depicted as a customer or employee
in a television commercial by the number of
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seconds any person is depicted as a customer or employee in a
television commercial. The computation of this percentage shall
specifically exclude television commercials in which the "Corlick
Sisters" are the only persons that are featured.
b. During each one-year period in which this
Decree is in effect, any principals depicted as employees or
customers in television commercials shall be identifiably non-white
persons, other than African-Americans, a minimum of five percent
(5%) of the time during which any employees or customers of Denny's
are depicted during each one-year period; or, in the alternative, a
minimum of five percent (5%) of the total number of principals
depicted as employees or customers during each one-year period
shall be identifiably non-white persons, other than
African-Americans. The five percent (5%) of the time measure shall
be calculated by the same method used to calculate the time during
which African-Americans are depicted as customers or employees,
except that the measure shall be applied to all commercials aired
during each one-year period, not to each commercial aired. The five
percent (5%) of the principals measure shall be calculated based
upon all commercials aired during each one-year period, not as to
each commercial aired. The computation of this percentage shall
specifically exclude television commercials in which the "Corlick
Sisters are the only persons that are featured
7. All advertisements called for in this section shall
be distributed in a nondiscriminatory manner to convey the message
that non-white persons are welcome as customers at all Denny's
Restaurants.
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VIII
TESTING
A. Testing of Denny's Restaurants and its franchisees
nationwide shall be conducted to monitor Denny's practices at its
restaurants and franchises. The costs and expense of all tests
shall be paid by Denny's.
B. No fewer than 450 tests per year, excluding California,
shall be conducted during the first two (2) years of this Consent
Decree. The tests shall be conducted by an independent civil rights
organization experienced in testing selected by the Monitor, with
the approval of the United States. Within ninety (90) days of the
entry of this Decree or retention of the Monitor, whichever is
later, the Monitor shall notify the United States of the names of
independent civil rights organizations it proposes to use to
satisfy the requirements of this section. If the United States does
not object within fifteen (15) days of receipt of this information,
Denny's may select the organizations proposed. If the United States
objects, the parties shall endeavor, in good faith, to resolve all
issues concerning the appropriateness of the civil rights testing
organizations pursuant to the Dispute Resolution Procedure, before
bringing such matters before the Court.
C. No fewer than 175 tests during the first year and no less
than 150 tests during the second year must be conducted during the
term of this Decree in California. The tests shall be conducted by
independent civil rights organizations experienced in testing
selected by Denny's, with the approval of the United States and
counsel for the Plaintiff Class as provided in section VIIIB.
D. If, at any time after tests have been conducted for two
years, the Monitor
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determines that a smaller number of tests per year are adequate to
accomplish the purpose of the testing provided for in this Decree,
the Monitor may reduce the numbers of tests conducted to 300 tests
per year outside of California and 100 tests per year in California
for the remaining term of this Decree with the written approval of
the United States and counsel for the Plaintiff Class (approval of
Plaintiff Class limited to California tests only). Such consent
shall not be unreasonably withheld. If the United States and/or
counsel for the Plaintiff Class withhold such approval, and Denny's
objects, the parties shall endeavor, in good faith, to resolve all
issues concerning approval of a reduction in the number of tests
per year pursuant to the Dispute Resolution Procedure, before
bringing such matters before the Court.
E. Nothing in this Decree shall prevent the United States
and/or counsel for the Plaintiff Class from utilizing their own
testers to monitor Denny's practices during the term of this Decree
at their own expense. However, nothing contained in this paragraph
shall be construed to prevent the United States or counsel for the
Plaintiff Class from recovering attorneys' fees and costs in
connection with successful motion to enforce the Decree. Such
costs may include the cost of testing conducted at the direction of
the United States and/or counsel for the Plaintiff Class in
connection with the successful motion to enforce the Decree. The
United States and counsel for the Plaintiff Class also shall not be
prevented from conducting non-testing investigations that include,
but are not limited to, on-site observation of Denny's Restaurants
and the treatment and service provided to customers, provided such
investigations do not interfere with the normal business operations
of the unit.
F. The testing organizations may, at their discretion,
consult with the Monitor, the
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United States and/or counsel for the Plaintiff Class regarding the
timing, location and manner in which the tests will be conducted.
However, the testing organizations, the Monitor, the United States
or counsel for the Plaintiff Class may not, under any
circumstances, disclose to Denny's the timing and/or location of a
test conducted pursuant to this Section before the test has been
completed.
G. The results of all tests conducted pursuant to this
section and supporting documentation, if requested, shall be
reported to the Monitor, Denny's, the United States, and counsel
for the Plaintiff Class. Where such results indicate a possible
violation Of this Consent Decree (i.e., disparate treatment on the
basis of race or color), the Monitor shall conduct an investigation
of the facts and circumstances underlying such tests. Within
fifteen (15) days of the completion of his or her investigation,
the Monitor shall provide Denny's, the United States and counsel
for Plaintiff Class with a report containing his or her conclusions
and recommendations, if any, made to Denny's. Denny's shall respond
or implement the Monitor's recommendations within fifteen (15) days
of their receipt. If Denny's disagrees with or refuses to implement
the Monitor's recommendations, the Monitor and the other parties
shall attempt, in good faith, to resolve such potential breaches of
this Decree pursuant to the Dispute Resolution Procedure, prior to
bringing the matters before the Court.
IX
MONITORING. RECORD-KEEPING AND REPORTING REQUIREMENTS
A. Civil Rights Monitor
1. In order to ensure equal access to Denny's
franchised and company-owned restaurants for all persons on a
nondiscriminatory basis, a Civil Rights
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Monitor shall be selected within seventy-five (75) days from the
effective date of the Decree's injunctive provisions. The selection
shall be made pursuant to the provisions set forth below.
The purpose of the Monitor is to ensure that this Decree
is implemented effectively and to assist the United States and
Plaintiff Class in monitoring defendants' compliance with this
Decree. Although Denny's must pay the costs and expenses associated
with the Monitor's position and his or her duties, the Monitor is
responsible to the Court, the United States and Plaintiff Class.
The Monitor may at any time consult with the United States and
counsel for the Plaintiff Class regarding Denny's compliance with
this Decree. The Monitor shall consult with Denny's primarily
through Denny's designated officer, but may also consult with other
Denny's employees as required by this Decree or as the Monitor
deems necessary or appropriate.
The Monitor shall provide Denny's with information
concerning Denny's compliance with the Decree within a reasonable
time after a request for such information is made by Denny's. The
Monitor, however, may withhold any information from Denny's he or
she reasonably determines is necessary, provided he or she informs
Denny's of the nature of the information and the reason(s) it is
being withheld within ten (10) days of Denny's request. If Denny's
objects within ten (10) days of being informed of the withheld
information, Denny's shall endeavor to resolve all issues
concerning the withheld information, pursuant to the Dispute
Resolution Procedure, before bringing such matters before the
Court.
In the event the Monitor determines that there is
reasonable cause to believe that an act of discrimination has
occurred in violation of the Public Accommodations Act and/or this
Decree, he or she shall notify Denny's, the United States and
counsel for the
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Plaintiff Class within fifteen (15) days of such determination and
provide all relevant documents upon request.
A copy of all communications (e.g., letters, memoranda,
etc.) between Denny's and the Monitor shall be provided to both the
United States and counsel for the Plaintiff Class, except where the
Monitor determines that providing copies of certain documents would
be an unwarranted burden and so informs the parties. The Monitor
shall direct all questions concerning interpretation of this Decree
to the United States and counsel for the Plaintiff Class. The
Monitor shall implement the Decree as directed by both the United
States and Plaintiff Class. Within three (3) business days of being
advised of the United States' and Plaintiff Class' interpretation
of the Decree, the Monitor shall send a letter to Denny's, with a
copy to the United States and counsel for the Plaintiff Class,
informing Denny's of Plaintiffs' interpretation of the Decree and
of his or her intent to implement the Decree as directed within
fifteen (15) days of the date of the letter. If Denny's does not
object within ten (10) calendar days of the date of the letter, the
Monitor shall implement the Decree as directed by the United States
and counsel for the Plaintiff Class. If Denny's objects, the
parties shall endeavor, in good faith, to resolve all issues
concerning the interpretation of the Decree pursuant to the Dispute
Resolution Procedure, before bringing such matters before the
Court.
2. As of the date of the filing of this Decree, the
parties have been working cooperatively toward selection of a
person to serve as the Monitor and, to the extent possible, that
selection shall be made through a consensus of all of the parties.
In the event the parties are unable to reach an agreement as to the
selection of the Monitor, the selection of the Monitor shall be
made by Denny's subject to the approval of the United States and
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counsel for the Plaintiff Class, which approval shall not be
unreasonably withheld. The United States and/or counsel for the
Plaintiff Class may, at their discretion, interview the person
proposed by Denny's. If the United States and/or counsel for the
Plaintiff Class has any abjection to Denny's proposed appointment,
the objecting party shall notify Denny's within ten (10) days of
receipt of the name and resume. If any disputes arise concerning
the selection of the Monitor, the parties shall attempt to resolve
them pursuant to the Dispute Resolution Procedure, before bringing
such matters before the Court. Except upon approval by both the
United States and counsel for the Plaintiff Class, Denny's may not
offer or guarantee the Monitor employment, in any form, including a
position as a consultant or independent contractor, for a period of
five (5) years following the expiration of this Decree.
3. The Monitor's qualifications shall include, but not
be limited to, the following: (1) familiarity with and experience
in the monitoring and enforcement of civil rights, specifically in
the areas of race and ethnicity; and (2) familiarity with and
experience in the education and training of employees in (a) civil
rights laws, specifically in the areas of race and ethnicity and
(b) the requirements of compliance with consent decrees or court
orders. Preference shall be given to an individual who (1) is
familiar with and experienced in testing procedures used to
determine compliance with civil rights laws, specifically in the
areas of race and ethnicity; and (2) is an attorney with experience
in civil rights and the monitoring and enforcement of consent
decrees or court orders. If Denny's is unable to locate a person
who satisfies the above qualifications, Denny's shall certify that
it has made a diligent effort to locate someone suitably qualified.
The certification shall set forth in detail the steps Denny's took
in attempting to locate someone for the Monitor's position. After
such
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certification as been filed with the Court, the parties shall meet
within fourteen (14) days of the filing of such certification to
discuss revision of the qualifications and/or other candidates who
may be suitable for the Monitor's position. If the parties are
unable to reach an agreement as to the qualifications and/or hiring
of the Monitor, the parties shall attempt to resolve the matter
pursuant to the Dispute Resolution Procedure, before bringing such
matters before the Court.
4. The Monitor's job duties shall include, but not be
limited to, the following: (1) preparation of all reports called
for under the terms of this Consent Decree; (2) in-house monitoring
and supervision of progress towards compliance with this Decree;
(3) monitoring of the testing program; (4) investigating complaints
regarding the treatment or service of customers who believe they
have been discriminated against, or subjected to unequal treatment
due to their race or color, or witnessed others being discriminated
against due to the race or color of those persons; (5)
investigating complaints by Denny's employees who believe they have
witnessed discriminatory actions regarding customer service or
treatment by other Denny's employees and/or managers or believe
they have themselves been pressured to discriminate against
customers by other Denny's employees and/or managers; (6) providing
the United States and counsel for the Plaintiff Class any relevant
information known to or available to the Monitor under any
provision of this Decree upon reasonable request; (7) preparing a
written semi-annual report for submission to the United States and
counsel for the Plaintiff Class on or before June 30 and December
31 of each year beginning December 31, 1994, which shall describe
at a minimum: (i) the activities and/or investigations of
complaints, if any, undertaken by the Monitor in the preceding six
months; (ii) the
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compliance and progress Of the non-discrimination training
programs; (iii) the results of tests conducted by the independent
civil rights organization(s) during the preceding six months; and
(iv) setting objectives for the next six months to eliminate any
concerns of discrimination which the Monitor has identified; (8)
meeting and conferring with counsel for the parties to consider
suggestions for implementing the spirit and letter of this Decree
and to clarify any information contained an the Monitor's reports;
and (9) to provide reasonable cooperation to all parties in
implementing the provisions and purposes of this Decree.
5. Denny's shall provide the Monitor with appropriate
support staff and resources to carry out his or her duties
effectively. In carrying out his or her duties and making
recommendations, the Monitor shall take into consideration the
cost-effectiveness of methods for implementing the purposes and
provisions of this Decree. Nothing shall require or preclude the
Monitor from selecting the most economical method for implementing
the provisions of the Decree. The United States and/or counsel for
the Plaintiff Class may at any time evaluate the Monitor's support
staff and resources. If the Monitor and/or the United States and/or
Plaintiff Class believes that the Monitor's support staff and
resources are inadequate to carry out the provisions and purposes
of this Decree, that party shall attempt to resolve those issues
with Denny's pursuant to the Dispute Resolution Procedure, before
bringing such matters before the Court.
6. Upon agreement of all parties to this Decree, the
Monitor may be removed upon thirty (30) days notice. Any party may
seek the removal of the Monitor on the ground that the Monitor has
repeatedly failed to perform adequately any duties established by
this Decree in such a manner as to undermine substantially the
achievement of the purposes
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and provisions of this Decree. To the extent practicable, the
objecting party shall give the Monitor an opportunity to cure any
deficiency prior to seeking his or her removal. Also, prior to
seeking the Monitor's removal by the Court, the objecting party
shall meet and confer with all other parties, pursuant to the
Dispute Resolution Procedure, to seek their concurrence in the
Monitor's removal. If a new Monitor must be selected, the parties
shall follow the procedures set forth below.
7. If, for any reason, it becomes necessary to replace
the Monitor, the parties shall attempt to select a new Monitor
through a process involving Denny's, the United States, counsel for
the Plaintiff Class and Class Counsel in the case of Dyson et al.
v. Denny's Inc. et al., United States District Court Case No.
DKC-93-1503 (D. Md.), and attempt to reach a consensus on the most
qualified person available. If this process does not result in an
agreement as to the selection of the new Monitor, the selection of
the new Monitor shall be made by Denny's subject to the approval of
the United States and/or counsel for the Plaintiff Class, which
approval shall not be unreasonably withheld. The United States
and/or counsel for the Plaintiff Class may, at their discretion,
interview the person proposed by Denny's. If the United States
and/or counsel for the Plaintiff Class have any objection to
Denny's proposed appointment, the objecting party shall notify
Denny's within ten (10) days of receipt of the name and resume. If
any disputes arise concerning the appointment of the Monitor, the
parties shall attempt to resolve them voluntarily, pursuant to the
Dispute Resolution Procedure, before bringing such matters before
the Court. Except upon approval by both the United States and
counsel for the Plaintiff Class, Denny's may not offer or guarantee
the Monitor employment, en any form, including a position as a
consultant or independent
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contractor, for a period of five (5) years following the expiration
of this Decree.
8. The Monitor shall be responsible for investigating
all complaints of discrimination against customers on the basis of
race or color in Denny's restaurants and franchisees after May 24,
1994. All complaints received by Denny's after May 24, 1994,
concerning discrimination in the service of customers shall be
directed to the Monitor for investigation.
Any obligation of Denny's to investigate claims of
discrimination in the service and/or treatment of customers on the
basis of race or color shall be satisfied by Denny's referral of
such claims to the Monitor. However, nothing contained in this
Decree shall prohibit Denny's from conducting its own investigation
of allegations of discrimination in the service and/or treatment of
customers on the basis of race or color, provided such
investigation does not interfere with the Monitor's investigation.
In the event that Denny's, after receiving notice of a complaint
from the Monitor (see Section IXC.4. below) or otherwise, desires
to investigate a complaint of discrimination, Denny's shall notify
the Monitor of its intention to investigate the complaint. The
Monitor shall have ten (10) days from the date of receipt of
Denny's notice of intention to investigate in which to object to
the undertaking and timing of an investigation of a particular
complaint by Denny's. If the Monitor objects, and Denny's and the
Monitor are unable to resolve whether and/or when Denny's should
investigate a particular complaint, then Denny's shall attempt to
resolve the matter with the Monitor pursuant to the Dispute
Resolution Procedure, before bringing such matter before the Court.
A contemporaneous on-site inquiry by a restaurant level manager or
restaurant level supervisor
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into a complaint of discrimination shall not be deemed an
investigation for purposes of this subsection.
9. As part of the Monitor's preparation to perform his
or her duties under this Decree, the Monitor shall spend two (2)
weeks within the first three (3) months of his or her employment
working and observing in one or more Denny's Restaurants. During
the two week period, the Monitor shall be exposed to all restaurant
operations and shifts, including, without limitation, weekend and
"late night" or "graveyard" shifts.
B. Record-Keeping
1. Record-Keeping in General. The parties acknowledge
that certain information provided pursuant to this Decree is
required for the sole purpose of investigating, monitoring and
enforcing Denny's compliance with Title II of the Civil Rights Act
of 1964 and this Decree. All records, reports and other documents
maintained or produced pursuant to the terms of this Decree shall
be kept confidential and used and/or disclosed solely for the
purposes of this Decree. The Monitor, Denny's, the United States
and counsel for the Plaintiff Class shall not disclose such
information to any person not a party to this Decree, except as is
reasonably necessary to enforce, monitor or administer the
provisions of this Decree or to comply with otherwise applicable
laws. Any inadvertent disclosure of such confidential information
to a person not a party to this Decree shall not constitute
contempt unless such disclosure was willful. If the Monitor, the
United States and/or counsel for the Plaintiff Class desire to
disclose information made confidential by this section for any
purpose other than to enforce or monitor the purposes and
provisions of this Decree or to comply with otherwise applicable
laws, that party shall notify the other parties to this Decree of
the information it
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seeks to disclose and the reasons for disclosing it. The United
States is required to notify the other parties of its intention to
disclose information only to the extent required by applicable law
and regulation. Thereafter, the parties shall attempt to resolve
all issues concerning the disclosure of such information pursuant
to the Dispute Resolution Procedure.
2. Application of Attorney-Client Privilege And
Work-Product Doctrine.
Nothing in this Decree shall be construed as a waiver of
attorney-client privilege or attorney work-product doctrine by
defendants, nor shall defendants be obligated to report on or
disclose information that is protected by the attorney-client
privilege and/or attorney work-product doctrine, provided, however,
that if the Monitor uses the services of an attorney, or of an
employee or agent of an attorney, to assist in the investigation of
a complaint of discrimination pursuant to this Decree, no
statements, reports, summaries, recommendations, documents and/or
other information and materials created and/or collected as a
result of the investigation shall be subject to any privilege,
including but not limited to, the attorney-client and attorney
work-product privileges, even if the attorney is employed by
defendants; accordingly, no such documents, information or
materials created and/or collected in the course of complaint
investigation directed by the Monitor-shall be withheld from the
United States, counsel for the Plaintiff Class or the Monitor on
the basis of privilege. The parties stipulate that attorneys and
employees and agents of attorneys who are retained by the Monitor
to assist in the investigation of complaints of discrimination
shall be deemed to be retained for purposes other than the
provision of legal advice. The parties further stipulate that all
statements, reports, summaries, recommendations, documents, and/or
other information and materials created and/or collected in the
course of such an investigation shall be deemed to be
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made, prepared or compiled for purposes other -than the
anticipation of litigation.
3. Civil Rights Monitor
For the duration of this Decree, the Civil Rights Monitor
shall maintain the following records (or other computerized
counterparts):
a. Records of all oral and written, formal and
informal complaints of discrimination on the basis of race or color
concerning Denny's service and treatment of customers filed or
submitted by any customer, potential customer, or employee. This
paragraph shall apply to all complaints, letters, or notices filed
or submitted to any of Denny's or Flagstar Corporation's officers,
employees or agents, including, but not limited to, all complaints
submitted to Denny's franchisees, Flagstar Corporation's corporate
headquarters and divisional offices.
b. All records relating to written, video or oral
training materials, including but not limited to,
non-discrimination training program materials, instructions,
directives, guidelines, policy statements, and formal training
sessions provided to all Denny's personnel.
c. Representative copies of all advertisements and
promotional materials in all media and all records relating to the
dates and/or times and media where such advertisements or
promotional material appeared and where and how such materials were
disseminated and distributed.
d. All records and results derived from and
relating to any and all tests conducted pursuant to Section VIII
of this Decree.
e. All records relating to implementation of any
provision of this
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Consent Decree.
No later than three (3) months following the
expiration of the Decree, the Monitor shall provide Denny's with
all the documents and records collected during the term of the
Decree. Upon request,- the Monitor shall provide the United States
and/or counsel for the Plaintiff Class with a copy of all the
documents and records collected during the term of the Decree.
4. Denny's
Denny's shall not destroy or dispose of any documents or
records it creates or generates, or receives from the Monitor, that
pertain to the Decree for the period set forth below. Denny's shall
maintain all documents and records provided by the Monitor as well
as all documents and records maintained and/or generated by Denny's
that pertain to the Decree for a period of five (5) years following
the date the Monitor provides Denny's with all the documents and
records.
For a period not to exceed six (6) months beyond the
expiration of this Decree, the United States and counsel for the
Plaintiff Class shall, upon ten (10) days notice, be permitted to
inspect and copy any of the records described in the Record-Keeping
provisions Of this Consent Decree.
5. Complaints of Discrimination Under the Original Decree
With respect to complaints alleging discrimination in the
service or treatment of customers that arise from incidents at
Denny's franchised and company-owned restaurants on or before May
24, 1994, the Monitor will not be required to investigate such
complaints because this Decree is intended to settle any legitimate
claims asserted in such complaints.
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However, to the extent such information is available to Denny's,
Denny's shall provide the Monitor with a report indicating the name
of any individual who has complained of discrimination in the
service or treatment of customers, the date of the alleged incident
of discrimination, and the location of the alleged incident. To aid
Denny's in its effort to assure that there is no discrimination in
its franchised and company-owned restaurants, the Monitor shall
review the report for the purpose of determining if the alleged
incidents of discrimination suggest a pattern or practice of
discrimination in the service or treatment of customers in any
particular division, region, district, restaurant or franchisee of
Denny's. If the Monitor determines that the complaints suggest such
a pattern or practice or otherwise concludes that a complaint
warrants further investigation, the Monitor shall investigate such
complaints to the extent necessary to ensure that no discrimination
in the service or treatment of customers exists or that appropriate
remedial action can be taken to correct any such pattern or
practice the Monitor may find.
C. Reporting Provisions
1. Preliminary Meeting. No later than ninety (90) days
following the commencement of employment by the Monitor, the
Monitor and counsel for all parties shall attend a preliminary
meeting at a location designated by the Monitor. The purpose of the
meeting is, among other things, for the Monitor to describe the
activities that have been and will be taken with respect to the
implementation of the Decree and for the parties' counsel to
discuss any relevant issues concerning the implementation of the
Decree.
In addition to the preliminary meeting, the Monitor, as
he or she deems appropriate, may schedule meetings and/or
conference calls with the parties' counsel to
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discuss any relevant issues concerning the implementation and
enforcement of the Decree.
2. Semi-Annual Reports
No later than December 31, 1994, and every six months
thereafter for the duration of the Decree, the Monitor shall serve
on the United States, counsel for the Plaintiff Class and Denny's a
report containing the following information;
a. A list of all advertisements and promotional
materials which were published, printed, disseminated or aired
during the reporting period, together with a statement indicating
the dates and media where it appeared and where and how promotional
materials were disseminated or distributed. With respect to
television commercials, Denny's shall verify the depiction of human
persons by providing the Monitor, counsel for the United States and
Plaintiff Class with the following information:
i. A videotape and list of all commercials
produced during the preceding six months;
ii. The total number of employees and
customers depicted as principals in each commercial, broken down by
race, and the amount of time each person appears as a principal;
iii. The number and location of market(s) in
which each of the commercials aired;
b. The first report shall include a certification
that the non-discrimination training program required in section
VIIC2.a,e. above has been or is scheduled for completion, and the
whereabouts of copies of all employee acknowledgments required by
this Decree.
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c. Each report thereafter shall contain a
description of all training activity conducted pursuant to section
VIIC.2. above which has occurred during the reporting period along
with copies of all written materials distributed or any videotapes
produced.
d. Each report shall contain the results of all
testing conducted pursuant to section VIII of the Decree.
3. Reports To Testing Organizations
No later than December 31, 1994, and every six months
thereafter for the duration of the Decree, the Monitor shall serve
on the appropriate testing organization(s), a report which contains
the dates, restaurant locations and a description of complaints of
alleged discrimination at Denny's restaurants or franchisees
received by the Monitor during the preceding six (6) months.
4. Reports Re: Complaints Of Discrimination
No-later than sixty (60) days following the retention of
the Monitor, and every sixty (60) days thereafter, the Monitor
shall serve on Denny's, the United States and counsel for the
Plaintiff Class a report of all complaints of discrimination
received within the sixty (60) days. Each report shall contain
details of any complaint received by the Monitor during the
preceding sixty (60) days, charging or alleging discrimination, on
the ground of race or color, with respect to service or treatment
of customers at any Denny's restaurant or franchises, including a
description of any action taken in response to such complaint.
D. Dispute Resolution Procedure
1. If differences arise between any of the parties
and/or the Monitor with respect to Denny's compliance with,
interpretation of, or implementation of the terms of this
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Decree, an earnest effort shall be made by the parties to resolve
such differences promptly in accordance with the following Dispute
Resolution Procedure:
2. If one party believes an issue must be resolved, it
shall promptly notify the other party in writing of the issue and
the facts and circumstances relied upon in asserting its position.
The party notified of the issue shall be given a reasonable period
of time (not to exceed fifteen (15) days) to review the facts and
circumstances and to provide the party raising the issue with its
written position including the facts and circumstances upon which
it relies in asserting its position. Within a reasonable period of
time thereafter (not to exceed fifteen (15) days), the parties
shall meet, by telephone or in person, and attempt to resolve the
issue informally. If a party believes that resolution cannot be
achieved following a meeting to discuss the dispute, the party
shall promptly notify the other party in writing that it is
terminating discussions, and shall specify its final position with
regard to resolving the dispute.
3. Nothing in this Section shall prevent any party from
prompt by bringing an issue before the Court when, in the moving
party's view, the facts and circumstances require immediate court
action the moving party's papers shall explain the facts and
circumstances that necessitate immediate court action. If any
party brings a matter before the Court requiring immediate court
action, the opposing party(ies) shall be provided with appropriate
notice under the Local Rules of this District and the Federal Rules
of Civil Procedure.
X
CLASS MONETARY RELIEF
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A. Monetary Settlement Fund
1. Establishment of Monetary Settlement Fund:
Defendants shall pay the sum of $28,000,000.00 {twenty-eight
million dollars) ("Settlement Payment") to establish a fund to be
used for resolving monetary claims of the named plaintiffs and
class members in accordance with the procedures of this section.
Within ten (10) business days after preliminary approval of this
Consent Decree, Defendants shall deposit the Monetary Settlement
into a trustee account at a financial institution selected by
Saperstein, Mayeda & Goldstein under the control of Defendants and
Saperstein, Mayeda & Goldstein. Defendants may elect to extend the
date by which the monetary settlement must be deposited into such
account. Such extension, however, shall not exceed beyond twenty
(20) business days after preliminary approval by the Court. For
each day beyond ten (10) business days after preliminary approval
that the monetary settlement is not deposited in the
above-referenced account, Defendants shall pay interest at the rate
of five percent (5%) annually. In the event that this Decree is not
finally approved by the Court, within 10 (ten) days of issuance of
an order denying Final Approval, the Settlement Payment plus all
interests and proceeds therefrom shall be returned to Denny's.
2. Allocation of Monetary Settlement Fund: The fund
shall be allocated in the following manner: $1,000,000.00 shall be
allocated as a "Class Representative Fund" and used to pay equal
shares of $25,000.00 each to the named plaintiffs as identified in
the Second Amended Complaint, filed concurrently herewith;
$50,000.00 shall be allocated as a "Reserve Fund" to be used to pay
any otherwise valid claims which are excluded from the Class
Monetary Distribution through error or omission of the Class
Administrator, Class
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Counsel, Defendants or their counsel; and the balance, less any
reduction for opt-outs in accordance with the provisions of
Paragraph 3 below, shall be allocated as the "Class Fund" to pay
claims of qualified class members who file claims in accordance
with the provisions of this Decree.
3. Reduction of Opt-Outs: The Class Fund shall be
reduced by the sum of $3,000.00 (three thousand dollars) for each
class member who submits a timely opt-out statement to the Claims
Administrator pursuant to the procedures described in section
X.E.2. However, the Class Fund shall not be reduced for any opt-out
statement filed by any potential class member who has retained
counsel other than Class Counsel and initiated a lawsuit or other
legal proceeding against Denny's prior to May 24, 1994. Nor shall
the Class Fund be reduced by the filing of an opt-out statement by
any potential class member who affirmatively states in his or her
opt-out statement that he or she does not intend to initiate a
lawsuit or other legal proceedings against Denny's.
B. Definition of the Class
1. Plaintiff Class and Defendants hereby agree and
stipulate that the class shall consist of all African-American
customers of Denny's franchised and company-owned restaurants in
California and their companions who at any time commencing on
November 14, 1988 and ending on May 24, 1994 were subjected to
discriminatory customer treatment and/or service practices on the
basis of race or color, including but not limited to:
a. Payment for meals prior to consumption
("prepayment");
b. Payment of a "cover charge" prior to service;
c. Denial of or delay in seating until after
later-arriving non
52
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African-American customers were seated or served;
d. Denial of a complimentary "birthday meal" or
other promotional items or programs;
e. Forced removal from the restaurant;
f. Charges for services or food items for which
non African American customers were not charged; and
g. Other forms of differential service based on
race or color.
2. Certification: The Plaintiff Class and Defendants
agree and stipulate that for purposes of settlement of monetary
relief claims, this case shall be certified under Federal Rule
Civil Procedure 23(a) and 23(b)(3), and under Federal Rule Civil
Procedure 23(a) and 23(b)(2) for the purposes of settlement of
injunctive relief claims.
3. Class Counsel: The following law firms are
designated as Class Counsel through Final Approval:
Saperstein Mayeda & Goldstein
1300 Clay Street
Oakland, CA 94612
Public Interest Law Firm
111 West St. John, Suite 315
San Jose, CA 95113
The law firm of Saperstein Mayeda & Goldstein shall serve as
Class Counsel following Final Approval.
C. Claims Administrator
1. Selection of Third Party Claims Administrator: The
parties have jointly
53
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selected an organization to serve as the Denny's California Class
Action Claims Administrator ("Claims Administrator"). The Claims
Administrator shall be an organization or entity experienced and
qualified in the administration of class action monetary settlement
distribution and/or claims proceedings.
2. Duties and Responsibilities: Instructions setting
forth the duties and responsibilities of the Claims Administrator
shall be filed with the Court and may be amended by agreement
of-the Plaintiff Class and Defendants. The duties and
responsibilities of the Claims Administrator shall include: (1) all
class notice, claim form and monetary distribution mailings; (2)
tracking the return of claims forms; (3) arranging for tracing of
class members whose notices and/or checks are returned as
undeliverable; (4) verifying the identity of class members; (5)
initial review of all claims, including obtaining supplemental
information from claimants; (6) notifying claimants whose claims
are disputed or rejected of their right to appeal to the Special
Master; (7) receiving and forwarding to the parties and the Court
all written objections and opt-out statements; (8) reporting to the
Plaintiff Class and Defendants and the Court on the distribution
process; (9) verifying fund balances; (10) preparing and submitting
for review by the Special Master the final Class Monetary
Distribution List; (11) filing any tax returns required to be filed
on behalf of the Class Fund; and (12) such other duties as agreed
by the parties which are necessary to carry out the provisions of
this Consent Decree.
3. Maintenance of Toll Free "800" Lines: Beginning on
May 24, 1994 and continuing until June 30, 1994, and between July
29, 1994 and August 15, 1994, the Claims Administrator shall
maintain and staff with live persons a toll free "800" line
(1-800-836-
54
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0055) to receive calls from potential class members between the
hours of 6:00 a.m. and 11:00 p.m. (Pacific Standard Time), Mondays
through Fridays, and 8:00 a.m. and 5:00 p.m. (Pacific Standard
Time), Saturday and Sunday. Between July 1, 1994 and July 28,
1994, and from August 15, 1994 until the Claims Administrator is
relieved of its duties under this Decree, the Claims Administrator
shall maintain and staff with a live person or persons a toll free
"800" line to receive calls from potential claimants between the
hours of 8:00 a.m. and 6:00 p.m. (Pacific Standard Time), Mondays
through Fridays. At all other times until the Claims Administrator
is relieved of his duties under the Decree, the line should be
answered by a voice mail message recording device. These hours of
telephone coverage shall be subject to revision and modification
upon agreement of the parties based on the recommendation of the
Claims Administrator.
4. Reports from the Administrator: The Claims
Administrator shall submit on a periodic basis as shall be agreed
by the Plaintiff Class and Defendants, reports of such activities
as shall be identified by the Plaintiff Class and Defendants. At
any time Class Counsel or Defendants may request from the
Administrator and the Administrator shall provide copies of Claim
Forms, rejected claim data, requests for Special Master review of
claim determination, decisions by the Special Master and any and
all other documents or information related to this claims
procedure.
5. Payment of the Administrator: All fees and expenses
of the Administrator to implement and carry out the duties and
responsibilities identified in Paragraph C.2., above, shall be paid
by defendants on a monthly basis.
D. Notice
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1. Mailed Notice: Within ten (10) days after
preliminary approval of the Consent Decree by the District Court,
Class Counsel shall prepare and deliver to Defendants and the
Claims Administrator a computer disk containing the names and last
known addresses or last known telephone numbers of all potential
class members who contacted Class Counsel prior to or during the
pendency of litigation ("Class Intake List").
Within twenty-one (21) days after receipt of the Class
Intake List from Class Counsel, the Claims Administrator shall
cause to be railed, via first class mail, a notice, in the form of
Exhibit E hereto, and a Claim Form, and instructions, in the form
of Exhibit F hereto, to each person on the Class Intake List.
2. Tracing of Mailed Notice: For each notice and claim
form mailed to persons on the Class Intake List and returned as
undeliverable, the Claims Administrator shall, within twenty (20)
days after receipt of the undeliverable notice and claim form,
arrange through IRSC or a comparable service, for a computer
database trace for such potential class member and remail the
notice and Claim Form to any additional address obtained for such
potential class member. The costs of the IRSC or other comparable
search shall not exceed an average of $15.00 per trace, and shall
be billed y the Claims Administrator to and paid monthly by
defendants.
3. Published Notice:
a. Preliminary Approval: Within thirty (30) days
of preliminary approval of the proposed Consent Decree by the
Court, Saperstein Mayeda & Goldstein shall cause to be published
the notice of settlement attached hereto as Exhibit G, in
accordance with and in the publications identified in the
notification plan attached hereto as Exhibit H.
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Defendants shall pay the costs for such publication of notice.
b. Final Approval: Within thirty (30) days of
final approval of the proposed Consent Decree by the Court,
Saperstein, Mayeda & Goldstein shall cause to be published notice
of settlement and claims process attached hereto as Exhibit I, in
accordance with and in the publications identified in the
notification plan attached hereto as Exhibit H. Defendants shall
pay the costs for such publication of notice. The combined cost of
published notice for Preliminary and Final Approval shall not
exceed $550,000.00 (Five hundred and fifty thousand dollars).
E. Provisions for Objections and Exclusions
1. Objections: Potential class members who wish to
present objections to the proposed settlement must do so in
writing. Written objections must be received by the Claims
Administrator-on or before July 18, 1994. Within three (3) days of
receipt of a written objection, the Claims Administrator shall file
the objection with the Clerk of the Court and serve copies of the
objection on Class Counsel and defendants. The Claims Administrator
shall retain copies of all written objections in its files until
such time as the potential class member the Claims Administrator
shall mail a Claim Form to the class member. Thereafter, and until
the deadline, the Claims Administrator shall mail a Claim Form
within twenty-four hours after receiving a written or telephone
request for a Claim Form from a potential class member. Any written
request for Claim Forms received by Class Counsel, defendants or
their counsel, shall be forwarded to the Claims Administrator by
facsimile within forty-eight hours (excluding weekends) of its
receipt by the party, and commencing on June 1, 1994 and continuing
through September 1, 1994, within seven days and thereafter, until
the deadline for
57
<PAGE>
submission of Claim Forms, within twenty-four hours of receipt by
the Administrator, the Administrator shall mail a Claim Form to the
potential claimant. Any claimant who telephones Class Counsel,
Defendants or their counsel and requests a Claim Form, shall
immediately be referred to the Claims Administrator.
3. Filing of Completed Claim Forms: All claims for
monetary payment from the Class Fund shall be made in writing using
the Denny's California Class Action Claim Form attached as Exhibit
F. All Claim Forms must be signed by the claimant under penalty of
perjury. Each potential class member, including minors, must submit
his/her own Claim Form. A parent, legal guardian or next friend may
complete and sign a Claim Form on behalf of a minor. Each class
member is limited to filing and obtaining monetary payment for only
one (1) Claim. If a class member experienced more than one
discriminatory incident, all such incidents may be detailed on one
(1) Claim Form. Each valid claimant, however, shall receive the
same pro rata share of the Class Fund regardless of the number of
discriminatory incidents he/she claims. All Claim Forms must be
mailed to the Claims Administrator and postmarked by September 30,
1994.
4. Initial Review of Claim Forms: The Claims
Administrator shall initially review all Claim Forms to determine
if the form is completely filled out and is properly signed. If the
Claim Form is incomplete or is not properly signed, the Claims
Administrator shall return the Claim Form to the claimant and the
claimant shall be given thirty (30) days from the date of mailing
within which to return to the Administrator the Claim Form
completed and/or properly signed. The failure of a claimant to
complete, sign or return their Claim Form within thirty (30) days
shall result in a denial of their claim.
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5. Approval of Claims: The Claims Administrator also
shall conduct an initial review of all Claim Forms to determine
whether they present valid claims in accordance with the terms and
provisions of this Decree. All claimants whose claims are
determined to be valid by the Claims Administrator shall be
eligible for a monetary payment from the Class Fund.
6. Disputed Claims: If, upon initial review of the
Claim Form, the Claims Administrator is unable to determine the
validity of the claim, the Claims Administrator-shall so notify the
claimant in writing and state the reasons why the information
contained on the Claim Form is insufficient to determine the
validity of the claim. The claimant shall be given thirty (30) days
from the date of mailing of the notification in which to supplement
or amend the Claim Form or provide such other information he or she
wishes to assist the Claims Administrator in determining the
validity of the claim. Upon further review of the Claim Form,
including such additional information as may be submitted by the
claimant, the Administrator shall (i) approve the claim, in which
case, the claimant is eligible for payment from the Class Fund;
(ii) reject the claim; or (iii) refer the claim as "unresolved" to
Class Counsel for resolution.
7. Unresolved Claims: All claims that the Claims
Administrator is unable to resolve (i.e., either approve or reject)
initially or after review of additional information submitted by
the claimant, shall be referred for resolution to Class Counsel.
Claimants whose claims are unable to be resolved by the Claims
Administrator shall be so notified in writing of the reasons,
including why the information contained on the Claim Form is
insufficient to determine the validity of the claim and shall be
further advised that their claims will be
59
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referred to Class Counsel for review and resolution. Class Counsel
shall review and determine the validity of all claims unable to be
resolved by the Claims Administrator.
Class Counsel shall review and resolve all claims in
accordance with the class definition and claim validity provisions
of this Decree, see Sec. X.B. and X.F. Class Counsel may request
additional information from the claimant to assess the validity of
the claim. The failure of a claimant to respond to a request for
additional information from Class Counsel within thirty (30) days
shall result in the denial of the claim.
Class Counsel shall complete its review and resolution of
all Claims referred within thirty (30) days of receipt of the
referral of an unresolved claim from the Administrator. Within
twenty-four hours of resolution of an unresolved claim, Class
Counsel shall cause to be issued to the Administrator by first
class mail a copy of it's resolution of the claim in the form of a
Disputed Claim Resolution Form. Within 200 days of Final Approval,
Class Counsel shall resolve all unresolved claims referred by the
Administrator. All fees and costs of Class Counsel incurred in the
review and resolution of unresolved claims as detailed in this
Consent Decree shall be paid by Defendants on a monthly basis.
8. Rejected Claims: If the Claims Administrator or
Class Counsel reject a claim as not meeting the terms or provisions
of this Decree, the Administrator shall so notify the claimant in
writing, including the reasons for the rejection and further notify
the claimant that she or he has fourteen (14) days from the date of
mailing of the notification of rejection within which to request in
writing review by the Special Master.
9. Deadline for Administrator Review of All Claims:
The Claims Administrator shall complete its review and issue a
determination on all Claim Forms within
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eight (8) months of final approval of the Consent Decree.
G. Special Master
1. Selection and Appointment: Within sixty (60) days
after preliminary approval of the Consent Decree by the District
Court, Class Counsel and Denny's shall select a Special Master who
shall be responsible for review and resolution of rejected claims.
The Special Master may be an attorney with civil rights litigation
experience .
2. Review of Appeals by the Special Master: The Special
Master shall review and resolve all claims in accordance with the
class definition and claim validity provisions of this decree, see
Sec. X.B. and X.F. The Special Master may contact the claimant by
telephone for additional information to assess the validity of the
claim.
The Special Master shall complete its review and
resolution of all claims referred within twenty (20) days of
receipt of the referral of a rejected claim from the Administrator
whether or not the Special Master has received additional
information.
The Special Master shall issue a written decision on all
rejected claims. Copies of the decisions shall be mailed to the
claimant, Claims Administrator, and counsel for the parties. All
determinations by the Special Master are final, binding and non
appealable.
3. Payment: All fees and costs of the Special Master
incurred in carrying out the specific responsibilities detailed in
this Consent Decree shall be paid by defendants.
H. Class Monetary Distribution
1. Named Plaintiffs Monetary Distribution: Within
ninety (90) days of final approval of the Consent Decree, each
named plaintiff shall be paid $25,000 from the Monetary Settlement
Fund.
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2. Class Monetary Distribution List: Within twenty (20)
days after all claims have been resolved and no further appeals are
sending, the Claims Administrator shall submit to the parties a
final Class Monetary Distribution List. The Class Monetary
Distribution List shall list the name of each qualified claimant as
determined by the Claims Administrator, Class Counsel and the
Special Master and the pro rata share amount (in dollars) for each
valid claim.
3. Payment of Class Shares: Each claimant who files a
valid and timely claim shall be entitled to one (1) share of the
Class Fund regardless of the number of discriminatory incidents
claimed. Determination of the value of each class member share
shall be based upon a pro rata division of the Class Fund (less
applicable deductions for valid opt-outs, if any). The distribution
formula itself shall not be subject to arbitration or review by the
Claims administrator and is conclusively binding on all class
members.
Upon final approval of this Decree and submission of the
Class Monetary Distribution List, Denny's and Class Counsel shall
relinquish control of the trustee account to the Claims
Administrator who shall within twenty (20) days thereafter process
and mail via certified mail to all valid class members checks in
the amount set forth in the Class Monetary Distribution List and a
cover letter transmitting same. All checks shall be negotiable for
up to sixty (60) days from the date of mailing, and the check and
accompanying over letter shall so indicate.
4. Undeliverable Claim Checks: For each check which is
returned to the Administrator as undeliverable, the Claims
Administrator shall within twenty (20) days conduct an IRSC or
comparable search and remail via certified mail, return receipt
requested,
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a check to such additional address as may be obtained through the
tracing process. Such reissued checks shall be negotiable for up to
sixty (60) days from the date of remailing. All returned checks to
claimants for whom no additional address is obtained through the
tracing process shall be held by the Claims Administrator for up to
sixty (60) days. If no claim is made for the checks by the
claimants during this period of time, the funds shall become part
of and allocated to the "Reserve Fund" and distributed in
accordance with the provisions of this Decree.
5. Class Fund Balance
a. Determination of Fund Balance: The Class Fund
(less deductions for opt outs and the reserve fund, as set
forth-above) shall be distributed to eligible class members who
return valid Claim Forms.
No sooner than 120 days and no later than 180 days
after the initial mailing of checks to claimants by the Claims
Administrator, the Administrator shall determine and report to
Plaintiff Class and Defendants, the amount, if any, of any balance
(including accrued interest) remaining in the Class Fund and/or
Reserve Fund and shall distribute the remaining funds to the United
Negro College Fund designated for scholarships for California
residents.
I. Attorneys' Fees and Costs
1. Stage One Fees and Costs: Within ten (10) days of
Final Approval of the Consent Decree by the District Court,
Defendants shall pay to Class Counsel $6.8 million in settlement of
fees and costs for work on the liability phase of the litigation up
through Final Approval of the Consent Decree by the Court.
The amount is to be paid in full, as set
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forth herein, regardless
of whether any appeal or collateral attack is filed.
2. Stage Two Fees and Costs: Class Counsel shall be
paid their attorneys' fees, at their current hourly rates, and
costs for all work reasonably performed on the distribution of
class monetary funds, any appeal and all work on monitoring the
Injunctive Decree subsequent to final approval of this Decree on a
monthly basis; payment shall be due within thirty (30) days from
submission to defendants.
3. Costs: All costs, including without limitation costs
and fees for and incurred by the Claims Administrator and Special
Master, including but not limited to costs associated with
publication and mailing of the Notice, mailing and processing of
claims, reviews by the Claims Administrator and distribution of
monies, tracing by IRSC or other comparable service, and bank fees,
shall be paid by Defendants.
J. Release Of Claims By Plaintiff Class
The negotiation and entry of this Decree have been undertaken
by the parties for the purpose of settling the claims of the
Plaintiff Class. Upon entry of the Decree, the defendants, Denny's
franchisees and their respective parents, subsidiaries, directors,
officers, agents and employees shall be, and hereby are, fully
released and forever discharged from any and all claims, demands,
charges, complaints, rights and causes of action of any kind, known
or unknown, by the Plaintiff Class, and each of its members who do
not timely request exclusion from the Class, that arise out of or
related to the incidents of discrimination alleged in the Second
Amended Complaint within the Class Period. The entry of this Decree
fully settles the allegations that have been, could have been, or
in the future might be claimed or asserted against the defendants
or Denny's franchisees in this case by the Plaintiff Class
64
<PAGE>
and/or members of the Plaintiff Class based on, arising out of,
relating to, or in connection with any of the allegations, facts,
or circumstances asserted in Second Amended Complaint within the
Class Period. This release shall survive the termination of the
Decree.
XI
NOTICES
All notices and other communications required under this
Decree shall be in writing and delivered either personally or by
depositing the same postage prepaid, in the United States mail,
addressed to the party hereto, to whom the same is directed at the
following addresses:
TO: Plaintiff United States of America
Chief, Housing and Civil Enforcement Section L
U.S. Department of Justice
P.O. Box 65998
Washington, D.C. 20035-5998
TO: Plaintiff Kristina Ridgeway, et al.
Mari Mayeda
Teresa Demchak
Antonio Lawson
Saperstein, Mayeda & Goldstein
1300 Clay Street, 11th Floor
Oakland, CA 94612
With a copy to:
Patricia G. Price
Public Interest Law Firm
111 West St. John St., Suite 315
San Jose, CA 95113
TO: Flagstar Corporation and Denny's. Inc.
Robert L. Wynn III, General Counsel
Robert M. Barrett, Counsel
Flagstar Corporation
203 East Main Street
MS P-12-4 Spartanburg, S.C. 29319
65
<PAGE>
With a copy to:
Thomas L. Pfister
Joseph B. Farrell
Latham & Watkins
633 West Fifth St., Suite 4000
Los Angeles, CA 90071
The parties may from time to time change their address for the
purposes of this section by providing written notice, return
receipt requested, of such change to the other parties.
XII
INCIDENTS OF DISCRIMINATION
The United States and counsel for the Plaintiff Class agree
that they will not seek to hold Denny's in contempt for a single
isolated incident of discrimination by a Denny's non-supervisory
employee unless Denny's management learns of the incident and
Denny's fails to take timely remedial action acceptable to the
Monitor, the United States and counsel for the Plaintiff Class.
Nothing in this provision shall preclude the United States or
counsel for the Plaintiff Class (1) from asserting an incident of
discrimination was not isolated and/or that it reflected a pattern
or practice of discrimination in whole or in part; and/or (2) from
seeking to hold persons other than defendants in contempt of this
Decree for such an incident.
XIII
ENTIRE AGREEMENT; MODIFICATION AND SEVERABILITY
This Decree constitutes the entire agreement among the parties
and supersedes all prior agreements, written or oral, among the
parties. The only obligations that shall be imposed on the
defendants pursuant to the Decree are those expressly set forth
herein and those required by Title II of the Civil Rights Act of
1964; no additional obligations are to be imposed or
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implied.
Each provision and term of this Decree shall be interpreted in
such manner as to be valid and enforceable. In the event any
provision or term of the Decree is determined to be or is rendered
invalid or unenforceable, all other provisions and terms of the
Decree shall remain unaffected to the extent permitted by law. If
any application of any provision or term of this Decree to any
person or circumstance is determined to be invalid or
unenforceable, the application of such provision or term to other
persons and circumstances shall remain unaffected to the extent
permitted by law.
The parties and the Monitor shall have the right
to seek relevant modifications of the Decree to ensure that its
purposes are fully satisfied, provided that any request for
modification has been preceded by good faith negotiations between
the parties pursuant to the Dispute Resolution Procedure.
It is so ORDERED this 24th day of May, 1994.
/s/ JAMES WARE
______________________________________
United States District Judge
67
EXHIBIT 10.51
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
ALFONSO M. DYSON, MARVIN L. FOWLKES, )
MERRILL L. HODGE, JOSEPH W. JAMES, )
LEROY E. SNYDER, ROBIN D. THOMPSON, )
LORNA R. ELAM, VERONICA A. MARSHALL, )
CHARLES E. KILPATRICK, THELMA I. GREEN, )
EUGENE F. KILPATRICK, EARL C. GREEN, )
JERROD D. LEIGERTWOOD, CLARENCE M. )
HAIZLIP JR., REX L. TINGLE, SUSAN L. PROBYN, )
ANGELA M. ENLOE, and STEVEN R. CONERLY, )
)
)
On behalf of themselves )
and as Representatives of a Class )
of all others Similarly Situated, )
)
Plaintiffs, ) C.A. No. DKC-93-1503
)
v. )
)
FLAGSTAR CORPORATION, DENNY'S, )
INC., FLAGSTAR COMPANIES, INC., )
and DENNY'S HOLDINGS, INC. )
)
Defendants. )
________________________________________________)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. PURPOSES OF THE DECREE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IV. JURISDICTION, SCOPE AND TERM OF DECREE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
V. EFFECT OF DECREE -- RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VI. ACTS AFTER CLASS PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
VII. NON-ADMISSION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
VIII. SETTLEMENT CLASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
IX. PROHIBITORY INJUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
X. COMPLIANCE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A. General Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
B. Written Customer Service Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
C. Notice to Employees and Agents and Training and Education Program . . . . . . . . . . . .15
1. Notice to Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . . .15
2. Training of Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . .17
3. Notice to and Training of Franchisees . . . . . . . . . . . . . . . . . . . . . .23
D. Notice to the Public and Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . 26
XI. INTERNAL COMPLAINT PROCEDURE AND DISCIPLINARY POLICY . . . . . . . . . . . . . . . . . . . . . . .31
XII. INCENTIVE AND EVALUATION PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
XIII. TESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
i
<PAGE>
XIV. MONITORING, RECORD-KEEPING AND REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . 37
A. Civil Rights Monitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
B. Record-Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
1. Disclosure of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
2. Application of Attorney-Client Privilege and Work Product Doctrine . . . . . . . 45
3. Record-Keeping Duties of Monitor . . . . . . . . . . . . . . . . . . . . . . . . 46
4. Denny's Duty to Retain Documents . . . . . . . . . . . . . . . . . . . . . . . . 47
5. Uninvestigated Complaints of Discrimination Alleged
to Have Occurred During the Class Period . . . . . . . . . . . . 48
C. Reporting Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
1. Preliminary Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2. Semi-Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3. Reports to Testing Organizations . . . . . . . . . . . . . . . . . . . . . . . . 51
4. Complaints of Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . 51
XV. MONETARY RELIEF, NOTICE AND CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . 52
A. Establishment of Monetary Settlement Fund . . . . . . . . . . . . . . . . . . . . . . . 52
B. Allocation of Settlement Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
C. Reduction of Opt-outs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
D. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
E. Initial Receipt of Claim Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
F. Eligible Class Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
G. Disputed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ii
<PAGE>
H. Disbursement of Opt-out Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
I. Class Monetary Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
J. Objections to Class Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
XVI. ATTORNEY'S FEES, C0STS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
XVII. DISPUTE RES0LUTION PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
XVIII. INCIDENTS OF DISCRIMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
XIX. ENTIRE AGREEMENT; MODIFICATION AND SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 69
XX. CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
iii
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CONSENT DECREE
I.
INTRODUCTION
The plaintiffs in this action are a class of African-American
individuals and their associates who claim that defendants have denied
plaintiffs the right to make and enforce contracts on the same basis as
white citizens, in violation of 42 U.S.C. (section mark) 1981, and that
defendants have denied plaintiffs the full and equal enjoyment of the
goods, services, facilities, privileges, advantages and accommodations
of Denny's Restaurants on the basis of race, in violation of 42 U.S.C.
(section mark) 2000a.
The representatives of the plaintiff class are: Alfonso M.
Dyson, Marvin L. Fowlkes, Merrill L. Hodge, Joseph W. James, Leroy E.
Snyder, Robin D. Thompson, Lorna R. Elam, Veronica A. Marshall, Charles
E. Kilpatrick, Thelma I. Green, Eugene F. Kilpatrick, Earl C. Green,
Jerrod D. Leigertwood, Clarence M. Haizlip Jr., Rex L. Tingle, Susan L.
Probyn, Angela M. Enloe and Steven R. Conerly.
Defendant Denny's, Inc. is a California corporation with its
principal place of business in Spartanburg, South Carolina. Denny's,
Inc. is a subsidiary of defendant Flagstar Corporation. Denny's, Inc.,
through its chain of Denny's Restaurants, conducts business in every
State in the country except Alaska and Rhode Island. Defendant Flagstar
Corporation is a Delaware corporation with its principal place of
business in Spartanburg, South Carolina. Flagstar Corporation, through
its subsidiary Denny's, Inc., conducts business throughout the United
States. Defendant Flagstar Companies, Inc. wholly owns defendant
Flagstar Corporation. Defendant Denny's Holdings, Inc. is a subsidiary
of Flagstar Corporation and owns defendant Denny's, Inc.
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Plaintiffs' Second Amended Complaint alleges that the
defendants have engaged in a policy and practice of race-based
discrimination and segregation for the purpose and/or with the effect of
prohibiting African-American customers and their associates from
exercising their rights to contract and obtain equal treatment under the
law. More specifically, plaintiffs allege that the defendants'
discriminatory conduct has included, but has not been limited to: (a)
requiring African-American customers and their non-African-American
associates to prepay for food, beverages and/or other items or services,
on the basis of race or color; (b) requiring African-American customers
and their non-African-American associates to pay a cover charge and/or a
minimum charge, on the basis of race or color; (c) requiring
African-American customers and their non-African-American associates to
show identification before being permitted to enter a restaurant or to
receive food, on the basis of race or color; (d) denying, or offering
under discriminatory terms or with discriminatory requirements, the
benefits of the Free Birthday Meal promotion and/or other restaurant
promotions to African- American customers and their non-African-American
associates, on the basis of race or color; (e) seating African-American
customers and their non-African-American associates in a segregated
section or area of the restaurant, along with all or most of the
restaurant's African-American customers, on the basis of race or color;
(f) requiring African-American customers and their non-African-American
associates to wait longer to be seated than similarly situated white
customers, on the basis of race or color; (g) denying service to
African-American customers and their non-African-American associates, on
the basis of race or color; (h) ignoring African-American customers and
their non-African-American associates, or otherwise effectively denying
them service, on the basis of race or color; (i) presenting
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African-American customers and their non-African-American associates
with bills that require the payment of added service charges, tips or
gratuities, on the basis of race or color; (j) ejecting African-American
customers and their non-African-American associates from defendants'
restaurants, or threatening them with ejection, on the basis of race or
color; (k) serving food to African-American customers and their
non-African-American associates that has been improperly cooked or is
otherwise unfit for serving, on the basis of race or color; (l)
subjecting African-American customers and their non-African-American
associates to racially derogatory and inflammatory remarks on the basis
of race or color; and (m) providing slower, less courteous and/or
otherwise inferior service to African-American customers and their
non-African-American associates than to similarly situated white
customers, on the basis of race or color.
Defendants have at all times denied, and continue to deny, the
allegations contained in plaintiffs' Second Amended Complaint.
The parties have agreed to resolve this action voluntarily. The
parties have agreed to the following terms upon which this action will
be fully and finally resolved and, as indicated by the signature of
counsel at the end of this document, have consented to the entry of this
Consent Decree by the Court.
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II.
PURPOSES OF THE DECREE
The parties have entered into this Decree for the following
purposes:
A. To ensure, by means set forth in this Decree, that all
future customers of company-owned and franchise-owned Denny's
Restaurants are accorded equal treatment and service regardless of race
and/or color.
B. To provide injunctive relief in furtherance of the
public interest, and to provide injunctive and monetary relief to all
class members by means of the requirements and procedures set forth
below.
C. To avoid further protracted and costly litigation.
ORDER
It appearing to the Court that the Decree is fair and
reasonable,
NOW THEREFORE,
It is hereby ORDERED, ADJUDGED, AND DECREED AS FOLLOWS:
III.
DEFINITIONS
The following terms when used in this Decree shall have the
following meanings:
A. "African-American" shall include all B1ack persons.
B. "Agent", when used in connection with defendant
Denny's, Inc., shall mean any person involved in the treatment and
service of customers at Denny's Restaurants, including, but not limited
to, security personnel.
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<PAGE>
C. "Class Period" shall refer to the time period between
July 1, 1987 and May 24, 1994.
D. "Complaint" shall include any formal or informal
written or oral complaint, made to any administrative or official body
or to any officer, employee, agent or franchisee of Denny's.
E. "Denny's" shall refer to Denny's, Inc., all
company-owned "Denny's Restaurants" and all officers, employees and
agents of Denny's, Inc. and company-owned "Denny's Restaurants."
F. "Franchise-owned Denny's" shall refer to all
restaurants that, during the duration of this Decree, bear the Denny's
trademark pursuant to a franchisor-franchisee relationship with Denny's,
Inc.
G. "Principal" or "Principally Featured" shall refer to:
(l) anyone who is seen and who speaks a line or lines of dialogue,
whether directly employed for such work or after being hired as an extra
performer; or (2) anyone whose face appears silent, alone in a
stationary camera shot, and is identified with the product or service;
or (3) anyone whose face appears silent and is identifiable and whose
foreground performance demonstrates or illustrates a product or service
or illustrates or reacts to the on- or off-camera narrations or
commercial message. Persons appearing in the foreground solely as
atmosphere and not otherwise covered by the foregoing shall be deemed
extra performers.
H. "Section" shall refer to a numbered section of this
Decree, except where express reference is made to another instrument,
statute, or document. Section headings in this
5
<PAGE>
Decree are for the convenience of the Court and parties and shall not be
used to interpret a term or provision of the Decree.
I. "Testing" shall refer to an investigative process in
which similarly situated pairs of individuals, or groups of individuals,
are sent to a Denny's restaurant at predetermined times under controlled
circumstances to determine if employees at the restaurant are
discriminating against customers on the basis of race or color. Although
the precise requirements of a given test will differ depending upon the
type of discrimination under examination and the practical limitations
of the test situation, it is expected that (1) tester pairs or groups
will be carefully matched so as to be similar in all respects except for
race or color; (2) tester pairs or groups will visit the test site as
close together in time as logistically possible; and (3) tester pairs or
groups will be trained to seek similar services in a similar manner from
the same restaurant employee(s).
IV.
JURISDICTION, SCOPE AND TERM OF DECREE
A. The parties have consented to the entry of this Decree.
To this end, the parties stipulate, and the Court finds, that (1)
Denny's Restaurants are places of public accommodations within the
meaning of 42 U.S.C. (section mark) 2000a(b)(1); (2) Denny's Restaurants
operations affect interstate commerce within the meaning of 42 U.S.C S
2000a(c)(1); and (3) this Court has personal jurisdiction over
defendants for purposes of this action and jurisdiction over this action
pursuant to 28 U.S.C. (section mark)(section mark)-1331, 1343 and 1345,
and 42 U.S.C. (section mark) 2000a-6.
6
<PAGE>
The Second Amended Complaint asserts claims that, if proved,
would authorize a jury or the Court to grant the monetary and equitable
relief set forth in this Decree.
B. The provisions of this Decree shall apply as follows:
1. All provisions of this Decree, unless otherwise
indicated, shall apply to Denny's, its subsidiaries, directors,
officers, employees, agents, assigns, successors in interest in the
ownership and/or operation of Denny's Restaurants, and anyone acting in
whole or in part under the direction of Denny's or any of Denny's
subsidiaries in connection with the service or treatment of customers at
Denny's Restaurants. The provisions of Sections II, III, IV, IX, X(A),
X(C)(3), X(D)(2), and XIV shall apply to franchisees to the extent
stated in those sections.
2. Flagstar Corporation, its subsidiaries, officers,
employees, agents, assigns, and successors in interest, or anyone acting
in whole or in part under the direction of Flagstar Corporation or any
of Flagstar Corporation's subsidiaries shall be bound by Sections IX,
XIV(B)(1), and XIV(B)(4) of this Decree.
C. The provisions of this Decree shall become effective
upon the date the Decree is entered by the Court, and shall remain in
effect for seven (7) years from May 24, 1994, unless the case is
dismissed earlier as provided herein. Within sixty (60) days preceding
the fifth anniversary of the entry of the Decree by the Court, or at any
time thereafter, Denny's may apply to the Court for an order dismissing
the case. Plaintiffs shall retain the right to oppose defendants'
application on any grounds appropriate under applicable law. The Court
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<PAGE>
may determine that early dismissal of the case is appropriate based upon
satisfactory compliance by Denny's of the terms, provisions and purposes
of this Decree.
The period of this Decree may be extended, as appropriate, for
any dispute that must be resolved by the Court. In the absence of an
early dismissal of this case, or extensions by the Court, defendants may
move for termination of the Decree and dismissal of the case at the
close of the seven (7) year period. Plaintiffs and their counsel may
oppose defendants' motion on any grounds appropriate under applicable
law.
The Court shall retain jurisdiction during the duration of the
Decree to enforce the provisions of the Decree. The dispute resolution
provisions contained in Section XVII of this Decree are not intended to
preclude the Court from enforcing any provision of the Decree based on
its own powers.
V.
EFFECT OF DECREE -- RELEASE
The negotiation and entry of this Decree have been undertaken
by the parties for the purpose of settling the claims of the plaintiffs
and members of the Settlement Class. Upon entry of the Decree, the
defendants, Denny's franchisees, and their respective parents,
subsidiaries, directors, officers, agents and employees shall be, and
hereby are, fully released and forever discharged from any and all
claims, demands, charges, complaints, rights and causes of action of any
kind, known or unknown, by the plaintiffs, or members of the Settlement
Class who do not timely request exclusion from the Class, that arise out
of or are related to the incidents of discrimination alleged in the
Second Amended Complaint within the Class Period. The entry of this
Decree fully settles the allegations of discrimination that have
8
<PAGE>
been, could have been, or in the future might be claimed or asserted
against the defendants or Denny's franchisees in this case by the
plaintiffs and/or members of the Settlement Class based on, arising out
of, relating to, or in connection with any of the allegations, facts, or
circumstances asserted in the Second Amended Complaint within the Class
Period. This release shall survive the termination of the Decree.
VI.
ACTS AFTER CLASS PERIOD
The provisions of this Decree are not intended to eliminate or
terminate any rights otherwise available to the plaintiffs or members of
the Settlement Class for acts by the defendants, their subsidiaries,
directors, officers, agents or employees, occurring after the Class
Period.
VII.
NON-ADMISSION OF LIABILITY
By entering into this Decree the defendants do not admit that
the allegations of discrimination contained in the plaintiffs' Second
Amended Complaint are true. The defendants deny that any of their
practices, policies, procedures, acts, or omissions related to their
service of customers at Denny's Restaurants have at any time violated
any applicable civil rights laws.
VIII .
SETTLEMENT CLASS
The parties agree and stipulate that for purposes of settlement
of claims for monetary relief, the Settlement Class defined below shall
be certified under Rules 23(a) and 23(b)(3) of
9
<PAGE>
the Federal Rules of Civil Procedure; and that for purposes of
settlement of claims for injunctive relief the Settlement Class defined
below shall be certified under Rules 23(a) and 23(b)(2) of the Federal
Rules of Civil Procedure.
Accordingly, the Court hereby approves and certifies the
following plaintiff class pursuant to Rules 23(a), 23(b)(3), and
23(b)(2) of the Federal Rules of Civil Procedure:
A. Every African-American who, between July 1, 1987 and May
24, 1994, has sought service as a customer at a Denny's Restaurant or a
franchise-owned Denny's anywhere in the United States outside California
and has been subjected to discriminatory treatment or provided services
in a discriminatory manner, on the basis of race or color. This includes
but is not limited to every African-American customer who, on the basis
of race or color, has been:
1. required to prepay for food, beverages and/or other items
or services;
2. required to pay a cover charge and/or a minimum charge;
3. required to show identification before being permitted to
enter the restaurant or to receive food;
4. denied, or offered under discriminatory terms or with
discriminatory requirements, the benefits of the Free
Birthday Meal promotion and/or other restaurant promotions;
5. seated in a segregated section or area of the restaurant,
along with all or most of the other African-American
customers;
6. required to wait longer to be seated than similarly
situated white customers;
10
<PAGE>
7. denied service;
8. ignored by defendants' employees, or otherwise effectively
denied service;
9. presented with a bill that required the payment of an added
service charge, tip or gratuity;
10. ejected from the restaurant, or threatened with ejection;
11. served food that was improperly cooked or otherwise unfit
for serving;
12. subjected to racially derogatory and/or inflammatory
remarks; or
13. provided slower, less courteous and/or otherwise inferior
service than the service provided to similarly situated
white customers; and
B. Every non-African-American who, between July 1, 1987 and
May 24, 1994, has sought service as a customer at a Denny's Restaurant
or a franchise-owned Denny's anywhere in the United States outside
California and, as a result of his or her association with one or more
African-American customers, has been subjected to discriminatory
treatment or provided services in a discriminatory manner. This includes
but is not limited to every non-African-American customer who, as a
result of his or her association with one or more African-American
customers, has been subjected to any of the discriminatory policies and
practices set forth in Section VIII (A) (1)-(13).
IX.
PROHIBITORY INJUNCTION
Flagstar Corporation and Denny's, together with their
respective subsidiaries, directors, officers, employees, agents,
assigns, successors in interest in the ownership and/or operation of
their respective places of public accommodation, and those persons in
active concert or
11
<PAGE>
participation with them in connection with the treatment and/or service
of customers who receive actual notice of the Decree by personal service
or otherwise, and franchisees who receive actual notice of the Decree by
personal service or otherwise, are
HEREBY PERMANENTLY ENJOINED from:
A. Denying to any person, on the basis of race or color,
the full and equal enjoyment of the goods, services, facilities,
privileges, advantages, and accommodations of their restaurants;
B. Denying service, or offering less favorable terms and
conditions of service, to any person on the basis of race or color;
C. Requiring prepayment, a cover charge, minimum charge,
added service charge, or identification as a condition of service, on
the basis of race or color;
D. Refusing to seat, take meal orders or serve any person
on the basis of race or color;
E. Requiring any person to wait longer, or otherwise
providing substandard and inferior service to any person on the basis of
race or color;
F. Serving any person food which is improperly cooked or
unfit for serving on the basis or race or color;
G. Subjecting any person to racially derogatory and/or
inflammatory remarks;
H. Removing by force, or threatening to remove by force,
any person on the basis of race or color;
I. Segregating any person within a restaurant on the basis
of race or color;
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<PAGE>
J. Implementing different terms and conditions, on the
basis of race or color, concerning any promotional offers, including any
future offer of "free birthday meals;"
K. Making statements, on the basis of race or color, that
would discourage a reasonable person from visiting defendants'
restaurants;
L. Instructing or encouraging employees or staff members
to discourage any person, on the basis of race or color, from visiting
defendants' facilities or from enjoying the full benefits of defendants'
facilities;
M. Making, printing, or publishing, or causing to be made,
printed, or published, any notice, statement, or advertisement with
respect to the service at or equal enjoyment of defendants' restaurants
that indicates any preference, limitation, or discrimination based on
race or color, or an intention to make any such limitation or
discrimination;
N. Representing to any person, on the basis of race or
color, that service or enjoyment of defendants' facilities is not
available, when such is in fact available;
O. Denying service, or offering less favorable terms or
conditions of service, to any non-African-American customers because
they patronize defendants' facilities as part of a group which includes
African-American customers; and
P. Retaliating against any plaintiff, member of the
Settlement Class, or any officer, employee or agent of defendants for
opposing or reporting alleged discrimination in the service and/or
treatment of customers, in violation of applicable law and/or this
Decree.
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<PAGE>
X.
COMPLIANCE PROVISIONS
Denny's shall take the following steps to ensure that its
restaurants are operated in a nondiscriminatory manner:
A. General Compliance
Denny's shall implement the plan described below to ensure
compliance with federal law by Denny's, its subsidiaries, franchisees,
agents, officers and employees. The plan includes, but is not limited
to, provisions for the development and implementation of a
non-discrimination training program for personnel, the retention of a
Civil Rights Monitor (hereinafter "Monitor"), testing of Denny's
franchise and company-owned restaurants to monitor compliance with this
Decree, and notifying the public that Denny's Restaurants will operate
in a nondiscriminatory manner. In order that compliance with the Decree
may be monitored appropriately, Denny's and the Monitor shall maintain
appropriate records. Denny's shall cooperate with Class Counsel and the
Monitor in providing complete, accurate and current information as
required under the Decree regarding its restaurants and compliance with
the Decree.
B. Written Customer Service Policies
Denny's customer service policies shall be uniformly applied to
all customers without regard to race or color. This Decree shall not
restrict Denny's from revising or modifying its policies concerning the
treatment and service of customers, provided that the revisions or
modifications do not discriminate on the basis of race or color, or
conflict with any provision of the Decree.
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<PAGE>
During the duration of the Decree, Denny's shall submit to the
Monitor and Class Counsel for review and comment any proposed, new,
revised or amended customer service policies prior to their
implementation so that the Monitor and Class Counsel may review such
policies to ensure that they are consistent with the non-discrimination
provisions of Section IX above. Class Counsel shall provide defendants
with their comments or suggestions, if any, within sixty (60) days
following the date that the policies are received. If the Monitor does
not object or propose any amendments and/or revisions within fifteen
(15) days of receipt of Denny's policies or any proposed amendments
and/or revisions to those policies, Denny's may implement such policies.
If the Monitor objects, Denny's proposed revisions and/or amendments to
Denny's policies may not be adopted until after Denny's and the Monitor
have endeavored, in good faith, to resolve all disputed issues
concerning such policies.
In the event that the Monitor objects to any of Denny's
existing or proposed customer service policies on the basis that they
conflict with or undermine the provisions or purposes of this Decree,
and Denny's does not modify such policy to the satisfaction of the
Monitor, Class Counsel shall retain the right to bring the matter before
the Court, consistent with the dispute resolution procedures contained
in this Decree.
C. Notice to Employees and Agents and Training and
Education Program
1. Notice to Employees and Agents
a. Within sixty (60) days of the effective date of the
Decree, Denny's shall send each of its officers, employees and agents a
letter accompanied by: (1) a Summary of the Decree as set forth in
Exhibit A; and (2) a copy of the Notice of Nondiscrimination Policies
and Procedures set forth in Exhibit B, explaining employee and agent
duties and obligations
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<PAGE>
under Title II of the Civil Rights Act of 1964, 42 U.S.C. Section 1981,
and this Consent Decree.
In addition, Denny's shall inform each of its officers,
employees and agents that any breach of, or failure to comply with, the
terms and conditions set forth in Section IX of this Decree shall
subject him or her to dismissal or other disciplinary action.
Each person receiving the Summary and Notice of
Nondiscrimination Policies shall execute a statement acknowledging that
he or she has received and read the Summary and Notice, and that he or
she agrees to act in accordance with the requirements of the Decree. The
statement shall be in the form of the statement contained in Exhibit C,
and a copy of the statement shall be retained at the restaurant where
the employee or agent works. In the case of district, regional, or
divisional leadership, the statement shall be retained at the divisional
office. For corporate officers, the statement shall be retained at
Denny's corporate office. During the term of this Decree, copies of
these statements shall be made available, upon ten (10) days notice, to
Class Counsel.
b. Within sixty (60) days of the effective date of this
Decree, Denny's shall inform its current officers, employees and agents
that if any officer, employee or agent requests a copy of this Consent
Decree, a copy will be provided to him or her at Denny's expense. Merely
showing the officer, employee or agent a copy of the Decree, or the
Summary of the Decree, will not satisfy the requirements of this
Section. Officers, employees, and agents shall be entitled to retain
permanent possession of all documents with which this Decree requires
they be provided.
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<PAGE>
c. Within sixty (60) days of the effective date of this
Decree, Denny's shall inform its current officers, employees and agents
(1) of the existence of the internal complaint procedure set out in
Section XI of this Decree; and (2) of Denny's agreement that it may not
and will not reprimand, penalize, or otherwise retaliate in any way
against any officer, employee or agent for opposing or reporting alleged
discrimination in the service and/or treatment of customers, in
violation of applicable law and/or this Decree. This notice may be set
forth in a separate document or included in Exhibit B, which describes
the employee's and agent's duties and obligations under federal public
accommodations law.
d. The requirements of this Section shall be applied to
all new officers, employees or agents within seven (7) days of the date
of hire of the new officer, employee or agent, throughout the duration
of the Decree.
e. Denny's shall publish an article notifying its
officers, employees and agents of the entry of the Decree in the first
issue of the Denny's Newsletter ("Denny's Today") published subsequent
to the effective date of the Decree. Such publication shall not be later
than six (6) months following the effective date of the Decree. The
notice required in this paragraph shall be printed on the cover page of
the Denny's Newsletter. The notice shall be submitted to Class Counsel
for comment and review, prior to publication and within thirty (30) days
of the effective date of the Decree.
2. Training of Employees and Agents
a. If the Monitor approves Denny's existing
non-discrimination training program (hereinafter "training program"),
within sixty (60) days after entry of this Decree or retention of the
Monitor, whichever is later, Denny's, through the Monitor, shall submit
to Class
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Counsel for comment and review that proposed training program and
identify the person(s) and/or organization(s) conducting the training
program for the instruction of all currently employed personnel
regarding their duties and obligations under the federal public
accommodations laws and this Consent Decree. For purposes of this
Decree, the term "currently employed personnel" shall include, but not
be limited to, all Denny's officers, division vice-presidents, regional
directors of operations, regional specialists, regional training
managers, regional human resource managers, district leaders, general
managers, restaurant managers, managers-in-training, servers,
hosts/hostesses, buspersons, cooks, prep cooks, persons-in-charge,
service assistants, and security personnel who are or shall be employed
as of the time of the implementation of the training program ("All
Employees"). If the Monitor does not approve of the existing training
program, within ninety (90) days subsequent to the entry of this Decree
or retention of the Monitor, whichever is later, Denny's, through the
Monitor, shall submit to Class Counsel for comment and review a proposed
training program for instruction of All Employees.
If the United States, pursuant to the appropriate section of
the Amended Consent Decree entered in United States v. Flagstar Corp.
and Denny's. Inc., Civ. No. C-93-20208 (N.D.Cal.) (hereinafter
"California case"), approves the existing training program, within
ninety (90) days of the date of approval by the United States the
existing training program shall be presented live to all management
personnel who have not had training pursuant to the Original Decree in
the California case, including, but not limited to, all Denny's
officers, division vice-presidents, regional directors of operations,
regional specialists, regional training managers, regional human
resource managers, district leaders, general managers, restaurant
managers and managers-in-training.
If a new training program is approved pursuant to the
appropriate section of the Amended Decree in the California case and the
Monitor determines that the existing training program, though not
approved by the Monitor, provided adequate training, within one hundred
and eighty (180) days of the date of approval by the United States, the
new training program shall be presented live to all management personnel
who have not had training pursuant to the Original Decree in the
California case, including, but not limited to, all Denny's officers,
division vice-presidents, regional directors of operations, regional
specialists, regional training
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managers, regional human resource managers, district leaders, general
managers, restaurant managers and managers-in-training.
If a new training program is approved pursuant to the
appropriate section of the Amended Decree in the California case and the
Monitor determines that the existing training program was inadequate,
within one hundred and eighty (180) days of the date of approval by the
United States, the new training program shall be presented live to all
management personnel including, but not limited to, all Denny's
officers, division vice-presidents, regional directors of operations,
regional specialists, regional training managers, regional human
resource managers, district leaders, general managers, restaurant
managers and managers-in- training.
The training program may be provided via the use of videotape
to non-management personnel (e.g., hosts, servers, buspersons, security
personnel), provided: (1) the videotape entitled "What Color Am I"
(which has been approved for purposes of the California case by
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the United States) is approved by the Monitor, or if Denny's proposes to
use another videotape in the place of "What Color Am I," it is developed
in consultation with the Monitor, is submitted to Class Counsel as
provided below; and (2) the employees are provided with the opportunity
to contact, via telephone or letter, a person who has been trained to
respond to the employees' questions or concerns regarding the training.
The Monitor shall provide such persons with the training that the
Monitor deems appropriate to satisfy the question-and-answer requirement
of this paragraph. Non-management employees who were trained using "What
Color Am I" under the terms of the Original Decree in the California
case are not required to undergo training under this Decree, provided,
however, that if the Monitor determines that "What Color Am I" is
inadequate for the purposes of training non-management employees, all
such non-management employees will have to be retrained.
If Denny's proposes to replace "What Color Am I" with another
videotape, Denny's shall submit the proposed videotape to Class Counsel
for comment and review. Within thirty (30) days of the approval of any
videotapes other than "What Color Am I" by the United States pursuant to
the appropriate section of the Amended Decree in the California case,
Denny's, with the assistance of the Monitor, shall implement the
training program as required by this Section. Although implementation
by the defendants of any of the training programs referred to above
shall not be conditioned upon approval by Class Counsel, Class Counsel
may seek appropriate relief from the Court if the training program fails
to satisfy the requirements of this Section.
Defendants shall have proprietary rights in all training
materials and programs developed pursuant to the Decree. All training
programs pursuant to this Decree shall be
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created by or under the supervision of the Monitor and other person(s)
who are experienced in the field of race relations or who have received
or will receive instruction or training in handling matters related to
allegations of race discrimination. The programs shall explain to all
currently employed personnel their duties and obligations under the
federal public accommodations laws and this Consent Decree. At a
minimum, the training programs shall include the following: (1)
instruction on the requirements of all applicable federal public
accommodations laws; (2) a review of Denny's non-discrimination policies
and of the specific requirements of this Consent Decree; (3) notice that
Denny's may not and will not reprimand, penalize, or otherwise retaliate
in any way against any officer, employee or agent for opposing or
reporting alleged discrimination in the service and/or treatment of
customers, in violation of applicable law and/or this Decree; (4) notice
that racial discrimination and harassment is unacceptable and that such
conduct may result in dismissal or other disciplinary action; (5)
instruction in procedures designed to ensure that neither race nor color
enters, either directly or indirectly, into the process of making
decisions concerning the treatment and/or service of customers; (6) a
discussion of the business advantages of serving all persons on a
nondiscriminatory basis; (7) training in racial sensitivity; (8)
provided the training program is presented live, a question and answer
session designed to review each of the foregoing areas; and (9) training
of management in dealing with complaints. To the extent live training is
used to satisfy the requirements of subsections (1), (5) and (9) of this
paragraph, defendants shall make reasonable efforts to use and discuss
specific examples of customer interactions with Denny's employees or
management to illustrate how best to carry out defendants' obligations
under federal public accommodations laws and this Decree.
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b. Within thirty (30) days of the approval of any
videotapes other than "What Color Am I" by the United States, Denny's,
with the assistance of the Monitor, shall implement the
non-discrimination training program required by subsection (a) above.
The Monitor shall attend training sessions in different regions of the
country on a periodic basis to ensure compliance with the terms of this
Section.
c. Each newly hired officer, employee or agent shall also
receive training of the type described in subsection (a) above. The
additional training shall be provided within forty- five (45) days of
the date upon which the new officer, employee, or agent commences his or
her employment with Denny's.
d. Each officer, employee, or agent who participates and
receives instruction through the training program described in this
Section shall sign a statement, in the form of Exhibit D to this Consent
Decree, acknowledging that he or she has participated in and completed
the training program.
e. For the duration of this Consent Decree, Denny's shall
include instructions regarding their duties and obligations under the
federal public accommodations laws, and this Decree, in all written
training materials and formal training sessions dealing with treatment
of the public provided in the ordinary course of business to its
officers, employees or agents. These instructions shall be developed by
the Monitor and shall include a statement making clear that the
defendants cannot and will not reprimand, penalize, or otherwise
retaliate against any officer, employee, or agent for opposing or
reporting alleged discrimination in the service and/or treatment of
customers, in violation of applicable law and/or this Decree. These
instructions also shall include a statement making clear that any
employee who violates the
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terms of the Decree or otherwise discriminates on the basis of race or
color shall be subject to disciplinary action, up to and including
termination.
f. Articles selected by the Monitor on the subjects of
diversity, racial sensitivity and/or race relations shall be published a
minimum of four (4) times per year in the Denny's Newsletter ("Denny's
Today") for the duration of the Decree.
3. Notice to and Training of Franchisees
a. Within thirty (30) days of the entry of this Decree,
Denny's shall provide all of its franchisees nationwide with a copy of
the Decree (and obtain a return receipt) and a letter informing them of
their obligation to comply with the federal public accommodations laws.
The letter shall explain that Denny's has entered into the Decree and is
committed to a policy of non-discrimination. The letter shall explain
the requirements of the Decree and, specifically, that appropriate
employees of the franchisees will be required to attend training
sessions as set forth in the Decree.
b. All new franchise agreements as to which offering
circulars are distributed by Denny's on or after June 1, 1994, shall
expressly provide that a failure by the franchisee to comply with the
federal public accommodations laws and this Consent Decree will
constitute an act which reflects materially and unfavorably upon the
operation and reputation of Denny's business and trademark and, if not
corrected, shall subject the franchisee to sanctions by Denny's
including, but not limited to, cancellation of the franchise agreement.
During the term of the Decree, Denny's must inform Class Counsel and the
Monitor within fifteen (15) days of obtaining knowledge that any
franchisee has failed to comply with federal public accommodations laws
or this Decree and the action, if any, taken by Denny's.
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c. No later than thirty (30) days following the effective
date of this Decree, Denny's shall amend its Franchise Operations Manual
pursuant to the applicable section of Denny's franchise agreements to
expressly require all franchisees to comply with the federal public
accommodations laws and the provisions of this Decree that are
applicable to franchisees. Pursuant to the applicable sections of
Denny's franchise agreements, a franchisee's failure to comply with this
amendment to the Franchise Operations Manual shall subject the
franchisee to sanctions by Denny's including, but not limited to,
cancellation of the franchise agreement. During the term of this Decree,
Denny's must inform Class Counsel and the Monitor within fifteen (15)
days of obtaining knowledge of any franchisee who has failed to comply
with this amendment to the Franchise Operations Manual and the action,
if any, taken by Denny's.
d. In addition to the provisions of subsections (a) - (c)
above, pursuant to the applicable sections of Denny's franchise
agreements, Denny's shall consider any failure of a franchisee to comply
with the federal public accommodations laws, as determined by a final
judgment of a court, to be conduct which reflects materially and
unfavorably upon the operation and reputation of Denny's business and
trademark, and Denny's shall therefore consider any such violation of
the law by a franchisee to be sufficient grounds for immediate
termination of the franchise agreement in accordance with the terms of
the franchise agreement; provided, however, that nothing herein shall
require Denny's to terminate the franchise agreement where Denny's and
the Monitor are satisfied that the franchisee has taken appropriate
steps to avoid future violations of the federal public accommodations
laws.
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e. Pursuant to the appropriate section of the Denny's
franchise agreement, Denny's shall apply the training program
requirements set forth in subsections 2(a) - (d) above to its
franchisees. Accordingly, within thirty (30) days of the implementation
of the training program outlined in subsections 2(a) - (d) above,
Denny's shall give each franchisee written notice, pursuant to the
appropriate section of the franchise agreement, of the commencement of
such training program. Denny's shall require that all existing and newly
hired general managers, restaurant managers, managers-in-training,
servers, hosts/hostesses, buspersons and security personnel employed by
Denny's franchisees attend the training program as set forth above in
subsections 2(a) - (d). With respect to live training of management
personnel, Denny's shall satisfy this provision by providing timely
notice to franchisees of the dates and locations of live training
sessions in their division and informing them that management personnel
are required to attend the live training. However, the Monitor may
excuse a franchisee from the requirement that management personnel
receive live training, and may instead require such management personnel
to undergo training in a different manner, such as video and/or
tele-conference training. In determining whether a franchisee's manager
may be excused from receiving live training, the Monitor shall consider
the burden and cost to the franchisee as well as the purposes of the
Decree and the franchisee's restaurant's past record of complaint
activity and testing results. Denny's shall impose no charge on the
franchisees for conducting the training program. All management
personnel of Denny's franchisees whose restaurant location is 100 miles
or less from a site where live training is provided must attend live
training.
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f. Plaintiffs shall not seek to hold Denny's in violation
of the Consent Decree for the refusal of a franchisee to participate in
the training program, provided that Denny's has made best efforts to
secure compliance on the part of the franchisee. However, Denny's shall
provide Class Counsel and the Monitor with the name and location of any
Denny's franchisee which refuses or fails to participate in the training
sessions within fifteen (15) days of the date when Denny's first
receives knowledge of such refusal or failure. Upon request, Denny's
shall also provide Class Counsel with copies of all written
communications with such franchisee relating both to its refusal or
failure to participate in the training program and to Denny's efforts to
secure participation.
D. Notice to the Public and Advertising
Denny's shall inform the public and all potential customers of
its nondiscrimination policies as follows:
1. Pursuant to the Original Decree in the California case,
Denny's has posted at each public entrance to its restaurants, and in a
location clearly visible to patrons, a sign indicating that the
facility is open and that service will be provided to all persons
without regard to race or color. The sign has dark letters at least one
inch (l") high on a contrasting background. For the duration of the
Consent Decree, Denny's or any successor-in-interest shall maintain
these signs at all times. Denny's or any successor-in-interest shall
cause to be posted in any new company-owned restaurants the signs
referred to in this subsection when any new restaurant opens.
2. Pursuant to the appropriate provision of the franchise
agreement, Denny's shall require each of its franchise restaurants to
display the sign satisfying the requirements of this
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Section. Plaintiffs shall not seek to hold Denny's in violation of the
Consent Decree for the refusal of a franchisee to display the sign,
provided that Denny's has made best efforts to secure compliance on the
part of the franchisee. However, Denny's shall provide Class Counsel and
the Monitor with the name and location of any Denny's franchisee which
refuses or fails to display the sign within fifteen (15) days of Denny's
knowledge of such refusal or failure. Upon request, Denny's shall also
provide Class Counsel with copies of all written communications with
such franchisee relating both to its refusal or failure to display the
sign and to Denny's efforts to secure compliance.
3. With the exception of highway billboards, Department of
Transportation highway signs, and advertisements or promotional
materials that appear in individual Denny's Restaurants, the
nondiscrimination statement described in paragraph D(1) of this Section
shall be readily legible in all written media (newspapers, magazines,
posters, brochures, filers, etc.). The statement shall appear in a type
size that conforms to the following requirements:
a. Where other parts of the advertisement or
promotional statement appear in only one type size, the
nondiscrimination statement must also appear in the same type
size;
b. Where other parts of the advertisement or
promotional statement appear in two sizes, the
nondiscrimination statement may appear in either type size; and
c. Where other parts of the advertisement or
promotional statement appear in three or more type sizes, the
nondiscrimination statement shall appear in the
next-to-smallest type size.
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4. For the duration of the Decree, all menus and
nationally distributed brochures, including but not limited to the
Denny's Travel Guide, shall contain the nondiscrimination statement set
forth in subsection D(1) above. The statement shall appear in a type
size that conforms to the requirements set forth in subsections D(3)(a)
- (c) of this Section above.
5. To help ensure that both African-American and
non-African-American persons are notified that they are welcome as
customers of Denny's Restaurants, Denny's, in consultation with the
Civil Rights Monitor, shall place advertisements stating that service
will be provided to all persons without regard to race or color in
newspapers located in the twenty-five (25) standard metropolitan
statistical areas (SMSA's) with the largest African-American populations
in the United States outside of California; provided, however, that
during the first year following May 24, 1994, no such advertisements
shall be required in any SMSA in which Denny's has less than fifteen
(15) Denny's Restaurants and/or franchise-owned Denny's. The requirement
that there be no less than fifteen (15) company-owned restaurants and/or
franchise-owned Denny's in an SMSA shall be reviewed annually by the
Monitor, in consultation with Class Counsel and Denny's, to ensure that
the number of restaurants required is consistent with the Decree's
purpose of providing notice to both African-American and
non-African-American persons that they are welcome as customers of
Denny's Restaurants. The SMSA's in which such advertisements are placed
will be adjusted annually on the anniversary of this Decree to reflect
changes in the number and location of Denny's Restaurants and
franchise-owned Denny's, and changes in the African-American population.
In no event will Denny's be required to run advertisements in more than
twenty-five (25) newspapers to satisfy this provision of the Decree. The
newspaper selected for advertising this
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message of nondiscrimination within a given SMSA shall be the newspaper
with the largest reported paid circulation in that SMSA.
The placement of these advertisements shall begin no later than
sixty (60) days after the effective date of this Decree, and shall run
for four (4) days at least two (2) times per year for each year the
Decree is in effect. The size of the advertisement shall equal or exceed
a quarter of a page. The advertisements containing the nondiscrimination
statement may be of the type and nature customarily used by Denny's to
advertise its products and/or services.
6. Beginning with the effective date of the Decree, a
minimum of thirty percent (30%) of the aggregate total of persons
appearing annually in all newspaper advertisements and all other
promotional materials including, but not limited to, brochures, fliers,
coupons, or any other materials (collectively "advertisements") that
depict persons shall be identifiably non-white. At least twenty-five
percent (25%) of the aggregate total shall be identifiably
African-American. With the exception of advertisements that feature only
one spokesperson, advertisements that solely feature non-white persons
shall not be utilized in the computation of the above percentages. The
computation of the percentage shall specifically exclude advertisements
in which the "Corlick Sisters" are the only persons that are featured.
a. With respect to television commercials,
African-American persons shall be principally featured as
employees or customers a minimum of twenty-five percent (25%)
of the time during which any employees or customers of Denny's
are depicted. This percentage shall be computed by dividing the
number of seconds each African-American person is depicted as a
customer or employee in a television commercial by the number
of seconds any person is depicted as a customer or
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employee in a television commercial. The computation of this
percentage shall specifically exclude television commercials in
which the "Corlick Sisters" are the only persons that are
featured.
b. During each one-year period in which this
Decree is in effect, any principals depicted as employees or
customers in television commercials shall be identifiably
non-white persons, other than African-Americans, a minimum of
five percent (5%) of the time during which any employees or
customers of Denny's are depicted during each one-year period;
or, in the alternative a minimum of five percent (5%) of the
total number of principals depicted as employees or customers
during each one-year period shall be identifiably non-white
persons, other than African-Americans. The five percent (5%) of
the time measure shall be calculated by the same method used to
calculate the time during which African-Americans are depicted
as customers or employees, except that the measure shall be
applied to all commercials aired during each one-year period,
not to each commercial aired. The five percent (5%) of the
principals measure shall be calculated based upon all
commercials aired during each one-year period, not as to each
commercial aired. The computation of this percentage shall
specifically exclude television commercials in which the
"Corlick Sisters" are the only persons that are featured.
All advertisements required by this Section shall be
distributed in a nondiscriminatory manner to convey the message that
non-white persons are welcome as customers at all Denny's Restaurants.
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XI.
INTERNAL COMPLAINT PROCEDURE AND
DISCIPLINARY POLICY
A. The defendants shall maintain an internal complaint
procedure for the duration of the Decree that permits any employee who
believes that he or she has witnessed discrimination on the basis of
race or color in the treatment or service of customers, or believes that
a provision of the Decree has been violated, to report such information
directly to the Monitor.
B. As a general matter, the Monitor shall not designate
any employee to investigate a complaint of which the employee is a
subject, a witness, or which involves a friend or a direct superior of
the person conducting the investigation. Where practicable, employees
designated by the Monitor to conduct an investigation shall hold the
rank of District Leader or higher.
C. Any employee or agent who submits a complaint to the
Monitor shall be advised in writing of the outcome of the investigation.
D. Within fourteen (14) days after the entry of the
Decree, the defendants shall provide Class Counsel a proposed written
disciplinary policy for racially discriminatory or retaliatory conduct.
The policy shall include, but not be limited to, the following:
1. A description of specific disciplinary measures that
may be imposed, such as reprimands, suspensions, or dismissals, should
an employee be found to have violated the terms of the Decree; and
2. A description of the procedure by which the
disciplinary measures will be considered and imposed.
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E. Upon receipt of the proposed disciplinary policy, Class
Counsel will promptly provide the defendants with suggestions and
comments about the policy. The policy shall go into effect after
defendants receive and consider Class Counsel's suggestions and
comments, and no later than forty-five (45) days after the effective
date of the Decree.
XII.
INCENTIVE AND EVALUATION PROGRAM
A. All employees shall be notified, consistent with the
provisions of Section X (C), that failure to comply with the obligations
of this Decree shall affect the eligibility of any management employee
to receive any benefits under any of defendants' incentive programs for
management employees to the extent management discretion is involved in
deciding such benefits.
B. All employees shall be notified, consistent with the
provisions of Section X (C), that failure to comply with the obligations
of this Decree shall affect the eligibility of any employee to receive
a promotion to any position at Denny's.
XIII.
TESTING
A. Testing of Denny's Restaurants and franchise-owned
Denny's nationwide shall be conducted to monitor Defendant Denny's
practices at its restaurants and franchises during the term of this
Consent Decree. The costs and expense of all tests shall be paid by
Denny's.
B. No fewer than 450 tests per year shall be conducted,
excluding California, during the first two (2) years of this Consent
Decree. The tests shall be conducted by qualified, independent civil
rights organizations experienced in testing selected by the Monitor
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after consultation with Class Counsel, and with the approval of the
United States as required by Section VII of the Amended Decree in the
California case. Within ninety (90) days of the entry of this Decree or
retention of the Monitor, whichever is later, the Monitor shall submit
to Class Counsel for review and comment the names of independent civil
rights organizations it proposes to use to satisfy the requirements of
this Section. Class Counsel shall retain the right to raise objections
concerning the organizations selected to conduct the testing with the
Monitor, Denny's, the United States, and the Court.
C. If at any time after tests have been conducted for two
years the Monitor determines that a smaller number of tests per year
would be adequate to accomplish the purpose of the testing provided for
in this Decree, the Monitor may reduce the number of tests conducted
outside California to 300 tests per year for the remaining term of the
Decree. This reduction may be made only with the written approval of
Class Counsel and, as required by Section VIII of the Amended Decree in
the California case, the United States. Such consent shall not be
unreasonably withheld.
D. For purposes of the Decree, a test refers to an
investigative process in which similarly situated pairs of individuals,
or groups of individuals, are sent to a Denny's restaurant at
predetermined times under controlled circumstances to determine if
employees at the restaurant are discriminating against customers on the
basis of race or color. Although the precise requirements of a given
test will differ depending upon the type of discrimination under
examination and the practical limitations of the test situation, it is
expected that (1) tester pairs or groups will be carefully matched so as
to be similar in all respects except for race or color; (2) tester pairs
or groups will visit the test site as close together in time as
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logistically possible; and (3) tester pairs or groups will be trained to
seek similar services in a similar manner from the same restaurant
employee(s).
E. The testing organizations may, at their discretion,
consult with the Monitor, the United States, and/or Class Counsel
regarding the timing, location and manner in which the tests will be
conducted. The Monitor also may, at his or her discretion, consult with
Class Counsel and the United States regarding the timing, location and
manner in which the tests will be conducted. However, the testing
organizations, the Monitor, the United States, and Class Counsel may
not, under any circumstances, disclose to Denny's, or any of its
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employees, agents or franchisees, the timing and/or location of a test
conducted pursuant to this Section before the test has been completed.
F. The Monitor may, at his or her discretion, work
together with Class Counsel throughout the duration of the Decree to
provide appropriate training for the organizations and the testers
selected to conduct the tests required under this Section. The Monitor
also may, at his or her discretion, work together with Class Counsel
throughout the duration of the Decree to design -- and, if appropriate,
to modify -- standard test report forms to be used by the organizations
and their testers. Although the parties shall not be bound by
conclusions included on the test forms by the testing organizations, the
organizations shall be encouraged to state their conclusions on the test
report forms as to whether or not the tests indicated disparate
treatment on the basis of race.
G. In addition to the testing, the Monitor shall have
discretion to conduct non-testing, on-site investigations designed to
ensure compliance with the Decree. Such non-testing investigations may
include, but shall not be limited to, on-site observations of Denny's
Restaurants and the treatment and service provided to customers.
H. Nothing in this Decree shall prevent the United States
Department of Justice and Class Counsel from utilizing their own testers
to monitor Denny's practices in all states outside of California during
the term of the Decree at their own expense. However, nothing contained
in this paragraph shall be construed to prevent the United States or
Class Counsel from recovering attorney's fees and costs in connection
with a successful motion to enforce the Decree. Such costs may include
the cost of testing conducted at the direction of the United States
and/or Class Counsel in connection with a successful motion to enforce
the Decree. The
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United States and Class Counsel also shall not be prevented from
conducting non-testing investigations that include, but are not limited
to, on-site observations of Denny's Restaurants and the treatment and
service provided to customers, provided such investigations do not
interfere with the normal business operations of the unit.
I. The results of all tests conducted pursuant to this
section and supporting documentation, if requested, shall be reported to
the Monitor, Denny's, the United States, and Class Counsel. Where such
results indicate a possible violation of this Consent Decree (i.e.,
disparate treatment on the basis of race or color), the Monitor shall
promptly conduct an investigation of the facts and circumstances
underlying such tests. Within fifteen (15) days of the completion of his
or her investigation, the Monitor shall provide Denny's, the United
States and Class counsel with a report containing his or her conclusions
and recommendations, if any, made to Denny's. Denny's shall respond or
implement the Monitor's recommendations within fifteen (15) days of
their receipt. If Denny's disagrees with or refuses to implement the
Monitor's recommendations, the Monitor and the other parties shall
attempt, in good faith, to resolve such potential breaches of this
Decree pursuant to the Dispute Resolution Procedure, prior to bringing
the matters before the Court.
J. In the event that either the Monitor or a testing
organization concludes that a test conducted pursuant to this Section
indicates disparate treatment on the basis of race, the defendants, at
the request of the Monitor, shall make available for in-person and/or
telephone interviews by Class Counsel all employees of the specific
Denny's Restaurant at which the test was conducted. The defendants agree
not to claim in any federal, state, or administrative forum that Class
Counsel have violated any federal, state or local rule of ethics, or any
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provision of any code of professional responsibility, by interviewing
defendants' employees consistent with the procedures set forth in this
Section.
XIV.
MONITORING, RECORD-KEEPING AND REPORTING REQUIREMENTS
A. Civil Rights Monitor
1. In order to ensure equal access to Denny's Restaurants
and franchisees for all persons on a nondiscriminatory basis, a Civil
Rights Monitor shall be selected within seventy-five (75) days from the
effective date of the Decree's injunctive provisions. The selection
shall be made pursuant to the provisions set forth below.
The purposes of the Monitor are to ensure that this Decree is
implemented effectively and to assist the Court and Class Counsel in
monitoring defendants' compliance with the Decree. Although Denny's must
pay the costs and expenses associated with the Monitor's position and
his or her duties, the Monitor is responsible to the Court and Class
Counsel. The Monitor may at any time consult with Class Counsel
regarding Denny's compliance with the Decree. The Monitor shall consult
with Denny's primarily through Denny's designated officer, but may also
consult with other Denny's employees as required by the Decree or as the
Monitor deems necessary or appropriate.
The Monitor shall provide Denny's with information concerning
Denny's compliance with the Decree within a reasonable time after a
request for such information is made by Denny's. The Monitor, however,
may withhold any information from Denny's he or she reasonably
determines is necessary, provided he or she informs Denny's of the
nature of the information and the reason(s) it is being withheld within
ten (10) days of Denny's request. If
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Denny's objects within ten (10) days of being informed of the withheld
information, Denny's shall endeavor to resolve all issues concerning the
withheld information, pursuant to the dispute resolution procedure
contained in Section XVII below before bringing such matters before the
Court.
In the event the Monitor determines that there is reasonable
cause to believe that an act of discrimination has occurred in violation
of the federal public accommodations laws and/or the Decree, he or she
shall notify Denny's and Class Counsel within fifteen (15) days of such
determination and provide all relevant documents upon request.
A copy of all communications (e.g., letters, memoranda, etc.)
between Denny's and the Monitor shall be provided by the Monitor to
Class Counsel, except where the Monitor determines that providing copies
of certain documents would be an unwarranted burden and so informs the
parties. The Monitor shall direct all questions concerning
interpretation of the Decree to Class Counsel, and where appropriate, to
the United States. The purpose of directing questions to the United
States shall be to maintain consistency with the interpretation and
enforcement of similar provisions contained in the Amended Consent
Decree in the California case. The Monitor shall implement the Decree as
directed by Class Counsel, and where appropriate, by the United States.
The involvement of the United States in directing implementation of the
Decree shall be limited to those situations or circumstances where such
is necessary to maintain consistency with the interpretation and
enforcement of similar provisions contained in the Amended Consent
Decree entered in the California case. Within three (3) business days of
being advised of Class Counsel's or the United States' interpretation of
the Decree, the Monitor shall send a letter to Denny's, with copies to
Class
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Counsel and the United States, informing Denny's of Class Counsel's or
the United States' interpretation of the Decree and of his or her intent
to implement the Decree as directed within fifteen (15) days of the date
of the letter. If Denny's does not object within ten (10) calendar days
of the date of the letter, the Monitor shall implement the Decree as
directed by Class Counsel and/or the United States.
2. As of the date of the filing of this Decree, the
parties in this case and in the California case have been working
cooperatively toward selection of a person to serve as the Monitor in
both cases, and to the extent possible, that selection shall be made
through a consensus of all of the parties. In the event that the parties
in both cases are unable to reach an agreement as to the selection of
the Monitor, the selection of the Monitor in this case shall be made by
Denny's subject to the approval of Class Counsel, which approval shall
not be unreasonably withheld. Class Counsel may, at their discretion,
interview the person proposed by Denny's. If Class Counsel has any
objection to Denny's proposed appointment, they shall notify Denny's
within ten (10) days of receipt of the name and resume. If any disputes
arise concerning the selection of the Monitor, the parties shall attempt
to resolve them pursuant to the dispute resolution procedure set forth
in Section XVII below before bringing the matter before the Court.
Except upon approval by Class Counsel, Denny's may not offer or
guarantee the Monitor employment, in any form, including a position as a
consultant or independent contractor, for a period of five (5) years
following the expiration of this Decree.
3. The Monitor's qualifications shall include, but not be
limited to the following: (1) familiarity with and experience in the
monitoring and enforcement of civil rights, specifically in the areas of
race and ethnicity; and (2) familiarity with and experience in the
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education and training of employees in (a) civil rights laws,
specifically in the areas of race and ethnicity and (b) the requirements
of compliance with consent decrees or court orders. Preference shall be
given to an individual who (1) is familiar with and experienced in
testing procedures used to determine compliance with civil rights laws,
specifically in the areas of race and ethnicity; and (2) is an attorney
with experience in civil rights and the monitoring and enforcement of
consent decrees or court orders. If Denny's is unable to locate a person
who satisfies the above qualifications, Denny's shall certify that it
has made a diligent effort to locate someone suitably qualified. The
certification shall set forth in detail the steps Denny's took in
attempting to locate someone for the Monitor's position. After such
certification has been filed with the Court, the parties shall meet
within fourteen (14) days of the filing of such certification to discuss
revision of the qualifications and/or other candidates who may be
suitable for the Monitor's position. If the parties are unable to reach
an agreement as to the qualifications and/or hiring of the Monitor, the
parties shall attempt to resolve the matter informally before submitting
it to the Court for resolution.
4. The Monitor's job duties shall include, but not be
limited to:
a. Preparation of all reports required by the terms and
provisions of this Decree;
b. Monitoring and supervision of Denny's progress towards
compliance with the Decree;
c. Development, implementation, and monitoring of the
training and testing programs set forth in Sections X
and XIII of the Decree;
d. Investigation of complaints regarding the treatment or
service of customers who believe they have been
discriminated against, or subjected to unequal
treatment
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due to their race or color, or witnessed others being
discriminated against because of their race or color;
e. Investigation of complaints by Denny's employees or
agents who believe they have witnessed discriminatory
actions regarding customer service or treatment by
other Denny's employees and/or managers, or believe
they have themselves been pressured to discriminate
against customers by Denny's employees and/or managers;
f. Providing Class Counsel any relevant information known
to or available to the Monitor under any provision of
this Decree upon reasonable request.
g. Preparing a written semi-annual report for submission
to Class Counsel on or before June 30 and December 31
of each year beginning December 31, 1994, which shall
describe at a minimum: (i) the activities and/or
investigations of complaints, if any, undertaken by the
Monitor during the preceding six months; (ii) Denny's
compliance with, and commercial in implementing the
non-discrimination training program; (iii) the results
of tests conducted by the independent civil rights
organization(s) during the preceding six months; and
(iv) setting objectives for the next six months to
eliminate all problems of discrimination that the
Monitor has identified;
h. Meeting and conferring with Class Counsel to consider
suggestions for implementing the spirit and letter of
the Decree, and to clarify information contained in the
Monitor's reports; and
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i. To provide reasonable cooperation to all parties in
implementing the provisions and purposes of this
Decree.
5. Denny's shall provide the Monitor with appropriate
support staff and resources to carry out his or her duties effectively.
In carrying out his or her duties and making recommendations, the
Monitor shall take into consideration the cost effectiveness of methods
for implementing the purposes and provisions of this Decree. Nothing
shall require or preclude the Monitor from selecting the most economical
method for implementing the provisions of the Decree. Class Counsel may
at any time evaluate the Monitor's support staff and resources. If the
Monitor or Class Counsel believes that the Monitor's support staff and
resources are inadequate to carry out the provisions and purposes of
this Decree, the parties shall attempt to resolve the matter informally
before submitting it to the Court for resolution.
6. Upon agreement of all parties to this Decree, the
Monitor may be removed upon thirty (30) days notice. Any party may seek
the removal of the Monitor on the ground that the Monitor has repeatedly
failed to perform adequately any duties established by this Decree in
such a manner as to undermine substantially the achievement of the
purposes and provisions of this Decree. To the extent practicable, the
objecting party shall give the Monitor an opportunity to cure any
deficiency prior to seeking his or her removal. Prior to seeking the
Monitor's removal by the Court, the objecting party shall meet and
confer with all other parties pursuant to the dispute resolution
procedure set forth in Section XVII to obtain their concurrence in the
Monitor's removal. If a new Monitor must be selected, the parties shall
follow the procedures set forth below.
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7. If for any reason it becomes necessary to replace the
Monitor, the parties shall attempt to select a new Monitor through a
process involving Denny's, the United States, Class Counsel, and
plaintiffs' counsel in the California case, and attempt to reach a
consensus as to the most qualified person available. If this process
does not result in an agreement as to the selection of the new Monitor,
the selection of the new Monitor shall be made by Denny's subject to the
approval of Class Counsel, which approval shall not be unreasonably
withheld. Class Counsel may, at their discretion, interview the person
proposed by Denny's. If Class Counsel has any objection to Denny's
proposed appointment, the objecting party shall notify Denny's within
ten (10) days of receipt of the name and resume. The parties shall
attempt to resolve any disputes concerning the selection of the new
Monitor informally before submitting them to the Court for resolution.
Except upon approval by Class Counsel, Denny's may not offer or
guarantee the new Monitor employment, in any form, including a position
as a consultant or independent contractor, for a period of five (5)
years following the expiration of the Decree.
8. The Monitor shall be responsible for investigating all
complaints of discrimination against customers on the basis of race or
color in Denny's restaurants and franchisees after May 24, 1994. All
complaints received by Denny's after May 24, 1994, concerning
discrimination in the service of customers shall be directed to the
Monitor for investigation.
Any obligation of Denny's to investigate claims of
discrimination in the service and/or treatment of customers on the basis
of race or color shall be satisfied by Denny's referral of such claims
to the Monitor. However, nothing contained in this Decree shall prohibit
Denny's
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from conducting its own investigation of allegations of discrimination
in the service and/or treatment of customers on the basis of race or
color, provided such investigation does not interfere with the Monitor's
investigation. In the event that Denny's desires to investigate a
complaint of discrimination, Denny's shall notify the Monitor of its
intent to investigate the complaint. The Monitor shall have ten (10)
days from the date of receipt of Denny's notice of intention to
investigate in which to object to the undertaking and timing of an
investigation of a particular complaint by Denny's. If the Monitor
objects and Denny's and the Monitor are unable to resolve whether and/or
when Denny's should investigate a particular complaint, then Denny's
shall attempt to resolve the matter with the Monitor informally before
bringing the matter before the Court. A contemporaneous on-site inquiry
by a restaurant level manager or restaurant-level supervisor into an
allegation of discrimination shall not be deemed an investigation for
purposes of this subsection.
9. As part of the Monitor's preparation to perform his or
her duties under the Decree, the Monitor shall spend two (2) weeks
within the first three (3) months of his or her employment working and
observing in one or more Denny's Restaurants. During the two week
period, the Monitor shall be exposed to all restaurant operations and
shifts, including, without limitation, weekend and "late-night" or
"graveyard" shifts.
B. Record-Keeping
1. Disclosure of Records
The parties acknowledge that certain information provided
pursuant to this Decree is required for the sole purpose of
investigating, monitoring and enforcing Denny's compliance with the
federal public accommodations laws and this Decree. All records, reports
and other
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documents maintained or produced pursuant to the terms of this Decree
shall be kept confidential and used and/or disclosed solely for the
purposes of this Decree. The Monitor, Denny's and Class Counsel shall
not disclose such information to any person not a party to this Decree,
except as is reasonably necessary to enforce, monitor, or administer the
provisions of this Decree or to comply with otherwise applicable laws.
Any inadvertent disclosure of such confidential information to a person
not a party to this Decree shall not constitute contempt unless such
disclosure was willful.
If the Monitor or Class Counsel desires to disclose information
made confidential by this Section for any purpose other than to enforce
or monitor the purposes and provisions of this Decree or to comply
otherwise applicable laws, that party shall notify the other parties to
this Decree of the information it seeks to disclose and the reasons for
disclosing it. The parties shall attempt to resolve all issues
concerning the disclosure of information informally before bringing such
matters before the Court.
2. Application of Attorney-Client Privilege and Work
Product Doctrine
Nothing in this Decree shall be construed as a waiver of
attorney-client privilege or attorney work product doctrine by
defendants, nor shall defendants be obligated to report on or disclose
information that is protected by the attorney-client privilege and/or
attorney work product doctrine. Provided, however, that if the Monitor
uses the services of an attorney, or of an employee or agent of an
attorney, to assist in the investigation of a complaint of
discrimination pursuant to this Decree, no statements, reports,
summaries, recommendations, documents and/or other information or
materials created and/or collected as a result of the investigation
shall be subject to any privilege, including but not limited to the
attorney-client
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and attorney work product privileges, even if the attorney is employed
by defendants; accordingly, no such documents, information or materials
created and/or collected in the course of a complaint investigation
directed by the Monitor shall be withheld from the Monitor or Class
Counsel on the basis of privilege. The parties stipulate that all
attorneys and employees and agents of attorneys who are retained by the
Monitor to assist in the investigation of complaints of discrimination
shall be deemed to be retained for purposes other than the provision of
legal advice. The parties further stipulate that all statements,
reports, summaries, recommendations, documents and/or other information
and materials created and/or collected in the course of such an
investigation shall be deemed to be made, prepared or compiled for
purposes other than the anticipation of litigation.
3. Record-Keeping Duties of Monitor
For the duration of this Decree, the Civil Rights Monitor shall
maintain the following records (or other computerized counterparts):
a. Records of all formal and informal, written and oral
complaints of discrimination on the
basis of race or color filed or submitted by any customer, potential
customer, employee, or other person, concerning Denny's service to
and/or treatment of customers. This provision shall apply to all
complaints, letters, or notices made, filed or submitted to any of
Denny's or Flagstar Corporation's officers, employees or agents,
including, but not limited to, all complaints submitted to Denny's
franchisees, Flagstar Corporation's corporate headquarters and/or
divisional, regional or district offices, and all complaints -- whether
oral or otherwise -- made at the unit level to any Denny's employee;
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b. All records relating to written, video or oral training
materials, including but not limited to, training program materials,
instructions, directives, guidelines, policy statements, and formal
training sessions provided to all Denny's personnel;
c. Representative copies of all advertisements and
promotional materials in all media, as well as all records relating to
the dates, times and media where such advertisements or promotional
material appeared and the location and manner in which such materials
were disseminated and distributed;
d. All records and results derived from and relating to
any and all tests conducted pursuant to Section XIII of the Decree;
e. All records relating to the implementation of any
provision of the Consent Decree.
No later than three (3) months following the expiration of the
Decree, the Monitor shall provide Denny's with all the documents and
records collected during the term of the Decree. Upon request, the
Monitor shall provide Class Counsel with a copy of all the documents and
records collected during the term of the Decree.
4. Denny's Duty to Retain Documents.
Denny's shall not destroy or dispose of any documents or
records it creates, generates, or receives from the Monitor that pertain
to the Decree for the period set forth below. Denny's shall maintain all
documents and records provided by the Monitor as well as all documents
and records maintained and/or generated by Denny's that pertain to the
Decree for a period of five (5) years following the date the Monitor
provides Denny's with such documents and records. For a period not to
exceed six (6) months beyond the expiration of
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this Decree Class Counsel shall, upon ten (10) days' notice, be
permitted to inspect and copy any of the records described in the
Record-Keeping provisions of this Decree.
5. Uninvestigated Complaints of Discrimination Alleged
to Have Occurred During the Class Period
With respect to complaints alleging discrimination in the
service or treatment of customers that arise from incidents at Denny's
Restaurants or franchisees on or before May 24, 1994, the Monitor will
not be required to investigate such complaints because this Decree is
intended to settle any legitimate claims asserted in such complaints.
However, to the extent such information is available to Denny's, Denny's
shall provide the Monitor with a report indicating the name of any
individual who has complained of discrimination in the service or
treatment of customers, the date of the alleged incident of
discrimination, and the location of the alleged incident. To aid Denny's
in its effort to assure that there is no discrimination at its
company-owned restaurants and franchise-owned Denny's, the Monitor shall
review the report for the purpose of determining if the alleged
incidents of discrimination suggest a pattern or practice of
discrimination in the service or treatment of customers in any
particular division, region, district, restaurant or franchisee of
Denny's. If the Monitor determines that the complaints suggest such a
pattern or practice or otherwise concludes that a complaint warrants
further investigation, the Monitor shall investigate such complaints to
the extent necessary to ensure that no discrimination in the service or
treatment of customers exists or that appropriate remedial action can be
taken to correct any such pattern or practice the Monitor may find.
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C. Reporting Provisions
1. Preliminary Meeting
No later than ninety (90) days following the commencement of
employment by the Monitor, the Monitor and counsel for all parties shall
attend a preliminary meeting at a location designated by the Monitor.
The purpose of the meeting shall be for the Monitor to describe the
activities that have been and will be taken with respect to the
implementation of the Decree and for the parties' counsel to discuss any
relevant issues concerning the implementation of the Decree.
In addition to the preliminary meeting, the Monitor, as he or
she deems appropriate, may schedule meetings and/or conference calls
with the parties' counsel to discuss any relevant issues concerning the
implementation and enforcement of the Decree.
2. Semi-Annual Reports
No later than December 31, 1994, and every six months
thereafter for the duration of the Decree, the Monitor shall serve on
Class Counsel and Denny's a report containing the following information:
a. A list of all advertisements and promotional materials
which were published, printed, disseminated or aired during the
reporting period, together with a statement indicating the dates and
media where they appeared and the location and manner in which
promotional materials were disseminated or distributed. With respect to
television commercials, Denny's shall verify the depiction of human
persons by providing Class Counsel and the Monitor with the following
information:
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1. A videotape and a list of all commercials produced
during the preceding six months;
2. The total number of employees and customers depicted as
principals in each commercial, broken down by race and the
amount of time each person appears as a principal;
3. The number and location of market(s) in which each of
the commercials aired;
b. The first report shall include a certification that the
training program set forth in Section X has been completed or is
scheduled for completion, and shall include copies of all employee
acknowledgments required by the Decree.
c. Each report thereafter shall describe in detail all
training activity conducted pursuant to the Decree in the preceding
reporting period, including the dates of the training sessions, the
topics discussed, and the number and job positions of all persons who
attended each session. Each report also shall include copies of all
written material distributed and all videotapes produced in connection
with training activities;
d. The results of all tests conducted pursuant to the
Decree, including completed test report forms and all other documents
reasonably related to testing activities conducted during the reporting
period;
e. A list of the name and race of any employee or agent of
defendants whom the Monitor concludes has been subjected to a violation
of the Decree or to retaliation during the reporting period, and a
description of any remedial efforts recommended by the Monitor or the
defendants with regard to that individual and the remedial steps
actually implemented;
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f. The first report shall contain copies of all written
policies concerning the treatment and service of customers submitted to
the Department of Justice for review pursuant to Section VI (B) of the
Original Consent Decree in the California case. Each report thereafter
shall include copies of all revisions or modifications of written
policies concerning the treatment and service of customers submitted to
the Department of Justice for review pursuant to the appropriate
provision of the Amended Decree in the California case;
g. A detailed description of the steps taken by the
defendants during the reporting period to satisfy the principles,
programs, objectives, policies, goals and timetables contained in the
Fair Share Agreement signed by Flagstar Corporation and the National
Association for the Advancement of Colored People (NAACP) on July 1,
1993.
3. Reports to Testing Organizations
No later than December 31, 1994, and every six months
thereafter for the duration of the Decree, the Monitor shall serve on
the appropriate testing organization(s) a report which contains the
dates, restaurant locations and a description of complaints of alleged
discrimination at Denny's restaurants or franchisees received by the
Monitor during the preceding six (6) months.
4. Complaints of Discrimination
No later than sixty (60) days following the retention of the
Monitor, and every sixty (60) days thereafter, the Monitor shall serve
on Denny's and Class Counsel a report of all complaints of
discrimination received within the preceding sixty (60) day time period.
Each report shall contain details of any complaint received by the
Monitor during the preceding sixty (60) days charging or alleging
discrimination on the ground of race or color with respect
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to service or treatment of customers at any Denny's restaurant or
franchisee, including a description of any action taken in response to
such complaint.
XV.
MONETARY RELIEF, NOTICE AND CLAIMS
PROCEDURE
A. Establishment of Monetary Settlement Fund
1. Within ten (10) business days following preliminary
approval by the Court of the Consent Decree, the defendants shall pay
$17,725,000 into a settlement fund (hereinafter the "Fund"). At
defendant's option, this payment may be made within twenty (20) business
days following preliminary approval, provided that interest on the Fund,
compounded daily at the rate of five percent (5%) per annum shall be
paid by defendants for each day (including weekends and holidays) after
the tenth business day following preliminary approval that defendants
elect to delay payment of the Fund. The Fund shall be deposited into a
trust account (hereinafter "the Account") with a national banking
association designated by Class Counsel and approved by the Court.
Expenditures from the Fund shall be utilized exclusively for the
following purposes:
a. To pay the named plaintiffs in accordance with the
provisions of this Section upon final Court approval of the
Decree; and
b. To pay members of the Settlement Class in accordance
with the provisions of this Section upon final Court approval
of the Decree.
2. All interest earned on the Account between the time
that the Fund is deposited and the time that the Fund is dispersed to
class members and named plaintiffs shall be used to pay members of the
Settlement Class and the named plaintiffs in accordance with the
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provisions of this Section, provided that this Decree receives final
approval by this Court. If this Decree is not finally approved by this
Court within ten (10) days following the issuance of an order denying
final approval, all funds in the Account, including all interest or
proceeds therefrom, shall be returned to Denny's.
B. Allocation of Settlement Fund
1. Upon final approval of the Decree by this Court, the
Fund shall be allocated in the following manner: $390,000 of the Fund,
plus accrued interest, shall be designated for payment to the named
plaintiffs as follows: Named Plaintiffs Alfonso M. Dyson, Marvin L.
Fowlkes, Merrill L. Hodge, Joseph W. James, Leroy E. Snyder, and Robin
D. Thompson shall each receive $35,000, plus any interest earned on the
$35,000 sum during the time that the named Settlement Fund was deposited
in the Account. Named Plaintiffs Lorna R. Elam, Veronica A. Marshall,
Charles E. Kilpatrick, Thelma I. Green, Eugene F. Kilpatrick, Earl C.
Green, Jerrod D. Leigertwood, Clarence M. Haizlip Jr., Rex L. Tingle,
Susan L. Probyn, Angela M. Enloe, and Steven R. Conerly shall each
receive $15,000, plus any interest earned on the $15,000 sum during the
time that the Settlement Fund was deposited in the Account.
2. $50,000 shall be allocated as a "Reserve Fund" to
be used to pay any otherwise valid claims
which are excluded from the list of qualified class members through
error or omission of Class Counsel, the Claims Administrator(s),
defendants or their counsel. The remainder of the Fund, excluding the
sums to be paid to the named plaintiffs and the amount to be paid to
defendants as "opt-out" credits pursuant to subsection XV (C) below,
shall remain deposited in the Account and shall continue to accrue
interest until such time as the final list of qualified class member
claimants participating in the Fund is approved by the
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Court pursuant to subsection XV(I). Immediately following approval of
the final list, the balance of the Fund shall be distributed to
qualified class member claimants on the final list. To the extent any
money remains in the Fund or Reserve Fund one year after distribution of
checks from the Fund to the final list of qualified class member
claimants, all remaining money shall be donated to such non-profit
organizations dedicated to the furtherance of the civil rights of
African-Americans as the parties agree to be appropriate at that time.
C. Reduction of Opt-outs
1. Consistent with Section VIII of the Decree certifying
the Settlement Class under Federal Rule of Civil Procedure 23(b)(3), and
in accordance with the requirements of Federal Rule of Civil Procedure
23 (c)(2), any putative member of the class may request exclusion from
the class by notifying the central Claims Administrator described in
subsection D (3) below in writing of his or her desire for exclusion.
All requests for exclusion must be received by the central Claims
Administrator no later than July 18, 1994. Only those persons who
request exclusion in the time and manner set forth herein shall be
excluded from the class.
2. Pursuant to Federal Rule of Civil Procedure 23 (b)(3)
and (c)(2), the terms and provisions of this Decree concerning monetary
relief shall have no binding effect on any person who makes a timely
request for exclusion that satisfies all requirements for making such
requests contained in the Decree.
3. Defendants shall receive a credit of $3,000 for each
member of the Settlement Class who makes a timely request for exclusion
that satisfies all requirements for making such
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requests set forth in this Decree; provided, however, that defendants
shall receive no such "opt-out" credit for:
a. Any person who, as of May 24, 1994, has been
named as a plaintiff in any civil action commenced against any
of the defendants, or against their franchisees, subsidiaries,
directors, officers, agents, or employees, in any federal,
state or local court in the United States alleging a violation
of federal, state or local public accommodations laws;
b. Any person who, as of May 24, 1994, has been
named as a plaintiff, complainant, victim, or the functional
equivalent thereof, in any complaint filed or lodged with a
federal, state or local administrative agency alleging a
violation of federal, state or local public accommodations laws
by any of the defendants or their franchisees, subsidiaries,
directors, officers, agents or employees;
c. Any person who, as of May 24, 1994, has been
named as a plaintiff, complainant, victim, or the functional
equivalent thereof, in any written demand from legal counsel
for money or equitable or injunctive relief made upon any of
the defendants, or their franchisees, subsidiaries, directors,
officers, agents, or employees, based upon an alleged violation
of federal, state or local public accommodation laws; or
d. Any person whose request for exclusion states
that he or she does not intend to initiate a lawsuit or other
legal proceedings against defendants. Within ten (10) days
after the Court grants preliminary approval of this Decree,
defendants shall
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serve upon Class Counsel a written list of all persons known to
defendants who come within the credit exemptions set forth in
this subsection.
D. Notice
1. Following preliminary approval of the Decree by the
Court, Class Counsel shall cause to be published the notice of
settlement pursuant to the media plan and notice attached at Exhibits E
and F, respectively. The defendants shall pay for the publication of
this initial notice, as described in the media plan, at a cost not to
exceed $1,528,202. Payment of the costs associated with the publication
of notice following preliminary approval by defendants shall be
accomplished by depositing $1,528,202 in a separate escrow account
(hereinafter "the Notice Account") with a national banking association
designated by Class Counsel and approved by the Court. Defendants shall
deposit these funds in the Notice Account within three business days
following preliminary approval of the Decree by the Court. Dispersal of
the funds contained in the Notice Account shall be made by Class Counsel
to the appropriate third party vendor at such time as the bill for each
element of the media plan comes due.
2. Following final approval of the Consent Decree by the
Court, Class Counsel shall cause to be published notice of settlement
and claims process in accordance with the media plan attached as Exhibit
E. Payment of the costs associated with the publication of this second
phase of notice shall be accomplished by defendants depositing an
additional $661,049 in the Notice Account within three business days
following final approval of the Decree by the Court. Dispersal of the
funds contained in the Notice Account following final approval shall be
made by Class Counsel to the appropriate third party vendor at such time
as the bill for each element of the media plan comes due.
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3. In addition to published notice, within ten (10) days
after preliminary approval of the Decree, Class Counsel and Denny's each
shall prepare and deliver to a central, nationwide claims administration
office to be selected by the parties (hereinafter "central Claims
Administrator") a computer disk containing the names and last known
addresses or last known telephone numbers of all potential class members
who contacted Class Counsel or Denny's, respectively, concerning
complaints of discrimination regarding customer service and treatment
prior to or during the pendency of litigation (hereinafter "Class Intake
List"). Within twenty-one (21) days after receipt of the Class Intake
List from Class Counsel, the central Claims Administrator shall cause to
be mailed, via first class mail, a notice, in the form of Exhibit F, and
a Claim Form, and instructions, in the form of Exhibit G, to each person
on the Class Intake List. The costs of the mailing shall be billed by
the central Claims Administrator to and paid monthly by defendants.
4. For each notice and claim form mailed to persons on the
Class Intake List and returned as undeliverable, the central Claims
Administrator shall, within twenty (20) days after receipt of the
undeliverable notice and claim form, arrange through IRSC or a
comparable service, for a computer database trace for such potential
class member and remail the notice and claim form to any additional
address obtained for such potential class member. The costs of the IRSC
or other comparable search shall not exceed an average of $15.00 per
trace, and shall be billed by the central Claims Administrator to and
paid monthly by defendants.
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E. Initial Receipt of Claim Forms
1. Beginning on May 24, 1994 and continuing until June 30,
1994, and between July 29, 1994 and August 15, 1994, the central Claims
Administrator shall maintain and staff with live persons a toll free
"800" line (1-800-836-0055) to receive calls from potential class
members seeking claim forms between the hours of 9:00 a.m. and 2:00 a.m.
(Eastern Standard Time), Mondays through Fridays, and 11:00 a.m. and
8:00 p.m. (Eastern Standard Time), Saturday and Sunday. Between July 1,
1994 and July 28, 1994, and from August 16 and thereafter, the central
Claims Administrator shall maintain and staff with a live person or
persons a toll free "800" line to receive calls from potential class
members between the hours of 11:00 a.m. and 9:00 p.m. (Eastern Standard
Time), Mondays through Fridays. At all other times, the line should be
answered by a voicemail message recording device. These hours of
telephone coverage shall be subject to revision and modification upon
agreement of the parties based on the recommendation of the central
Claims Administrator.
The central Claims Administrator shall be responsible for
mailing claim forms to all potential claimants who request such forms,
and serving as a repository for the receipt of claim forms upon their
return by all potential claimants. Commencing on June 1, 1994, and
continuing through September 1, 1994, within seven (7) days after
receiving a written or telephone request for a claim form, the central
Claims Administrator shall mail a claim form to the potential class
member. Thereafter, and until the deadline, the central Claims
Administrator shall mail a claim form within twenty-four hours after
receiving a written or telephone request for a claim form. Any written
request for claim forms received by defendants or their counsel shall be
forwarded promptly to the central Claims Administrator
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by facsimile. The central Claims Administrator shall then mail a claim
form to the potential class member in accordance with the provisions set
forth above. The central Claims Administrator shall initially review
every claim form received to determine if the form is complete and
properly signed. If the claim form is incomplete or is not properly
signed, the central Claims Administrator shall return the claim form to
the claimant and the claimant shall be given thirty (30) days from the
date of mailing within which to return to the central Claims
Administrator the form properly completed and/or properly signed. The
failure of a claimant to complete, sign or return the Claim Form within
thirty (30) days shall result in a denial of the claim. Upon receipt of
a properly signed and completed claim form, the central Claims
Administrator shall be responsible for forwarding such forms to Class
Counsel on computer disk and in hard copy. It shall be the sole
responsibility of the central Claims Administrator to return incomplete
claim forms to the potential claimant with instructions as to how to
complete the form.
2. In the event that Class Counsel receives requests from
potential claimants for claim forms, those requests shall be recorded
and transmitted promptly to the central Claims Administrator, who shall
retain sole responsibility for the mailing and receipt of all claim
forms, as well as for the return and tracing of all incomplete claim
forms. All of the costs associated with the requirements of this
subsection shall be billed by the central Claims Administrator to and
paid monthly by defendants.
3. The central Claims Administrator shall, on a periodic
basis, submit reports of its activities requested by Class Counsel. Upon
the request of Class Counsel or defendants, the
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<PAGE>
central Claims Administrator shall provide copies of Claim Forms,
rejected claim data, and any and all other documents or information
related to the claims procedure.
F. Eligible Class Members
1. For all persons other than the named plaintiffs,
eligibility to receive payment from the Fund shall depend upon:
a. Submission of a completed claim form, see
Exhibit G, signed under oath pursuant to the requirements of 28
U.S.C. (section mark) 1746 and postmarked no later than
September 30, 1994;
b. A determination by Class Counsel for Special
Master, in the event of a disputed claim) that the person meets
the class definition set forth in Section X; and
c. A determination that the person has not opted
out of the lawsuit, or previously released his or her claim.
2. The date of return for all claim forms shall be
determined by postmark. Failure to return the completed claim form by
September 30, 1994 shall bar the potential class member from having his
or her claim considered and from receiving a monetary award from the
Fund. Each potential class member, including minors, must submit his/her
own claim form. A parent, legal guardian or next friend may complete and
sign a claim form on behalf of a minor. Each claimant under the age of
eighteen (18) must have his or her claim form signed by a parent, legal
guardian or next friend.
3. It shall be the responsibility of Class Counsel to
determine a claimant's eligibility to receive a monetary share of the
Fund. The defendants stipulate and agree that they will have no role in
claims determination and will not challenge any determination made
60
<PAGE>
by Class Counsel concerning a potential claimant's eligibility to
receive a monetary award from the Fund. Upon receipt of a completed
claim form, Class Counsel shall notify the claimant by first class mail,
postage pre-paid, that all further processing of the claim will be made
by Class Counsel. The claimant shall be further advised by Class Counsel
that it shall be the sole responsibility of each potential member of the
Settlement Class to keep Class Counsel advised of every change of his or
her address. Class Counsel shall have no obligation to attempt to locate
or contact an individual if a mailing to that individual's last known
address is returned as undeliverable.
4. Wherever possible, determinations of eligibility to
receive a monetary award from the Fund shall be made solely upon the
information supplied by the claimant in the Claim Form. However, Class
Counsel may request supporting information and documents from a
potential claimant to assess the validity of the claim. Failure to
respond to a request for additional information within thirty (30) days
shall result in denial of the claim. Class Counsel shall have discretion
to determine the order and timing in which specific claim forms will be
reviewed and evaluated. Class counsel shall use their best efforts to
resolve expeditiously the merits of all claims.
5. In the event that Class Counsel determines that a
claimant is not eligible to participate in the Fund, Class Counsel shall
send the claimant a written notice that states the reason(s) for the
determination. This notice shall be sent to the claimant's last-known
address by first-class mail, postage prepaid, and shall inform the
rejected claimant of his or her right to challenge the determination, as
well as the procedures for doing so. To file a challenge, a rejected
claimant must notify Class Counsel in writing of his or her desire to
challenge
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<PAGE>
the determination. The written challenge must be postmarked no later
than thirty (30) days after the date of Class Counsel's letter notifying
the claimant of the adverse determination. Written challenges postmarked
after the thirty (30) day time period shall be deemed waived, regardless
whether the claimant received the notice finding the claimant not
eligible to participate in the Fund.
G. Disputed Claims
1. In the event that a rejected claimant submits a timely
written challenge to the determination made by Class Counsel, the claim
shall be submitted to a Special Master for resolution. The Special
Master shall be selected by Class Counsel with approval by the Court.
All claims shall be resolved by the Special Master based solely on
relevant written documents submitted by the claimant and any other
relevant information obtained by Class Counsel. The claimant shall have
no right to an oral hearing, and no right to appear in person before the
Special Master. All decisions issued by the Special Master shall be in
writing and shall state briefly the reason(s) for the decision. The
Special Master shall resolve all disputed claims within forty-five (45)
days of the time that the claim is submitted for resolution.
2. Class Counsel shall mail a copy of the decision of the
Special Master to the last known address of the claimant by first-class
mail, postage prepaid. All determinations by the Special Master shall be
final, binding, and non-appealable. The fees and expenses of the Special
Master shall be paid from the Claims Determination Fund described in
Section XVI below.
62
<PAGE>
H. Disbursement of Opt-out Credits
1. Following the Court's final approval of the Decree,
Class Counsel and the defendants shall review all requests for exclusion
received by the Clerk of Court and shall attempt to agree on the amount
of opt-out credit, if any, the defendants are due pursuant to Section XV
(C) above. If Class Counsel and the defendants are unable to agree on
the amount of the credit, they shall submit the issue to the Court for
resolution. Once the amount of the credit has been determined, either
through agreement of the parties or through determination by the Court,
that amount shall be withdrawn from the Account and paid to the
defendants. The amount of credit paid to defendants shall not include
any interest earned on such amount during the time it is deposited in
the Account.
I. Class Monetary Distribution
1. After the Special Master has resolved all timely filed
written challenges to Class Counsel's determination of claimant
eligibility to receive a monetary award from the Fund, and following
final approval of the Decree by the Court, Class Counsel shall submit a
final list of qualified claimants and their respective shares of the
Fund to the Court for review and approval. Upon approval of the final
list by the Court, the remainder of the Fund, plus interest accrued on
that remainder from the time of deposit into the Account, shall be
distributed to all persons included on the final list. All persons on
the final list shall share equally in the Settlement Fund, regardless of
the number of alleged discriminatory incidents in which they were
involved, and regardless of the specific type or severity of the
discrimination alleged. Administration and implementation of the
disbursement shall be the responsibility of Class Counsel and/or their
agents. Class Counsel and/or their agents shall mail all checks to
63
<PAGE>
the last known address of each person included on the final list. Class
Counsel and/or their agents shall use their best efforts to complete the
disbursement of the Fund as expeditiously as possible following the
completion of the final list and review by the Court.
2. In the event that a current or former employee of the
defendants contacts or otherwise seeks to communicate with Class Counsel
regarding the employees eligibility to receive payment from the Fund as
a member of the Settlement Class, Class Counsel shall be permitted to
communicate with the employee to the extent appropriate to fulfill their
obligations as Class Counsel to all class members. The defendants agree
not to raise, assert, or rely upon any federal, state or local rule of
ethics or any provision of any code of professional responsibility that
might otherwise preclude Class Counsel from communicating with the
employee to the extent set forth herein.
J. Objections to Class Settlement
Potential class members who wish to present objections to the
proposed settlement must do so in writing. Written objections must be
received by the central Claims Administrator on or before July 18, 1994.
Within three (3) days of receipt of a written objection, the central
Claims Administrator shall file the objection with the Clerk of Court
and serve copies on Class Counsel and the defendants. The central Claims
Administrator shall retain copies of all written objections in its files
until such time as it is relieved of all duties and responsibilities
under this Decree.
64
<PAGE>
XVI.
ATTORNEY'S FEES, C0STS AND EXPENSES
A. Plaintiffs and the Settlement Class shall be deemed
prevailing parties under applicable law for purposes of the recovery of
statutory attorneys' fees, costs and expenses in this case. Plaintiffs,
the Settlement Class and Class Counsel are entitled under applicable law
to recover their reasonable attorneys' fees, litigation expenses, and
costs that they have expended in this case.
B. The defendants have agreed to pay Class Counsel:
(1) $1,900,000 as their reasonable attorneys' fees,
litigation expenses, and costs for work performed through and including
the date of final approval of the Decree by the Court. This amount
represents the parties' agreement to reach a liquidated figure, taking
into account their best estimate of the fees, costs and expenses Class
Counsel have incurred and will reasonably incur through the date of
final approval of the Decree, and the importance of the case, the
quality of representation, the results obtained, including the size of
the monetary award, the expenditure of time and resources, and the delay
in payment of any compensation;
(2) $1,100,000 as separate compensation for attorneys'
fees, expenses and costs that will be incurred in administering the
claims determination process on behalf of the Settlement Class pursuant
to Section XV of the Decree.
These amounts satisfy any obligation the defendants may have to
pay reasonable attorneys' fees, expenses and costs to the plaintiffs and
any members of the Settlement Class for any and all work performed
through and including the date of final approval of the Decree by the
Court, and for any and all work needed to administer and process claims,
regardless
65
<PAGE>
whether the claims administration and processing work is performed
before or after the date of final approval of this Decree by the Court.
Payment of these amounts shall be made directly to Class
Counsel as follows:
1. $250,000 of the funds allocated for claims
determination and administration shall be paid to Class Counsel within
three (3) business days following preliminary approval of the Decree by
the Court. The purpose of this payment is to provide funds to Class
Counsel to pay start-up costs associated with administering and
processing claims.
2. $1,900,000 and $1,100,000, minus the interim payment of
$250,000 referred to in subparagraph (1) above, for a total of
$2,750,000, shall be paid to Class Counsel within five (5) business days
following final approval of the Decree by the Court.
C. The defendants have further agreed to pay Class Counsel
an award of reasonable attorneys' fees, expenses and costs for work
performed in monitoring the defendants' compliance with terms of the
Consent Decree for the duration of the Decree. The defendants agree that
Class Counsel shall be paid attorneys' fees, expenses and costs in an
amount not to exceed $1,218,000 for legal work performed in monitoring
compliance with the Decree after the date of final approval. Payment of
these fees, expenses and costs shall be made in accordance with the
procedures set forth in this Section below. This amount satisfies any
obligation the defendants may have to pay reasonable attorneys' fees,
expenses and costs to the plaintiffs and any members of the Settlement
Class for any and all work performed in monitoring the terms of the
Consent-Decree for the duration of the Decree.
However, this amount is not intended to satisfy defendants'
obligation to pay for Class Counsel's attorneys' fees, costs, and/or
litigation expenses that are incurred by Class Counsel
66
<PAGE>
in connection with any litigation to enforce the Decree and/or in any
proceeding in which the Decree is challenged, including but not limited
to an appeal from approval of the Decree, where Class Counsel is acting
to defend the Decree after final approval. To the extent permitted under
applicable law, Class Counsel shall be paid for all reasonable
attorneys' fees, costs and litigation expenses incurred in enforcing or
defending the Decree, whether in this Court, other federal or state
trial courts, administrative tribunals, or on appeal. Any such fee
request of Class Counsel shall be made to the Court if the parties
cannot resolve the matter informally.
Payment of fees, costs, and expenses for the monitoring work to
be performed by Class Counsel shall be made as follows:
1. Within five (5) business days following final approval
of the Decree by the Court, defendants shall deposit $370,000 in a
separate escrow account (hereinafter "the Monitoring Account") with a
national banking association designated by Class Counsel and approved by
the Court. On January 30, 1996, defendants shall deposit $250,000 in the
Monitoring Account. On January 30, 1997, defendants shall deposit an
additional $250,000 into the Monitoring Account. Provided that the
Decree has not been terminated, on September 30, 1998, defendants shall
deposit $174,000 into the Monitoring Account. Finally, provided that the
Decree has not been terminated, on September 30, 1999, defendants shall
deposit $174,000 into the Monitoring Account.
2. Funds from the Monitoring Account shall be dispersed to
Class Counsel on January 30 and July 30 of each year during which the
Decree is in effect in amounts reflecting (a) the number of hours of
monitoring work performed during the previous six
67
<PAGE>
month period, multiplied by a reasonable hourly rate, and (b) costs and
expenses incurred during the previous six month period. In the event the
parties cannot agree informally on the amount to be dispersed to Class
Counsel from the Monitoring Account for a particular six month period,
the matter shall be submitted to the Court for resolution.
XVII.
DISPUTE RES0LUTION PROCEDURES
The parties recognize that questions may arise as to whether
the defendants are fulfilling their obligations as set forth herein. In
the spirit of common purpose and cooperation which occasioned this
Consent Order, the parties agree to, and the Court approves, the
following:
A. If differences arise between any of the parties and/or
the Monitor with respect to Denny's compliance with, interpretation of,
or implementation of the terms of this Decree, an earnest effort shall
be made by the parties to resolve such differences promptly in
accordance with the following Dispute Resolution Procedure.
B. If one party believes an issue must be resolved, it
shall promptly notify the other party in writing of the issue and the
facts and circumstances relied upon in asserting its position. The party
notified of the issue shall be given a reasonable period of time (not to
exceed fifteen (15) days) to review the facts and circumstances and to
provide the party raising the issue with its written position including
the facts and circumstances upon which it relies in asserting its
position. Within a reasonable period of time thereafter (not to exceed
fifteen (15) days), the parties shall meet, by telephone or in person,
and attempt to resolve the issue informally. If a party believes that
resolution cannot be achieved following a meeting to
68
<PAGE>
discuss the dispute, the party shall promptly notify the other party in
writing that it is terminating discussions, and shall specify its final
position with regard to resolving the dispute.
C. Nothing in this Section shall prevent any party from
promptly bringing an issue before the Court when, in the moving party's
view, the facts and circumstances require immediate court action. The
moving party's papers shall explain the facts and circumstances that
necessitate immediate court action. If any party brings a matter before
the Court requiring immediate court action, the opposing party(ies)
shall be provided with appropriate notice under the Local Rules of this
District and the Federal Rules of Civil Procedure.
XVIII.
INCIDENTS OF DISCRIMINATION
Plaintiffs agree that they will not seek to hold Denny's in
contempt for a single isolated incident of discrimination by a Denny's
non-supervisory employee unless Denny's management learns of the
incident and Denny's fails to take timely remedial action acceptable to
the Monitor, the United States and Class Counsel. Nothing in this
provision shall preclude plaintiffs (1) from asserting an incident of
discrimination was not isolated and/or that it reflected a pattern or
practice of discrimination in whole or in part; and/or (2) from seeking
to hold persons other than defendants in contempt of this Decree for
such an incident.
XIX.
ENTIRE AGREEMENT; MODIFICATION AND
SEVERABILITY
The Decree constitutes the entire agreement among the parties
and supersedes all prior agreements, written or oral, among the parties.
The only obligations that shall be imposed on
69
<PAGE>
the defendants pursuant to the Decree are those expressly set forth
herein; no additional obligations are to be imposed or implied.
Each provision and term of this Decree shall be interpreted in
such manner as to be valid and enforceable. In the event any provision
or term of the Decree is determined to be or is rendered invalid or
unenforceable, all other provisions and terms of the Decree shall remain
unaffected to the extent permitted by law. If any application of any
provision or term of this Decree to any person or circumstance is
determined to be invalid or unenforceable, the application of such
provision or term to other persons and circumstances shall remain
unaffected to the extent permitted by law.
The parties shall have the right to seek relevant modifications
of the Decree to ensure that its purposes are fully satisfied, provided
that any request for modification has been preceded by good faith
negotiations between the parties.
XX.
CERTIFICATION
The signatories certify that they are authorized to execute the
Decree on behalf of their respective parties.
IT IS SO ORDERED, ADJUDGED, AND DECREED this day of
, 1994.
DEBORAH K. CHASANOW
U.S. District Judge
District of Maryland
70
<PAGE>
The parties consent to the entry of this Order as indicated by
the signatures of counsel below:
For Alfonso M. Dyson, et al., Individually and on Behalf of all
Others Similarly Situated:
/s/ John P. Relman
John P. Relman Neal
E. Kravitz Washington
Lawyers' Committee
for Civil Rights and
Urban Affairs 1400
Eye Street, N.W.
Suite 450 Washington,
D.C. 20005
/s/ Craig A. Hoover
Jonathan Abram Craig
A. Hoover Robert B.
Duncan Hogan &
Hartson 555
Thirteenth Street,
N.W. Washington, D.C.
20004
Counsel for Plaintiffs
Date: May 23, 1994
71
<PAGE>
Counsel for Defendant Flagstar Corporation and Denny's, Inc.
/s/ Maureen E. Mahoney
Thomas L. Pfister
Irwin Goldbloom
Maureen E. Mahoney
Joseph B. Farrell
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Date: May 23, 1994
72
<PAGE>
For Defendants Flagstar Corporation and Denny's, Inc.
Flagstar Corporation, a
Delaware Corporation
By: /s/ H. Stephen McManus
H. Stephen McManus
Its: Executive Vice President,
Restaurant Operations
By: /s/ Robert L. Wynn
Robert L. Wynn, III
Its: Senior Vice President and
General Counsel
Denny's Inc., a California corporation
By: /s/ Robert L. Wynn
Robert L. Wynn, III
Its: Vice President and General Counsel
By: /s/ Robert M. Barrett
Robert M. Barrett
Its: Assistant General Counsel and
Assistant Secretary
<PAGE>
EXHIBIT 11
FLAGSTAR COMPANIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1990 (A) 1991 (A) 1992 (A) 1993 (A) 1994
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Adjustment of common and equivalent shares:
Average number of common shares outstanding
before adjustments....................................... 22,000 22,212 24,883 42,370 42,369
Assumed exercise of stock warrants and options.............. -- -- -- -- 9,854
Total average outstanding and equivalent common shares... 22,000 22,212 24,883 42,370 52,223
Adjustment of net income (loss) applicable to common
shareholders:
Loss from continuing operations............................. $(57,588) $(54,122) $ (39,225) $(1,238,564) $(16,820)
Interest on senior debt, net................................ -- -- -- -- 23,939
Dividends on preferred stock................................ -- -- (6,064) (14,175) (14,175)
Adjusted loss from continuing operations.................... (57,588) (54,122) (45,289) (1,252,739) (7,056)
Income (loss) from discontinued operations.................. (10,225) (13,453) (12,550) (409,671) 392,670
Adjusted income (loss) before extraordinary item and
cumulative effect of change in accounting principle...... (67,813) (67,575) (57,839) (1,662,410) 385,614
Extraordinary items, net of income tax benefits;
1992 -- $85,053: 1993 -- $196; 1994 -- $174........ -- -- (155,401) (26,405) (11,757)
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) applicable to common
shareholders............................................. $(67,813) $(67,575) $(231,074) $(1,700,825) $373,857
Primary earnings (loss) per share applicable to common
shareholders:
On continuing operations.................................... $ (2.62) $ (2.44) $ (1.82) $ (29.56) $ (0.14)
On discontinued operations, net............................. (0.46) (0.60) (0.50) (9.67) 7.52
On income (loss) before extraordinary items and cumulative
effect of change in accounting principle................. (3.08) (3.04) (2.32) (39.23) 7.38
On extraordinary items, net................................. -- -- (6.25) (0.62) (0.22)
On cumulative effect of change in accounting principle,
net...................................................... -- -- (0.72) (0.29) --
On net income (loss)........................................ $ (3.08) $ (3.04) $ (9.29) $ (40.14) $ 7.16
</TABLE>
(A) The Company's warrants, options, 10% Convertible Debentures, and $2.25
Preferred Stock, have been omitted from the computation because such
potentially dilutive securities are anti-dilutive.
<PAGE>
EXHIBIT 11
FLAGSTAR COMPANIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1990 (A) 1991 (A) 1992 (A) 1993 (A) 1994
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Adjustment of common and equivalent shares:
Average number of common shares outstanding
before adjustments....................................... 22,000 22,212 24,883 42,370 42,369
Assumed exercise of stock warrants and options.............. -- -- -- -- 9,854
Assumed conversion of convertible debentures................ -- -- -- -- 4,136
Assumed conversion of preferred stock....................... -- -- -- -- 8,562
Total average outstanding and equivalent common shares... 22,000 22,212 24,883 42,370 64,921
Adjustment of net income (loss) applicable to common
shareholders:
Loss from continuing operations............................. $(57,588) $(54,122) $ (39,225) $(1,238,564) $(16,820)
Interest on senior debt, net................................ -- -- -- -- 23,939
Interest on convertible debentures, net..................... -- -- -- -- 9,628
Adjusted income (loss) from continuing operations........... (57,588) (54,122) (39,225) (1,238,564) 16,747
Income (loss) from discontinued operations.................. (10,225) (13,453) (12,550) (409,671) 392,670
Adjusted income (loss) before extraordinary item and
cumulative effect of change in accounting principle...... (67,813) (67,575) (51,775) (1,648,235) 409,417
Extraordinary items, net of income tax benefits;
1992 -- $85,053: 1993 -- $196; 1994 -- $174........ -- -- (155,401) (26,405) (11,757)
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) applicable to common
shareholders............................................. $(67,813) $(67,575) $(231,074) $(1,700,825) $397,660
Fully diluted earnings (loss) per share applicable to common
shareholders:
On continuing operations.................................... $ (2.62) $ (2.44) $ (1.82) $ (29.56) $ 0.26
On discontinued operations, net............................. (0.46) (0.60) (0.50) (9.67) 6.05
On income (loss) before extraordinary items and cumulative
effect of change in accounting principle................. (3.08) (3.04) (2.32) (39.23) 6.31
On extraordinary items, net................................. -- -- (6.25) (0.62) (0.18)
On cumulative effect of change in accounting principle,
net...................................................... -- -- (0.72) (0.29) --
On net income (loss)........................................ $ (3.08) $ (3.04) $ (9.29) $ (40.14) $ 6.13
</TABLE>
(A) Assumed exercise and conversion of the Company's warrants, options, 10%
Convertible Debentures, and $2.25 Preferred Stock is not presented because
such exercise and conversion would produce an anti-dilutive result.
<PAGE>
EXHIBIT 12
FLAGSTAR COMPANIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Loss from continuing operations before income taxes........... $(68,631) $(69,596) $(45,469) $(1,317,892) $(19,033)
Add:
Net interest expense excluding capitalized interest......... 233,899 236,372 232,058 203,709 220,620
Amortization of debt expense................................ 21,050 11,249 9,362 9,416 6,453
Interest factor in rents.................................... 13,119 13,450 14,814 16,290 16,411
Total earnings (losses)................................ $199,437 191,475 $210,765 $(1,088,477) $224,451
Fixed charges:
Gross interest expense including capitalized
interest................................................. $234,325 236,602 $232,348 $ 203,987 $220,880
Amortization of debt expense................................ 21,050 11,249 9,362 9,416 6,453
Interest factor in rents.................................... 13,119 13,450 14,814 16,290 16,411
Total fixed charges.................................... $268,494 261,301 $256,524 $ 229,693 $243,744
Ratio of earnings (losses) to fixed charges................... -- -- -- -- --
Deficiency in the coverage of fixed charges by earnings
(losses) before fixed charges............................... $ 69,057 $ 69,826 $ 45,759 $ 1,318,170 $ 19,293
</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 21
SUBSIDIARIES OF FLAGSTAR COMPANIES, INC.
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
<S> <C>
Flagstar Corporation Delaware
TWS Funding, Inc. Delaware
Denny's Holdings, Inc. New York
Spartan Holdings, Inc. New York
AMS Holdings, Inc. New York
Canteen Holdings, Inc. New York
TWS 800 Corp. Delaware
TWS 300 Corp. Delaware
TWS 500 Corp. Delaware
TWS 600 Corp. Delaware
TWS 700 Corp. Delaware
TWS 200 Corp. Delaware
El Pollo Loco, Inc. Delaware
Portiontrol Food, Inc. Texas
Eaves Packing Company, Inc. Georgia
Denny's, Inc. California
Proficient Food Company California
DFC Trucking Co. Texas
DFO, Inc. Delaware
Denny's Realty, Inc. Delaware
Quincy's Restaurants, Inc. Alabama
Flagstar Enterprises, Inc.* Alabama
Spartan Realty, Inc. Delaware
Flagstar Systems, Inc. Delaware
Spartan Management, Inc. Delaware
Quincy's Realty, Inc. Alabama
Spardee's Realty, Inc. Alabama
IM Parks, Inc. Delaware
IM Stadium, Inc. Delaware
Canteen Management Services, Inc. Delaware
TW Recreational Services, Inc. Delaware
Volume Services, Inc. Delaware
United Food Management Service, Inc., N.Y. New York
Volume Services, Inc. Kansas
Special Events of Texas, Inc. Texas
Events Center Catering, Inc. Wyoming
Denny's Management, Inc. Delaware
CB Development #6, Inc. California
C B R Development Co. Inc. California
Danny's Do Nuts #10, Inc. California
Denny's Restaurants of Idaho, Inc. Idaho
La Mirada Enterprises No. 1, Inc. Texas
La Mirada Enterprises # 5, Inc. Wisconsin
La Mirada Enterprises #6, Inc. Wisconsin
La Mirada Enterprises #7, Inc. Wisconsin
La Mirada Enterprises #8, Inc. Wisconsin
La Mirada Enterprises #9, Inc. Wisconsin
La Mirada Enterprises #14, Inc. Maryland
WDH Services, Inc. Delaware
Denny's, Inc. Charitable Fund California
Harold Butler Enterprises #362, Inc. California
Harold Butler Enterprises #607, Inc. Delaware
Denny's of Canada, Ltd. British Columbia
Denny's Restaurants of Canada, Ltd. Federal (Canada)
</TABLE>
* Flagstar Enterprises, Inc. of Delaware is an assumed name for use only in
Ohio.
<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 February 17, 1995 appearing in this Annual Report on Form 10-K of Flagstar
Companies, Inc. for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 27, 1995
<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-K for the year ended December 31, 1994 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 DEC-31-1994
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0 0
630 0
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