UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1996, or
[ ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
Commission file number 0-18051
FLAGSTAR COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
203 East Main Street
Spartanburg, South Carolina 29319-9966
(Address of principal executive offices)
(Zip Code)
(864) 597-8000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes [X] No [ ]
As of November 1, 1996, 42,434,669 shares of the registrant's Common Stock, par
value $0.50 per share, were outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Flagstar Companies, Inc.
Statements of Consolidated Operations
For the Three Months and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenue $703,838 $676,899 $1,880,834 $1,994,826
-------- -------- ---------- ----------
Operating Expenses:
Product costs 206,777 229,446 551,647 686,206
Payroll and benefit 258,613 229,368 708,749 696,940
Depreciation and amortization 33,555 32,802 92,606 99,800
Utilities expense 30,698 27,361 77,781 73,771
Other 125,868 101,634 330,877 294,349
-------- -------- --------- ---------
655,511 620,611 1,761,660 1,851,066
-------- -------- --------- ---------
Operating Income 48,327 56,288 119,174 143,760
Other Charges:
Interest and debt expense - net 68,872 58,555 189,131 173,982
Other non-operating expenses - net 92 497 228 884
-------- -------- -------- ---------
Loss From Continuing Operations
Before Income Taxes (20,637) (2,764) (70,185) (31,106)
Provision For (Benefit From) Income Taxes (8,118) 5 (12,923) 400
-------- ------- -------- ---------
Loss From Continuing Operations (12,519) (2,769) (57,262) (31,506)
-------- ------- -------- ---------
Income From Discontinued
Operations -- 16,625 -- 517
Provision For (Benefit From) Income
Taxes On Discontinued Operations -- 91 -- (140)
-------- ------- --------- ---------
Income From Discontinued
Operations, Net -- 16,534 -- 657
-------- ------- --------- ---------
Extraordinary Items, Net of Income Tax
Provision of $25 for the
three months and nine months
of 1995 -- 466 -- 466
-------- -------- -------- ---------
Net Income (Loss) (12,519) 14,231 (57,262) (30,383)
Dividends on Preferred Stock (3,543) (3,543) (10,631) (10,631)
-------- -------- -------- ---------
Net Income (Loss) Applicable to Common
Stockholders (16,062) $10,688 $(67,893) $(41,014)
======== ======== ======== =========
Loss Per Share Applicable to Common
Stockholders:
Loss From Continuing Operations $ (0.38) $(0.15) $ (1.60) $ (0.99)
Income From Discontinued Operations, Net -- 0.39 -- 0.01
Extraordinary Item, Net -- 0.01 -- 0.01
-------- -------- -------- ---------
Net Income (Loss) $ (0.38) $ 0.25 $ (1.60) $ (0.97)
======== ======== ======== =========
Average Outstanding and Equivalent
Common Shares 42,434 42,434 42,434 42,429
======== ======== ======== =========
</TABLE>
2
<PAGE>
Flagstar Companies, Inc.
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(Unaudited)
September 30, December 31,
(In thousands) 1996 1995
-------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 105,544 $ 196,966
Receivables, less allowance for doubtful
accounts of:
1996 - $1,852; 1995 - $2,506 23,163 29,844
Merchandise and supply inventories 32,365 32,445
Other 36,696 26,087
--------- --------
197,768 285,342
--------- ---------
Property:
Property owned (at cost):
Land 263,440 255,719
Buildings and improvements 887,501 838,956
Other property and equipment 513,520 484,684
--------- ---------
Total property owned 1,664,461 1,579,359
Less accumulated depreciation 608,813 569,079
--------- ---------
Property owned - net 1,055,648 1,010,280
--------- ---------
Buildings and improvements, vehicles, and
other equipment held under capital
leases 200,313 170,859
Less accumulated amortization 90,101 76,778
--------- ---------
Property held under capital leases - net 110,212 94,081
--------- ---------
1,165,860 1,104,361
--------- ---------
Other Assets:
Excess of purchase price over net
assets acquired - net 218,843 --
Other intangible assets - net 29,361 22,380
Deferred financing costs - net 65,295 63,482
Other 47,060 32,186
--------- ---------
360,559 118,048
--------- ---------
Total Assets $1,724,187 $1,507,751
========= =========
3
<PAGE>
Flagstar Companies, Inc.
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(Unaudited)
September 30, December 31,
(In thousands) 1996 1995
--------- -------------
Liabilities
Current Liabilities:
Current maturities of long-term debt $ 54,542 $ 38,835
Accounts payable 119,651 125,467
Accrued salaries and vacations 55,710 41,102
Accrued insurance 54,068 48,060
Accrued taxes 33,446 30,705
Accrued interest and dividends 71,954 42,916
Other 80,187 80,445
--------- ---------
469,558 407,530
--------- ---------
Long-Term Liabilities:
Debt, less current maturities 2,196,612 1,996,111
Deferred income taxes 17,906 18,175
Liability for self-insured claims 59,706 53,709
Other non-current liabilities and
deferred credits 179,275 163,203
---------- ----------
2,453,499 2,231,198
---------- ----------
Total Liabilities 2,923,057 2,638,728
---------- ----------
Shareholders' Deficit (1,198,870) (1,130,977)
---------- ----------
Total Liabilities & Shareholders' Deficit $1,724,187 $1,507,751
========== ==========
4
<PAGE>
Flagstar Companies, Inc.
Statements of Consolidated Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Nine Months Ended
September 30,
1996 1995
------- -------
(In thousands)
Cash Flows From (Used In) Operating Activities:
Net loss $(57,262) $(30,383)
-------- --------
Adjustments to reconcile net loss
to cash flows from operating activities:
Depreciation and amortization of property 85,320 94,940
Amortization of intangible assets 7,286 4,860
Amortization of deferred financing costs 6,183 4,844
Deferred income tax benefit (269) (1,102)
Extraordinary items, net -- (466)
Equity in income from discontinued
operations, net -- (657)
Other (11,578) (19,198)
Decrease (increase) in assets (net of accounts
relating to sold subsidiaries and acquired
business):
Receivables 8,910 1,137
Inventories (865) (6,382)
Other current assets (10,482) (9,736)
Other assets (15,925) (2,585)
Increase (decrease) in liabilities (net of accounts
relating to sold subsidiaries and acquired
business):
Accounts payable (21,661) (26,975)
Accrued salary and vacations 1,261 (2,198)
Accrued taxes (6,018) 11,162
Other accrued liabilities (6,541) 7,973
Other non-current liabilities
and deferred credits 1,453 (12,430)
-------- --------
Total adjustments 37,074 43,187
-------- --------
Net cash flows from (used in) operating activities (20,188) 12,804
-------- --------
Cash Flows From (Used In) Investing Activities:
Purchase of property (24,699) (78,464)
Proceeds from disposition of property 10,499 24,142
Proceeds from sale of processing facilities 60,592 --
Acquisition of business, net of cash acquired (127,068) --
Proceeds from sale of distribution subsidiary -- 122,500
Receipts from discontinued operations -- 6,948
Other long-term assets - net 421 (1,664)
-------- --------
Net cash flows from (used in) investing activities (80,255) 73,462
-------- --------
5
<PAGE>
Flagstar Companies, Inc.
Statements of Consolidated Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Nine Months Ended
September 30,
1996 1995
------ -------
(In thousands)
Cash Flows From (Used in) Financing Activities:
Net borrowings under credit
agreement $ 56,000 $ --
Long-term debt payments (28,353) --
Deferred financing costs (7,995) (55,719)
Cash Dividends on Preferred Stock (10,631) (10,631)
------- ---------
Net cash flows from (Used In) financing
activities 9,021 (66,350)
------- ---------
(Decrease) increase in cash and
cash equivalents $(91,422) 19,916
Cash and Cash Equivalents at:
Beginning of period 196,966 66,720
------- --------
End of period $105,544 $ 86,636
======= ========
6
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (Unaudited)
Note 1. Basis of Presentation
Flagstar Companies, Inc. ("FCI" or, together with its subsidiaries, the
"Company") is the parent holding company of Flagstar Corporation ("Flagstar").
Flagstar, through its wholly-owned subsidiaries, Denny's Holdings, Inc.,
Spartan Holdings, Inc. and FRD Acquisition Co. (and their respective
subsidiaries), owns and operates the Carrows, Coco's, Denny's, El Pollo Loco and
Quincy's Family Steakhouse restaurant brands and is the largest franchisee of
Hardee's.
The consolidated financial statements of FCI and its subsidiaries for the three
month and nine month periods ended September 30, 1996 and September 30, 1995 are
unaudited and include all adjustments management believes are necessary for a
fair presentation of the results of operations for such interim periods. All
such adjustments are of a normal and recurring nature. The interim consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and notes thereto for the year ended December 31, 1995 and
the related Management's Discussion and Analysis of Financial Condition and
Results of Operations, both of which are contained in the Flagstar Companies,
Inc. 1995 Annual Report on Form lO-K. The results of operations for the three
months and nine months ended September 30, 1996 are not necessarily indicative
of the results for the entire fiscal year ending December 31, 1996.
Note 2. Acquisition
On May 23, 1996, the Company, through FRD Acquisition Co. ("FRD"), a newly
formed subsidiary, consummated the acquisition of the Coco's and Carrows
restaurant chains consisting of 347 company-owned units within the family dining
segment. The acquisition price of $306.5 million plus acquisition costs (which
was paid in exchange for all of the outstanding stock of FRI-M Corporation
("FRI-M"), the subsidiary of Family Restaurants Inc. ("FRI") which owns the
Coco's and Carrows chains) was financed with $125.0 million in cash ($75.0
million of which was provided from the Company's cash balances and the
remaining $50.0 million pursuant to bank term loans which totaled $56.0 million,
with the remaining $6.0 million being used to pay transaction fees), the
issuance of $150.0 million in senior notes of FRD to the seller and the
assumption of certain capital lease obligations of approximately $31.5 million.
Also, on September 4, 1996, an additional $6,897,000 principal amount of notes
were issued by FRD to FRI pursuant to the purchase price adjustment provisions
of the Stock Purchase Agreement. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the assets and liabilities and
results of operations of Coco's and Carrows are included in the Company's
consolidated financial statements for the period subsequent to the acquisition.
In accordance with the purchase method of accounting, the purchase price has
been allocated to the underlying assets and liabilities of FRI-M based on their
estimated respective falr values at the date of acquisition. Because the
purchase price is subject to adjustment and the final allocation of the purchase
price is dependent upon certain valuations and other studies not yet completed,
the current allocation and resulting goodwill are preliminary in nature. Based
on this preliminary valuation, the excess cost over the fair value of net assets
acquired is $221.0 million and is being amortized over a 40-year period on a
straight line basis. The Company anticipates finalizing this allocation by the
end of 1996, and based on the valuations and studies currently available, the
Company estimates that some portion of the purchase price will be reallocated
from goodwill to property, plant and equipment and to trade names. No other
significant adjustments to the preliminary allocation are expected.
7
<PAGE>
The following unaudited pro forma financial information shows the results of
operations of the Company as though the acquisition occurred as of January 1,
1995. These results include the straight-line amortization of the excess of
purchase price over net assets acquired over a 40-year period, a reduction
of overhead expenses due to anticipated cost savings and efficiencies
from combining the operations of the Company and FRI-M, an increase in
interest expense as a result of the debt issued to finance the
acquisition, and a reduction in income tax expense to reflect the fact that
the Company's net operating losses will offset FRI-M's separate income tax
provision (except for current foreign and state income taxes) when calculated
on a consolidated basis.
(In thousands, except per share
amounts)
Nine Months Ended
September 30,
1996 1995
--------- ---------
Revenue $2,076,777 $2,367,402
Loss from continuing operations (55,184) (24,176)
Net Loss (55,184) (23,053)
Loss per common share:
Loss from continuing operations (1.55) (.82)
Net loss (1.55) (.79)
The pro forma financial information presented above does not purport to be
indicative of either (i) the results of operations had the acquisition taken
place on January 1, 1995 or (ii) future results of operations of the combined
businesses.
Note 3. Divestitures
During the third quarter of 1996, the Company sold Portion-Trol Foods, Inc. and
the Mother Butler Pies division of Denny's, its two food processing operations.
These divestitures complete the sale of all non-restaurant subsidiaries of the
Company. Revenue generated by these operations for the three months ended
September 30, 1996 and 1995 totaled $0.3 million and $4.4 million, respectively.
Revenue for the nine months ended September 30, 1996 and 1995 totaled $1.5
million and $12.2 million, respectively. Consideration from the sales totaled
approximately $70.3 million including the receipt of approximately $60.6 million
in cash. In conjunction with each of the sales, the Company entered into a five
year purchasing agreement with the acquirer. These transactions resulted in
deferred gains totaling approximately $40.6 million that are being amortized
over the life of the respective purchasing agreements as a reduction of product
cost.
Note 4. Commitments and Contingencies
In 1994, Flagstar was advised of proposed deficiencies from the Internal Revenue
Service for federal income taxes totaling approximately $12.7 million. The
proposed deficiencies relate to examinations of certain income tax returns filed
by the Company and Flagstar for the seven fiscal periods ended December 31,
1992. In the third quarter of 1996, the Company recorded a $7.3 million current
federal tax benefit related to the reversal of certain reserves established in
connection with the proposed deficiencies. This action was taken as a direct
result of the passage of the Small Business Jobs Protection Act ("the Act") in
August 1996. The Act included a provision that clarified Internal Revenue Code
Section 162(k) to allow for the amortization of borrowing costs incurred by a
corporation in connection with a redemption of its stock. As the Company
believes the proposed deficiencies are substantially incorrect, it intends to
continue to contest the remaining proposed deficiencies.
8
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results of Operations
The following discussion is intended to highlight significant changes in
financial position as of September 30, 1996 and the results of operations for
the three months and nine months ended September 30, 1996 as compared to the
corresponding 1995 periods.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including but not
limited to those discussed below. Forward-looking information provided by the
Company pursuant to the safe harbor established under the Private Securities
Litigation Reform Act of 1995 should be evaluated in the context of these
factors.
Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
General:
Revenue from continuing operations for the third quarter of 1996 increased by
approximately $26. 9 million or 4.O% as compared with the same period in 1995.
The revenue increase is attributable to the first full quarter of operating
contribution from the Coco's and Carrows restaurant brands which were acquired
in May 1996 and had revenue in the quarter totaling $122.1 million. This
increase was somewhat offset by the impact of 76 fewer Company-operated
restaurants (excluding the impact of the Coco's and Carrows acquisition) in
comparison to the prior year quarter, lower comparable store sales at Hardee's
and Quincy's, and the impact of the sale of Denny's distribution business,
Proficient Food Company ("PFC") in September 1995, which had revenue of $57.2
million in the prior year quarter. During the quarter, comparable store sales
for Denny's and El Pollo Loco increased by 0.9% and 6.7%, respectively; however
due to a 41 unit decrease in Denny's company-operated restaurants in comparison
to the prior year quarter end, only El Pollo Loco experienced an increase in
total revenue.
Operating expenses from continuing operations increased by $34.9 million during
the third quarter of 1996 as compared to the same quarter last year. Similar to
the revenue increase, the increase in operating expenses was due primarily to
the first full quarter of the operations of the Coco's and Carrows chains which
had combined operating expenses of $115.2 million. In addition, gains from the
sales of restaurants to franchisees reflected in operating expenses decreased in
comparison to the prior quarter, totaling $0.9 million in the current quarter
compared to $11.8 million in the prior year quarter and costs to administer the
consent decree entered into in 1993 increased $1.3 million over the prior year
quarter. These expense increases were offset in part by decreased expenses
associated with the decline in operating revenue discussed above, a reduction in
depreciation and amortization expense during 1996 due to a charge for impaired
assets of approximately $51.4 million taken in the fourth quarter of 1995 and
improved margins at Denny's, Hardee's and El Pollo Loco.
Interest and debt expense from continuing operations and discontinued operations
totaled $68.9 million during the third quarter of 1996 as compared with $63.2
million during the comparable period of 1995. This increase relates primarily
to the interest and debt expense resulting from the FRD acquisition which
totaled $7.6 million in the third quarter and is offset, in part, by the
impact of a lower level of outstanding debt in the 1996 quarter (excluding
the impact of the FRD acquisition) resulting from the
prepayment of approximately $25.0 million of senior notes on September 30,
1995.
9
<PAGE>
The provision (benefit) for income taxes from continuing operations for the
quarter has been computed based on management's estimate of the annual effective
income tax rate applied to loss before taxes. The Company recorded an income tax
benefit reflecting an effective income tax rate of approximately 39% for the
1996 quarter compared to a provision for the comparable 1995 quarter reflecting
an approximate rate of (0.2%). The change in the effective income tax rate from
the prior year can be attributed to the recognition of anticipated refunds due
to the carryback of current year tax losses and the reversal of certain
reserves established in prior years in connection with proposed deficiencies
(See Note 4. to the accompanying consolidated financial statements for
additional information).
The loss from continuing operations was $12.5 million in the third quarter of
1996 as compared to $2.8 million for the prior year quarter. The net loss
for the 1996 quarter was $12.5 million compared to net income for the same
period in the prior year of $14.2 million. The prior year quarter included $16.5
of net income from discontinued operations.
Restaurant Operations:
The table below summarizes restaurant unit activity for the three months ended
September 30, 1996.
<TABLE>
<CAPTION>
Company to
Ending Units Units Units Franchise Ending Units
6/30/96 Opened Closed (Turnkeys) 9/30/96
------------ ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Denny's
Company owned 912 -- -- (10) 902
Franchised units 628 18 (3) 10 653
International licensees 25 -- -- -- 25
----- -- -- -- -----
1,565 18 (3) -- 1,580
----- -- -- -- -----
Hardee's 580 -- (1) -- 579
----- -- -- -- -----
Quincy's 199 -- -- -- 199
----- -- -- -- -----
El Pollo Loco
Company owned 98 1 -- (1) 98
Franchised units 126 1 -- 1 128
International licensees 7 1 -- -- 8
----- -- -- -- -----
231 3 -- -- 234
----- -- -- -- -----
Coco 's
Company owned 184 -- -- -- 184
Franchised units 6 -- -- -- 6
International licensees 261 5 -- -- 266
----- -- -- -- -----
451 5 -- -- 456
----- -- -- -- -----
Carrows 162 -- -- -- 162
----- -- -- -- -----
Total Restaurant Activity 3,188 26 (4) -- 3,210
===== == == == =====
</TABLE>
10
<PAGE>
Denny's:
Three Months Ended
September 30, 1996
----------------------------------
(In thousands) Increase/
1996 1995 (Decrease)
-------- -------- ----------
Revenue:
Restaurants $332,319 $339,150 $ (6,831)
Processing and Distribution 325 61,669 (61,344)
------- ------- -------
Total 332,644 400,819 (68,175)
Operating Expenses 296,459 356,236 (59,777)
-------- -------- --------
Operating Income $ 36,185 $ 44,583 $ (8,398)
======== ======== ========
Denny's revenue decreased by $68.2 million during the 1996 quarter as compared
with the 1995 quarter. This decrease can be attributed to several factors, the
most significant being the impact of the sale of PFC in September 1995, which
had revenue of $57.2 million in the prior year quarter. Revenue at Denny's
restaurants decreased by $6.8 million due primarily to a 41-unit net decrease in
the number of Company-owned restaurants at September 30, 1996 in comparison to
September 30, 1995. This shift is consistent with the Company's strategy of
focusing on its franchise operations and the sale of restaurants to franchisees,
along with selected restaurant closures. Also as a result of this strategy,
franchise revenue increased $2.1 million over the comparable 1995 quarter
reflecting an 83 unit increase in the number of franchised units at the 1996
quarter-end as compared with the 1995 quarter-end. In spite of overall softness
in the midscale restaurant market, comparable store sales at Company-owned
Denny's increased by 0.9%. This increase reflects a decrease in traffic of 2.0%
which is partially attributable to the fact that Denny's ran limited media
throughout the Summer Olympics television coverage during July and August. The
decline in guest counts was more than offset by an increase in average check of
2.9% primarily related to Denny's new Grand Value Dinner and a value menu price
increase which occurred in early September. During the third quarter of 1996,
the outside revenue of Denny's food processing subsidiary, Portion-Trol Foods,
Inc., decreased by $4.1 million compared to the 1995 quarter. This subsidiary
was sold on September 27, 1996 and completed the sale of all non-restaurant
subsidiaries of the Company, sharpening the Company's focus on operating and
growing its restaurant business.
Operating expenses for the third quarter of 1996 decreased by $59.8
million, as compared to the same period of 1995. $54.0 million of
this decrease is attributable to the sale of PFC. The remaining
decrease is due to the 41-unit net decrease in the number of
Company-owned restaurants, decreased outside sales at Denny's food
processing subsidiary and a reduction in depreciation and amortization
expense during 1996 due to a charge for impaired assets of approximately
$23.9 million taken in the fourth quarter of 1995. Denny's operating
expenses included gains on the sale of restaurants to franchisees of
$0.8 million during the current year quarter as compared to $10.4
million in the prior year quarter.
Hardee's:
Three Months Ended
September 30,
-----------------------------------
(In thousands)
Increase/
1996 1995 (Decrease)
-------- -------- -----------
Revenue $154,182 $167,359 $(13,177)
Operating Expenses 142,097 159,596 (17,499)
-------- -------- --------
Operating Income $ 12,085 $ 7,763 $ 4,322
======== ======== ========
Hardee's revenue decreased by S13.2 million during the 1996 quarter as compared
with the 1995 period principally due to continued aggressive value focused
promotions by competitors within the quick-service segment and a 22-unit net
decrease in the number of restaurants
11
<PAGE>
operated at the 1996 quarter-end as compared with the 1995 quarter-end.
Comparable store sales decreased by 6.1% during the third quarter of 1996 as
compared with the comparable period of 1995 and reflect declines in average
check of 0.8% and in traffic of 5.4%.
Operating expenses for the 1996 quarter as compared to the same period of 1995
decreased by $17.5 million resulting in a 56% improvement in operating income
over the prior year quarter. The decrease in expenses reflects lower comparable
store sales, fewer restaurants operated versus the 1995 quarter, a reduction in
depreciation and amortization expense during the 1996 quarter due to a charge
for impaired assets of approximately $23.7 million taken in the fourth quarter
of 1995 and management's increased focus on operating efficiencies. In this
regard, management has reduced general and administrative expenses in the field
and at the support center, streamlined management reporting relationships, and
reduced in-store level labor.
Quincy's
Three Months Ended
September 30,
------------------------------------
(In thousands) Increase/
1996 1995 (Decrease)
------- ------- ---------
Revenue $62,207 $76,285 $(14,078)
Operating Expenses 61,418 69,632 (8,214)
------- ------- --------
Operating Income $ 789 $ 6,653 $ (5,864)
======= ======= ========
Reflecting continued competitive conditions in the family steakhouse segment,
Quincy's revenue decreased by $14.1 million during the 1996 quarter from the
comparable period of 1995. Comparable store sales decreased by 17.5% during the
1996 quarter as compared to the 1995 quarter, reflecting decreases in traffic of
18.9% which were slightly offset by an increase in average check of 1.7%. In
addition, the Company had a four unit net decrease in the number of restaurants
at quarter-end 1996 as compared to quarter-end 1995. The significant decline in
comparable store sales resulted primarily from a difficult comparison against
the prior year quarter which benefited from several newly remodeled units,
as well as the unsuccessful introduction of a new steak product earlier in the
year. Sales were also negatively impacted by a decision by management to
curtail advertising during August and September in order to address problems
relative to training, food quality, service and facilities. In this regard,
during the third quarter, new products were developed and tested, training
was implemented at all levels, facilities were improved and management made
plans to re-launch the Quincy's brand during the fourth quarter of 1996 by
rolling out a new value steak promotion (the "No Mistake Steak") which
introduces a number of new products accompanied by increased media advertising.
Operating expenses for the 1996 quarter as compared to 1995 decreased by $8.2
million principally due to the decrease in comparable store sales described
above. The decline in expenses fell short of the decline in revenue reflecting
certain labor and other fixed costs which could not be reduced in proportion to
the significant decrease in sales.
El Pollo Loco:
Three Months Ended
(In thousands) September 30,
--------------------------------
Increase/
1996 1995 (Decrease)
------- ------- ----------
Revenue $32,673 $32,436 $ 237
Operating Expenses 29,205 28,533 672
------- ------- -----
Operating Income $ 3,468 $ 3,903 $(435)
======= ======= =====
12
<PAGE>
Revenue at El Pollo Loco increased by $0.2 million during the 1996 quarter from
the comparable 1995 quarter despite a nine unit decrease in number of
restaurants operated at September 30, 1996 as compared to September 30, 1995.
The decrease in the number of restaurants operated by the Company is in
furtherance of the Company's franchise strategy and contributed to the 21 unit
increase in the number of franchised restaurants operated at September 30, 1996
as compared to September 30, 1995. Franchise revenue during the quarter
increased $0.5 million over the comparable prior year quarter. Comparable store
sales for Company-owned restaurants increased by 6.7% during the 1996 quarter
over the comparable 1995 period and reflect an increase in traffic of 9.5%
which is primarily attributable to continued favorable customer response to
the Pollo Bowl promotion and Foster's Freeze rollout, as well as large chicken
meal promotions during the period. The guest count increase was partially offset
by a 2.6% decrease in average check which reflects management's commitment to
maintaining El Pollo Loco's price competitiveness within its industry segment.
The $0.7 million increase in operating expenses in the third quarter is
principally due to a decrease in gains recognized on the sale of restaurants to
franchisees during the 1996 period of $0.1 million compared to $1.4 million in
the 1995 quarter. Such increase was partially offset by reductions in direct
labor costs which have resulted from improved labor scheduling and staffing
initiatives and the sale of lower volume restaurants which generally operate at
lower margins.
Coco's and Carrows:
On May 23, 1996, the Company through its wholly-owned subsidiary, FRD, acquired
the Coco's and Carrows restaurant chains consisting of 347 units operating in
the family dining segment. The Company's operating results for the third quarter
of 1996 include revenue of $67.3 million for Coco's and $54.8 million for
Carrows. Comparable store sales for the quarter decreased 3.3% for Coco's
and 4.1% for Carrows as compared to the comparable 1995 period. The decrease in
comparable store sales is partially due to lower media spending during the
Summer Olympics television coverage in July and August. During the quarter,
operating expenses for Coco's and Carrows were $63.6 million and $51.6
million, respectively, and resulted in operating income of $3.7 million for
Coco's and $3.2 million for Carrows. (For further details regarding Coco's
and Carrows operating results please refer to Quarterly Report on Form
10Q for the period ended September 26, 1996 for FRD Acquisition Co.
which was filed with the Securities and Exchange Commission on
November 12, 1996 (the "FRD 10Q")).
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended September
30, 1995
General:
Revenue from continuing operations for the first nine months of 1996 decreased
by approximately $114.0 million or 5.7% as compared with the same period in
1995. The revenue decrease reflects the impact of 76 fewer company-operated
restaurants as compared with the prior year (excluding the impact of the Coco's
and Carrows acquisition), lower comparable store sales at Hardee's and Quincy's,
the impact of adverse winter weather conditions in the southeast, and the sale
of PFC in September 1995, which had revenue of $195.6 million in the prior year
period. These decreases are offset, in part, by an increase of $171.4 million of
revenue in the 1996 period due to the acquisition of the Coco's and Carrows
restaurant brands in May 1996. During the period, comparable store sales for
Denny's and El Pollo Loco increased by 1.9% and 7.8%, respectively; however
due to a 41 unit decrease in Denny's Company-operated restaurants, only El Pollo
Loco experienced an increase in total revenue.
Operating expenses from continuing operations decreased by $89.4 million during
the nine months ended September 30, 1996 as compared to the same period last
year. This decrease reflects lower expenses associated with the decline in
operating revenue of Hardee's and Quincy's and a reduction in depreciation and
amortization expense during 1996 due to a charge for impaired assets of
approximately $51.4 million taken in the fourth quarter of 1995. These
decreases were offset, in part, by operating expenses of the Coco's and
13
<PAGE>
Carrows chains totaling $160.6 million (included for the first time in 1996), an
increase of $3.0 million in comparison to the prior year period in the costs to
administer the consent decree entered into in 1993, and lower gains from the
sale of restaurants to franchisees. Such gains totaled $7.5 million in the
current period compared to $22.0 million in the prior year period.
Interest and debt expense from continuing operations and discontinued
operations totaled $189.1 million for the nine months ended September 30,
1996 as compared to $188.2 million during the comparable period of
1995. The net increase is due principally to the addition of
$10.1 million interest and debt expense associated with the Coco's
and Carrows acquisition. This increase is largely offset by the
following: a decrease in interest expense of approximately $2.0
million due to a lower level of principal outstanding during the
1996 period (excluding the impact of the Coco's and Carrows
acquisition) resulting from the prepayment of approximately
$25.0 million of senior notes on September 30, 1995; a decline
of $1.2 million during the 1996 period associated with lower interest
rates on interest rate exchange agreements; an increase in interest
income of $1.9 million during 1996 due to increased cash and
cash equivalents prior to the acquisition of Coco's and
Carrows; and the elimination of $1.5 million in interest expense
associated with various operations that were sold in 1995.
The provision (benefit) for income taxes from continuing operations for the
nine months ended September 30, 1996 has been computed based on management's
estimate of the annual effective income tax rate applied to loss before taxes.
The Company recorded an income tax benefit reflecting an effective income tax
rate of approximately 18% for the 1996 period compared to a provision for the
comparable 1995 period reflecting an approximate rate of (1%). The change from
the prior year can be attributed to the recognition of anticipated refunds in
the current period due to the carryback of current year tax losses and the
reversal of certain reserves established in prior years in connection with
proposed deficiencies (See Note 4. to the accompanying consolidated financial
statements for additional information).
The loss from continuing operations, was $57.3 million in the first nine months
of 1996 as compared with $31.5 million for the prior year period. The net loss
for the 1996 period was $57.3 million compared to a net loss for the same period
in the prior year of $30.4 million. The prior year period included $0.7 million
of net income from discontinued operations.
14
<PAGE>
Restaurant Operations:
The table below summarizes restaurant unit activity for the nine months ended
September 30, 1996 (a).
Company to
Ending Units Units Units Franchise Ending Units
12/31/95 Opened Closed (Turnkeys) 9/30/96
----------- -------- ------- ---------- ------------
Denny's
Company owned 933 -- (17) (14) 902
Franchised units 596 52 (9) 14 653
International licensees 24 1 -- -- 25
----- -- --- -- -----
1,553 53 (26) -- 1,580
----- -- --- -- -----
Hardee's 593 -- (14) -- 579
----- -- --- -- -----
Quincy's 203 -- (4) -- 199
----- -- --- -- -----
El Pollo Loco
Company owned 103 1 -- (6) 98
Franchised units 112 10 -- 6 128
International licensees 2 6 -- -- 8
----- -- --- -- -----
217 17 -- -- 234
----- -- --- -- -----
Subtotal 2,566 70 (44) -- 2,592
----- -- --- -- -----
Coco's (a)
Company owned 188 -- (4) -- 184
Franchised units 6 -- -- -- 6
International licensees 252 14 -- -- 266
----- -- --- -- ------
446 14 (4) -- 456
----- -- --- -- ------
Carrows (a) 161 2 (1) -- 162
----- -- --- -- ------
Total Restaurant Activity 3,173 86 (49) -- 3,210
===== == === == ======
(a) Coco's and Carrows were acquired by Flagstar in May 1996. Year-to-date data
is provided for informational purposes only. At the acquisition date, Coco's and
Carrows had the following units
Coco's
Company owned 184
Franchised units 6
International licensees 257
Carrows 163
-----
610
=====
15
<PAGE>
Denny's:
Nine Months Ended
(In thousands) September 30,
---------------------------------------
Increase/
1996 1995 (Decrease)
-------- --------- ----------
Revenue:
Restaurants $954,194 $ 965,092 $(10,898)
Processing and Distribution 1,530 207,740 (206,210)
-------- --------- --------
Total 955,724 1,172,832 (217,108)
Operating Expenses 861,784 1,065,444 (203,660)
-------- --------- --------
Operating Income $ 93,940 $ 107,388 $(13,448)
======== ========= ========
Denny's revenue decreased by $217.1 million during the first nine months of 1996
as compared with the 1995 period. This decrease can be attributed to several
factors, the most significant being the impact of the sale of PFC in September
1995. PFC had revenue of $195.6 million in the prior year period. Revenue at
Denny's restaurants decreased by $10.9 million primarily due to a 41-unit net
decrease in the number of Company-owned restaurants at September 30, 1996 as
compared to September 30, 1995 pursuant to the Company's strategy of focusing on
its franchise operations and the sale of restaurants to franchisees, along with
selected restaurant closures. Also as a result of this strategy, franchise
revenue increased $5.1 million over the comparable 1995 period reflecting an 83
unit increase in the number of franchised units at the 1996 period-end as
compared with the 1995 period-end. In spite of overall softness in the midscale
restaurant market, comparable store sales at Company-owned Denny's increased by
1.9% reflecting an increase in traffic of 0.6% and an increase in average check
of 1.2%. These increases are primarily attributable to the successful launch of
Denny's tiered menu items and a summer salad promotion as well as Grand Value
Meals during 1996. During the first nine months of 1996 the outside revenue of
Denny's food processing subsidiary, Portion-Trol Foods, Inc. decreased by $10.6
million compared to the comparable 1995 period. Portion-Trol was sold on
September 27, 1996.
Operating expenses for the first nine months of 1996 decreased by $203.7
million, as compared to the same period of 1995. $185.5 million of this decrease
is attributable to the sale of PFC. The remaining decrease is due primarily to
the 41-unit net decrease in the number of Company-owned restaurants, decreased
outside sales at Denny's food processing subsidiary and a reduction in
depreciation and amortization expense during 1996 due to a charge for impaired
assets of approximately $23.9 million taken in the fourth quarter of 1995. These
decreases were offset, in part, by higher commodity prices, specifically bacon,
grain, dairy, egg, and bread over the prior year period. Denny's operating
expenses included gains on the sale of restaurants to franchisees of $6.9
million during the current year period as compared to $18.9 million in the prior
year.
Hardee's:
Nine Months Ended
September 30,
-------------------------------
(In thousands)
Increase/
1996 1995 (Decrease)
-------- -------- ---------
Revenue $459,247 $500,530 $(41,283)
Operating Expenses 434,377 470,294 (35,917)
-------- -------- --------
Operating Income $ 24,870 $ 30,236 $ (5,366)
======== ======== ========
Hardee's revenue decreased by $41.3 million during the first nine months of 1996
as compared with the 1995 period. A 22 unit decrease in the number of
restaurants operated at the end of the 1996 period compared to the 1995 period
contributed to the decrease in revenue. In addition, comparable store sales
decreased 6.9% during the 1996 period as compared to 1995 reflecting, among
other things, the impact of continued aggressive promotions by competitors
within the quick-service segment and inclement weather during the
16
<PAGE>
first quarter. The decrease in comparable store sales reflects a decline of 5.8%
in traffic and 1.1% in average check.
Operating expenses in the first nine months of 1996 as compared with the same
period of 1995 decreased by $35.9 million principally due to lower comparable
store sales during the 1996 period, the decrease in the number of restaurants,
management's increased focus on achieving improvement in operating efficiencies
and a reduction in depreciation and amortization expense during the 1996 period
due to a $23.7 million charge for impaired assets taken in the fourth quarter
of 1995.
Quincy's:
Nine Months Ended
September 30,
-----------------------------------
Increase/
1996 1995 (Decrease)
-------- -------- ----------
Revenue $197,395 $224,848 $(27,453)
Operating Expenses 189,504 207,766 (18,262)
-------- -------- --------
Operating Income $ 7,891 $ 17,082 $ (9,191)
======== ======== ========
Quincy's revenue decreased by $27.5 million during the first nine months of 1996
as compared to the comparable period of 1995. Comparable store sales decreased
by 10.9% during the 1996 period as compared to the 1995 period, reflecting a
decrease in traffic of 12.7% which was slightly offset by an increase in average
check of 2.0%. In addition, the Company had a four unit net decrease in the
number of restaurants at period-end 1996 as compared to period-end 1995. The
significant decline in comparable store sales resulted from continued
competitive conditions in the family steakhouse segment, inclement weather
during the first quarter of 1996 and the unsuccessful rollout of a new steak
product earlier in the year. In addition, sales were negatively impacted by
management's decision to curtail advertising during August and September in
order to address problems relative to the brand's infrastructure. In this
regard, management intends to re-launch the Quincy's brand in the fourth quarter
of 1996 by rolling out a new value steak promotion with several new products
accompanied by increased media advertising.
Operating expenses for the 1996 period as compared to the 1995 period decreased
by $18.3 million principally due to the decrease in comparable store sales
described above. The decline in expenses fell short of the decline in revenue
reflecting certain labor and other fixed costs which could not be reduced
in proportion to the significant decrease in sales.
El Pollo Loco:
Nine Months Ended
September 30,
-------------------------------
Increase/
(In thousands) 1996 1995 (Decrease)
------- -------- ----------
Revenue $97,060 $96,616 $ 444
Operating Expenses 86,359 87,163 (804)
-------- -------- --------
Operating Income $10,701 $ 9,453 $1,248
======== ======== ========
Revenue at El Pollo Loco increased by $0.4 million during the first nine months
of 1996 compared to the comparable 1995 period despite a 9 unit decrease in
number of Company owned restaurants at September 30, 1996 as compared to
September 30, 1995. The decrease in the number of restaurants operated by the
Company is in furtherance of the Company's franchise strategy and contributed to
the 21 unit increase in the number of franchised restaurants operated at
September 30, 1996 as compared to September 30, 1995. Franchise revenue during
the 1996 period increased $2.3 million over the comparable 1995 period.
17
<PAGE>
Comparable store sales for Company-owned restaurants increased by 7.8% during
the 1996 period over the comparable 1995 period and reflect an increase in
traffic of 10.7% which is primarily attributable to continued favorable customer
response to the Pollo Bowl promotion and Foster's Freeze rollout as well as
large chicken meal promotions during the period. The increase in guest count
was partially offset by a 2.6% decrease in average check which reflects
management's commitment to maintaining El Pollo Loco's price competitiveness
within its industry segment.
The $0.8 million decrease in operating expenses in the third quarter reflects
the above-described nine unit decrease in the number of Company-owned
restaurants as well as improved margins. A portion of the margin improvement is
due to the sale of lower volume restaurants as such restaurants generally
operate with lower margins. In addition, direct labor costs have improved due to
improved labor scheduling and staffing initiatives. The decrease in operating
expenses was partially offset by a decrease in gains recognized on the sale of
restaurants to franchisees during the 1996 period of $0.6 million from $3.1
million in the 1995 period.
Coco's and Carrows:
The Company's operating results for the first nine months of 1996 include 18
weeks of Coco's and Carrows operations subsequent to their acquisition in May.
Coco's and Carrows' revenue for the period was $94.3 and $77.1 million
respectively. Comparable store sales for the period decreased 2.1% for Coco's
and 0.4% for Carrows as compared to the comparable 1995 period. Customer counts
for Coco's decreased during the 1996 period by 4.2%. as compared to the prior
year period. This decrease was partially offset by an increase in guest check
average of 2.2% mainly driven by suggestive selling of promoted dessert items.
Customer counts at Carrows for the 1996 period decreased 2.4% as compared to
the 1995 period. This decrease was partially offset by an increase in guest
check average of 2.1%. During the eighteen week period, operating expenses for
Coco's and Carrows were $88.7 million and $71.9 million, respectively, and
resulted in operating income of $5.6 million for Coco's and $5.2 million for
Carrows (For further details regarding Coco's and Carrows operating results
see the FRD 10Q).
Liquidity and Capital Resources
At September 30, 1996 and December 31, 1995, the Company had working capital
deficits of $271.8 million and $122.2 million, respectively. The increase in the
deficit is attributable primarily to a reduction in cash and cash equivalents
which has been used for Company operations and to consummate the Coco's and
Carrows acquisition during May 1996. The Company is able to operate with a
substantial working capital deficiency because: (i) restaurant operations are
conducted primarily on a cash (and cash equivalent) basis with a low level of
accounts receivable, (ii) rapid turnover allows a limited investment in
inventories and (iii) accounts payable for food, beverages, and supplies usually
become due after the receipt of cash from related sales.
Other
The Minimum Wage Bill recently enacted by Congress was signed into law during
the third quarter of 1996 and became effective beginning in the fourth quarter
of 1996. The Company will attempt to offset any increases in the minimum wage
through a combination of pricing and cost control efforts; however, there can
be no assurance that the Company will be able to pass such cost increases on
to the customer.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. The following are included as exhibits to this report:
Exhibit
No. Description
10.2.1 First Amendment to the Second Amended and Restated Credit Agreement
dated as of April 10, 1996 among TWS Funding, Inc. as borrower,
Flagstar Corporation, certain lenders and co-agents named therein, and
Citibank, N.A., as funding agents.
10.2.2 Second Amendment to the Second Amended and Restated Credit Agreement,
dated as of August 6, 1996.
10.2.3 Third Amendment to the Second Amended and Restated Credit Agreement,
dated as of September 30, 1996.
10.3.1 First Amendment to the Credit Agreement, dated as of May 23, 1996, by
and among FRD Acquisition Co., FRI-M Corporation, certain lenders and
co-agents named therein, and Credit Lyonnais New York Branch as
administrative agent.
27 Financial Data Schedule
b. No reports on Form 8-K were filed during the quarter ended
September 30, 1996
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLAGSTAR COMPANIES, INC.
Date: November 14, 1996 By: /s/ Rhonda J. Parish
Rhonda J. Parish
Senior Vice President,
General Counsel and Secretary
Date: November 14, 1996 By: /s/ C. Robert Campbell
C. Robert Campbell
Vice President and
Chief Financial Officer
20
<PAGE>
AMENDMENT AND CONSENT
AMENDMENT AND CONSENT dated as of July 18, 1996 (this
"Amendment"), among TWS FUNDING, INC., a Delaware corporation (the "Borrower"),
FLAGSTAR CORPORATION, a Delaware corporation ("Flagstar"), and each financial
institution executing this Amendment as a "Lender" (each, a "Lender").
PRELIMINARY STATEMENTS:
1. The Borrower, Flagstar and the Lender Parties, the
Co-Administrative Agents and the Funding Agent referred to therein have entered
into a Second Amended and Restated Credit Agreement dated as of April 10, 1996
(the "Credit Agreement"; the terms defined therein being used herein as therein
defined unless otherwise defined herein).
2. Flagstar proposes to sell TWS 300 Corp. and its Subsidiary,
Portiontrol Foods, Inc. (and the business operations thereof), pursuant to two
transactions, the principal terms of which are described on the attached
Schedule A (the "Sale Transactions").
3. The Borrower and Flagstar have requested that the Lenders
(a) agree to the aggregate price of the Sale Transactions and that the terms and
conditions of the Sale Transactions are reasonable and customary and (b) amend
certain provisions of the Credit Agreement and the Security Agreement as herein
provided.
4. The Lenders have expressed their willingness to grant the
Borrower's and Flagstar's request as set forth above on the terms and conditions
set forth below.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
SECTION 1. Consent Concerning the Sale Transaction. The
Lenders hereby agree that the conditions set forth in Section 5.02(e)(viii)(B)
of the Credit Agreement shall be satisfied if the Sale Transactions are
consummated upon substantially the terms described in the attached Schedule A.
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 5.02(b)(i) is amended by adding to the end thereof
a new clause (F) to read as follows:
"(F) Debt owed to the Funding Agent in respect of any
daylight overdraft facility or in connection with any
automated clearing house transfers of funds;"
(b) Section 5.02(n) is amended by deleting the section
reference "Section 2.05" contained therein and substituting therefor
the section reference "Section 2.04 or 2.05".
<PAGE>
(c) Section 5.03(r) is amended by deleting the word "five"
contained therein and substituting therefor the word "ninety".
(d) Section 5.04(a) is amended by inserting after the word
"outstanding" contained therein the phrase "as of the close of
business".
(e) Section 5.04(b) is amended by inserting after the word
"outstanding" contained therein the phrase "as of the close of
business".
SECTION 3. Amendments to the Security Agreement. The Security
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) Preliminary Statement (9) is amended by deleting therefrom
the phrase ", has opened an investment account with Chase Securities,
Inc. at its office at 270 Park Avenue, 6th Floor, New York, New York
10017, Account No. 196215" contained therein.
(b) Section 2 is amended by inserting after the words "Loan
Documents" contained in the first sentence thereof the following: "and
under any documents in respect of Debt permitted by Section
5.02(b)(i)(F) of the Credit Agreement".
(c) Section 4 is amended by deleting therefrom the name and
punctuation ", Chase Securities Inc." contained therein.
(d) Section 8(a) is amended by inserting after the words "Loan
Documents" contained therein the following: "and under any documents
in respect of Debt permitted by Section 5.02(b)(i)(F) of the Credit
Agreement".
(e) Section 13(b) thereof is amended by inserting the phrase
"except as permitted by Section 5.02(o) of the Credit Agreement,"
immediately after the words "No Grantor shall".
SECTION 4. Conditions of Effectiveness. This Amendment shall
become effective when, and only when (a) the Funding Agent shall have received
counterparts of this Amendment executed by the Borrower, Flagstar and the
Required Lenders or, as to any of the Lenders, advice satisfactory to the
Funding Agent that such Lenders have executed this Amendment, (b) the Funding
Agent shall have received the Consent attached hereto, signed by each Guarantor
and Grantor (as such term is defined in the Security Agreement) and (c) the
Funding Agent shall have received a certificate, dated the date of receipt
thereof by the Funding Agent, in form and substance satisfactory to the Funding
Agent, signed by a duly authorized officer of Flagstar, to the effect that (i)
the representations and warranties set forth 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
(ii) 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 and the Security Agreement,
each 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 on
the part of such Loan Party, 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
<PAGE>
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,
the Credit Agreement, as amended hereby, or the Security Agreement, as
amended hereby, except those authorizations, approvals, actions,
notices and filings which have been duly obtained, take, given, or made
and are in full force and effect.
(c) This Amendment and the Consent have been duly executed and
delivered by each Loan Party party thereto. The Credit Agreement and
the Security Agreement, each 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 or the Security Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement or the
Security Agreement, as the case may be, and each reference in the other Loan
Documents to the Credit Agreement or the Security Agreement, "thereunder",
"thereof" or words of like import referring to the Credit Agreement or the
Security Agreement, as the case may be, shall mean and be a reference to the
Credit Agreement or the Security Agreement, respectively, as amended hereby.
(b) Except as specifically amended above, each of the Credit
Agreement and the Security 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-Administrative Agent or the
Funding 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 Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
SECTION 8. 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Consent to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
Borrowers
TWS FUNDING, INC.
By:
--------------------------------------
Title: Vice President and Treasurer
FLAGSTAR CORPORATION
By:
---------------------------------------
Title: Vice President and Treasurer
Lenders
----------------------------------------
[Print or type name of institution]
By:
---------------------------------------
Title:
<PAGE>
SECOND AMENDMENT
AMENDMENT dated as of August 6, 1996 (this "Amendment"),
among TWS FUNDING, INC., a Delaware corporation (the "Borrower"), FLAGSTAR
CORPORATION, a Delaware corporation ("Flagstar"), and each financial institution
executing this Amendment as a "Lender" (each, a "Lender").
PRELIMINARY STATEMENTS:
1. The Borrower, Flagstar and the Lender Parties, the
Co-Administrative Agents and the Funding Agent referred to therein have entered
into a Second Amended and Restated Credit Agreement dated as of April 10, 1996,
as amended by the Amendment and Consent dated as of July 18, 1996 (as so
amended, the "Credit Agreement"; the terms defined therein being used herein as
therein defined unless otherwise defined herein).
2. The Borrower, Flagstar and the Lenders have agreed to amend
Section 5.02(b)(i)(F) of the Credit Agreement to limit the principal amount of
Debt permitted thereunder.
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. Amendment to the Credit Agreement. Section
5.02(b)(i)(F) of the Credit Agreement is, effective as of the date hereof and
subject to the satisfaction of the condition precedent set forth in Section 2
hereof, hereby amended by adding immediately after the word "funds" a new
proviso to read as follows: "provided that the aggregate principal amount of
such Debt shall not exceed $22,150,000 at any time outstanding".
SECTION 2. Condition of Effectiveness. This Amendment shall
become effective when, and only when the Funding Agent shall have received
counterparts of this Amendment executed by the Borrower, Flagstar and the
Required Lenders or, as to any of the Lenders, advice satisfactory to the
Funding Agent that such Lenders have executed this Amendment.
SECTION 3. 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.
<PAGE>
SECTION 4. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
SECTION 5. 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Borrowers
TWS FUNDING, INC.
By:
---------------------------------------
Title: Vice President and Treasurer
FLAGSTAR CORPORATION
By:
----------------------------------------
Title: Vice President and Treasurer
Lenders
----------------------------------------
[Print or type name of institution]
By:
----------------------------------------
Title:
THIRD AMENDMENT AND CONSENT
THIRD AMENDMENT AND CONSENT dated as of September 30, 1996
(this "Amendment"), among TWS FUNDING, INC., a Delaware corporation (the
"Borrower"), FLAGSTAR CORPORATION, a Delaware corporation ("Flagstar"), and each
financial institution executing this Amendment as a "Lender" (each, a "Lender").
PRELIMINARY STATEMENTS:
1. The Borrower, Flagstar and the Lender Parties, the
Co-Administrative Agents and the Funding Agent referred to therein have entered
into a Second Amended and Restated Credit Agreement dated as of April 10, 1996
(as amended to date, the "Credit Agreement"; the terms defined therein being
used herein as therein defined unless otherwise defined herein).
2. The Borrower and Flagstar have requested that the Lenders
agree (a) to amend certain provisions of the Credit Agreement as herein provided
and (b) to consent to a variance from Section 5.02(m) of the Credit Agreement to
the extent required to permit a change to Flagstar's fiscal year end as
described on Schedule I hereto.
3. The Lenders have expressed their willingness to grant the
Borrower's and Flagstar's requests 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 3 hereof, hereby amended as
follows:
(a) Section 5.04(a) is amended by deleting therefrom the ratio
set opposite each of the Rolling Periods set forth below and
substituting therefor the ratio set forth below opposite each such
Rolling Period:
<PAGE>
Rolling Periods Ending Ratio
---------------------- -----
September 30, 1996 8.40 : 1.00
December 31, 1996 8.40 : 1.00
March 31, 1997 8.70 : 1.00
June 30, 1997 8.60 : 1.00
September 30, 1997 8.20 : 1.00
December 31, 1997 8.20 : 1.00
March 31, 1998 8.10 : 1.00
(b) Section 5.04(b) is amended by deleting therefrom the ratio
set opposite each of the Rolling Periods set forth below and
substituting therefor the ratio set forth below opposite each such
Rolling Period:
Rolling Periods Ending Ratio
---------------------- -----
September 30, 1996 4.00 : 1.00
December 31, 1996 4.05 : 1.00
March 31, 1997 4.25 : 1.00
June 30, 1997 4.25 : 1.00
September 30, 1997 4.05 : 1.00
December 31, 1997 4.00 : 1.00
March 31, 1998 3.90 : 1.00
(c) Section 5.04(c) is amended by deleting therefrom the ratio
set opposite each of the Rolling Periods set forth below and
substituting therefor the ratio set forth below opposite each such
Rolling Period:
Rolling Periods Ending Ratio
---------------------- -----
September 30, 1996 1.00 : 1.00
December 31, 1996 1.05 : 1.00
March 31, 1997 1.00 : 1.00
June 30, 1997 1.03 : 1.00
September 30, 1997 1.05 : 1.00
December 31, 1997 1.05 : 1.00
March 31, 1998 1.10 : 1.00
(d) Section 5.04(d) is amended by deleting the amount
"$115,000,000" set opposite "Fiscal Year Ending in December 1997" and
substituting therefor the amount "$100,000,000."
SECTION 2 Consent. Effective as of the date hereof and subject
to the satisfaction of the conditions precedent set forth in Section 3, hereof,
the Required Lenders hereby consent to a variance from Section 5.02(m) of the
Credit Agreement to the extent required to permit a change to Flagstar's fiscal
year as described on Schedule I hereto.
SECTION 3. Conditions of Effectiveness. This Amendment shall
become effective when, and only when (a) the Funding Agent shall have received
counterparts of this Amendment executed by the Borrower, Flagstar and the
Required Lenders or, as to any of the Lenders, advice satisfactory to the
Funding Agent that such Lenders have executed this Amendment, (b) the Funding
Agent shall have received the Consent attached hereto, signed by each Guarantor
and Grantor (as such term is defined in the Security Agreement) and (c) the
Funding Agent shall have received a certificate, dated the date of receipt
thereof by the Funding Agent, in form and substance satisfactory to the Funding
Agent, signed by a duly authorized officer of Flagstar, to the effect that (i)
the representations and warranties set forth in Section 4 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 4. 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 on the part of such Loan Party, 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
<PAGE>
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, except those
authorizations, approvals, actions, notices and filings which have been
duly obtained, take, given, or made and are in full force and effect.
(c) This Amendment and the Consent have been duly executed and
delivered by each Loan Party party thereto. The Credit Agreement, as
amended hereby, is 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 5. 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 provided, 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-Administrative Agent or the
Funding Agent under any of the Loan Documents, nor constitute a waiver of any
provision of any of the Loan Documents.
SECTION 6. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
SECTION 7. 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Consent to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
Borrowers
TWS FUNDING, INC.
By:
----------------------------------------------
Title: Vice President and Treasurer
FLAGSTAR CORPORATION
By:
----------------------------------------------
Title: Vice President and Treasurer
Lenders
---------------------------------------------
[Print or type name of institution]
By:
-----------------------------------------------
Title:
<PAGE>
FRI-M CORPORATION
FIRST AMENDMENT
TO CREDIT AGREEMENT, GUARANTIES AND
CERTAIN COLLATERAL DOCUMENTS
This FIRST AMENDMENT TO CREDIT AGREEMENT, GUARANTIES AND
CERTAIN COLLATERAL DOCUMENTS (this "Amendment") is dated as of July 1, 1996 and
entered into by and among FRD ACQUISITION CO., a Delaware corporation
("Holdings"), FRI-M CORPORATION, a Delaware corporation ("Company"), the other
Credit Support Parties (as defined in Section 4 hereof), THE FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to
herein as a "Lender" and collectively as "Lenders"), BANKERS TRUST COMPANY,
CHEMICAL BANK and CITICORP USA, INC., as co-syndication agents for Lenders (in
such capacity, each individually referred to herein as a "Co-Syndication Agent"
and collectively as "Co-Syndication Agents"), and CREDIT LYONNAIS NEW YORK
BRANCH, as administrative agent for Lenders (in such capacity, "Administrative
Agent"), and is made with reference to that certain Credit Agreement dated as of
May 23, 1996 (the "Credit Agreement"), by and among Holdings, Company, Lenders,
Co- Syndication Agents and Administrative Agent, and to the other Loan
Documents. Capitalized terms used herein without definition shall have the same
meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Loan Parties and Lenders desire to (i) amend the
Credit Agreement to, among other things, permit Company to enter into daylight
overdraft protection agreements and make certain other changes as set forth
below and (ii) amend the Guaranties and certain of the Collateral Documents as
set forth below;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
1
<PAGE>
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT,
GUARANTIES AND CERTAIN COLLATERAL DOCUMENTS
1.1 Amendment to Section 1: Provisions Relating to
Certain Defined Terms
A. Additional Defined Term. Subsection 1.1 of the Credit
Agreement is hereby amended by adding thereto the following definition, which
shall be inserted in proper alphabetical order:
"`Daylight Overdraft Protection Agreement' means any agreement
pursuant to which any Person provides bank account overdraft protection
to Company for account deficiencies occurring during a Business Day as
a result of checks written or wire transfers or other electronic
transfers initiated by Company clearing on such Business Day and which
account deficiencies are expected to be cured with proceeds of wire
transfers or checks to be deposited later during such Business Day."
B. Contingent Obligations. Subsection 1.1 of the Credit
Agreement is hereby amended by adding to the end of the first sentence of the
definition of "Contingent Obligations" the following:
"or Daylight Overdraft Protection Agreements."
C. Indebtedness. Subsection 1.1 of the Credit Agreement is
hereby amended by adding to the end of the definition of "Indebtedness" the
following:
"Obligations under Daylight Overdraft Protection Agreements,
unless and until such obligations become matured obligations actually
arising pursuant thereto, do not constitute Indebtedness."
1.2 Amendments to Section 7: Provisions Relating to
Negative Covenants
A. Liens and Related Matters. Subsection 7.2A of the Credit
Agreement is hereby amended by deleting clause (ii) thereof in its entirety and
substituting therefor the following:
"(ii) Liens granted pursuant to the Collateral Documents,
including Liens granted in favor of a Lender or an Affiliate of such Lender
which is (a) a counterparty to an Interest Rate Agreement permitted under
subsection 7.4(iii) or (b) a counterparty to a Daylight Overdraft Protection
Agreement permitted under subsection 7.4(vii);"
B. Contingent Obligations. Subsection 7.4 of the Credit
Agreement is hereby amended by (i) deleting the word "and" from the end of
clause (v) thereof and (ii) adding to the end of such subsection immediately
prior to the period the following:
2
<PAGE>
"; and
(vii) Company may become and remain liable with
respect to Contingent Obligations under Daylight Overdraft
Protection Agreements; provided that the aggregate amount of
overdraft protection available under all Daylight Overdraft
Protection Agreements shall not exceed at any time
$5,000,000."
1.3 Amendments to Section 9: Provisions Relating to Holdings
Guaranty.
A. Guarantied Obligations. Subsection 9.1 of the Credit
Agreement is hereby amended by deleting the first sentence of such subsection in
its entirety and substituting therefor the following:
"9.1 Guarantied Obligations.
As consideration for Lenders agreeing to
enter into this Agreement and extend the Commitments, make the
Loans hereunder and issue the Letters of Credit, Holdings
hereby unconditionally and irrevocably guaranties, as a
primary obligor and not merely as a surety, the due and
punctual payment when due (whether at stated maturity, by
required prepayment, declaration, demand or otherwise)
(including amounts that would become due but for the operation
of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. ss. 362(a)) of all Obligations of Company
(including, without limitation, interest which, but for the
filing of a petition in bankruptcy with respect to Company
would accrue on such Obligations, whether or not allowable as
a claim) and all obligations of Company under Interest Rate
Agreements permitted under subsection 7.4(iii) or under
Daylight Overdraft Protection Agreements permitted under
subsection 7.4(vii) (all such Interest Rate Agreements and
Daylight Overdraft Protection Agreements, collectively, the
`Lender Interest Rate Agreements'), in each case to which a
Lender or an Affiliate of such Lender (in such capacity under
such Lender Interest Rate Agreements, collectively, `Interest
Rate Exchangers') is a counterparty (the `Guarantied
Obligations')."
1.4 Amendment to Company Pledge Agreement.
Preliminary Statements. The Company Pledge Agreement
is hereby amended by deleting paragraph C of the Preliminary Statements thereto
in its entirety and substituting therefor the following:
"C. Pledgor may from time to time enter into one or
more Interest Rate Agreements or Daylight Overdraft Protection
Agreements (all such Interest Rate Agreements and Daylight
Overdraft Protection Agreements, collectively, the `Lender
Interest Rate Agreements') with one or more Lenders or their
Affiliates
3
<PAGE>
(in such capacity under all such Lender Interest Rate
Agreements, collectively, `Interest Rate Exchangers') in
accordance with the terms of the Credit Agreement, and it is
desired that the obligations of Pledgor under the Lender
Interest Rate Agreements, including without limitation the
obligation of Pledgor to make payments under Lender Interest
Rate Agreements that are Interest Rate Agreements in the
event of early termination thereof (all such obligations in
respect of the Lender Interest Rate Agreements being the
`Interest Rate Obligations'), together with all obligations
of Pledgor under the Credit Agreement and the other Loan
Documents, be secured hereunder."
1.5 Amendments to Holdings Pledge Agreement, Subsidiary Pledge
Agreement, Holdings Security Agreement, Subsidiary Security Agreement and
Subsidiary Trademark Security Agreement. The Holdings Pledge Agreement, the
Subsidiary Pledge Agreement, the Holdings Security Agreement, the Subsidiary
Security Agreement and the Subsidiary Trademark Security Agreement are each
hereby amended by deleting the text of paragraph C of the Preliminary Statements
of each of the Holdings Pledge Agreement and the Subsidiary Pledge Agreement,
and the text of paragraph B of the Preliminary Statements of each of the
Holdings Security Agreement, the Subsidiary Security Agreement and the
Subsidiary Trademark Security Agreement, in each case, in its entirety and
substituting therefor the following:
"Company may from time to time enter, or may from
time to time have entered, into one or more Interest Rate
Agreements or Daylight Overdraft Protection Agreements (all
such Interest Rate Agreements and Daylight Overdraft
Protection Agreements, collectively, the `Lender Interest Rate
Agreements') with one or more Lenders or their Affiliates (in
such capacity under all such Lender Interest Rate Agreements,
collectively, `Interest Rate Exchangers')."
1.6 Amendments to Company Security Agreement and Company
Trademark Security Agreement. The Company Security Agreement and the Company
Trademark Security Agreement are each hereby amended by deleting paragraph B of
the respective Preliminary Statements of each such document in their entirety
and substituting therefor the following:
"B. Grantor may from time to time enter into one or
more Interest Rate Agreements or Daylight Overdraft Protection
Agreements (all such Interest Rate Agreements or Daylight
Overdraft Protection Agreements, collectively, the `Lender
Interest Rate Agreements') with one or more Lenders or their
Affiliates (in such capacity under all such Lender Interest
Rate Agreements, collectively, `Interest Rate Exchangers') in
accordance with the terms of the Credit Agreement, and it is
desired that the obligations of Grantor under the Lender
Interest Rate Agreements, including without limitation the
obligation of Grantor to make payments under Lender Interest
Rate Agreements that are Interest Rate Agreements in the event
of early termination thereof (all such obligations under all
such Lender Interest Rate Agreements being the `Interest Rate
Obligations'),
4
<PAGE>
together with all obligations of Grantor under
the Credit Agreement and the other Loan Documents, be secured
hereunder."
1.7 Amendment to Subsidiary Guaranty. The Subsidiary Guaranty
is hereby amended by deleting paragraph B of the Recitals thereto in its
entirety and substituting therefor the following:
"B. Company may from time to time enter into one or
more Interest Rate Agreements or Daylight Overdraft Protection
Agreements (such Interest Rate Agreements or Daylight
Overdraft Protection Agreements, collectively, the `Lender
Interest Rate Agreements') with one or more Lenders or their
Affiliates (in such capacity under all such Lender Interest
Rate Agreements, collectively, `Interest Rate Exchangers') in
accordance with the terms of the Credit Agreement, and it is
desired that the obligations of Company under the Lender
Interest Rate Agreements, including without limitation the
obligation of Grantor to make payments under Lender Interest
Rate Agreements that are Interest Rate Agreements in the event
of early termination thereof (all such obligations under all
such Lender Interest Rate Agreements, being the `Interest Rate
Obligations'), together with all obligations of Company under
the Credit Agreement and the other Loan Documents, be
guarantied hereunder."
1.8 Additional Amendments to Company Pledge Agreement,
Holdings Pledge Agreement, Subsidiary Pledge Agreement, Company Security
Agreement, Holdings Security Agreement, Subsidiary Security Agreement, Company
Trademark Security Agreement, Subsidiary Trademark Security Agreement and
Subsidiary Guaranty. Subsection 16 of each of the Company Pledge Agreement, the
Holdings Pledge Agreement and the Subsidiary Pledge Agreement, subsection 20 of
the Company Security Agreement, subsection 21 of each of the Company Trademark
Security Agreement, the Holdings Security Agreement, the Subsidiary Security
Agreement and the Subsidiary Trademark Security Agreement, and subsection 3.14
of the Subsidiary Guaranty are each hereby amended by deleting clause (ii) of
each such subsection in its entirety and, in each case, substituting therefor
the following:
"(ii) after payment in full of all Obligations under
the Credit Agreement and the other Loan Documents, (x) the
holders of a majority of the aggregate notional amount (or,
with respect to any Lender Interest Rate Agreement which is an
Interest Rate Agreement that has been terminated in accordance
with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early
termination payments then due) under such Lender Interest Rate
Agreement) under all Lender Interest Rate Agreements which are
Interest Rate Agreements and (y) the holders of a majority of
the aggregate amount then due and payable under all Lender
Interest Rate Agreements that are Daylight Overdraft
Protection Agreements (Requisite Lenders or, if applicable,
such holders being referred to herein as `Requisite
Obligees')."
5
<PAGE>
Section 1.9 Amendments to Exhibits.
Exhibits XV through XXIII of the Credit Agreement are hereby
amended to the extent necessary to make the provisions therein consistent with
the amendments made to the executed Collateral Documents and Guaranties pursuant
to Sections 1.4 through 1.8 above.
Section 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon
the prior or concurrent satisfaction of all of the following conditions
precedent (the date of satisfaction of such conditions being referred to herein
as the "First Amendment Effective Date"):
A. On or before the First Amendment Effective Date, Company
shall deliver to Lenders (or to Administrative Agent for Lenders) the following,
each, unless otherwise noted, dated as of the First Amendment Effective Date:
1. Resolutions of the Board of Directors of each Loan
Party party to this Amendment approving and authorizing the execution,
delivery and performance of this Amendment, certified as of the First
Amendment Effective Date by such Loan Party's secretary or assistant
secretary as being in full force and effect without modification or
amendment;
2. Signature and incumbency certificates of officers
of each Loan Party executing this Amendment certified by such Loan
Party's secretary or assistant secretary; and
3. Counterparts of this Amendment executed by
Requisite Lenders and each of the other parties hereto.
B. On or before the First Amendment Effective Date, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto not
previously found acceptable by Administrative Agent, acting on behalf of
Lenders, and its counsel shall be satisfactory in form and substance to
Administrative Agent and such counsel, and Administrative Agent and such counsel
shall have received all such counterpart originals or certified copies of such
documents as Administrative Agent may reasonably request.
6
<PAGE>
Section 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to
amend the Credit Agreement, certain of the Collateral Documents, the Holdings
Guaranty, and the Subsidiary Guaranty in the manner provided herein, each of
Holdings, Company and each other Loan Party party hereto represents and warrants
to each Lender that the following statements are true, correct and complete:
A. Corporate Power and Authority. Each Loan Party party hereto
has all requisite corporate power and authority to enter into this Amendment and
to carry out the transactions contemplated hereby and each of Holdings, Company
and each other Loan Party party hereto has all requisite corporate power and
authority to carry out the transactions contemplated by, and perform its
obligations under, the Credit Agreement as amended by this Amendment (the
"Amended Agreement") and each Loan Party has all requisite corporate power and
authority to carry out the transactions contemplated by, and perform its
obligations under, the Collateral Documents or the Holdings Guaranty or the
Subsidiary Guaranty to which it is a party as amended by this Amendment
(collectively, the "Amended Collateral Documents and Guaranties").
B. Authorization of Agreements. The execution and delivery of
this Amendment and the performance of the Amended Agreement and the Amended
Collateral Documents and Guaranties have been duly authorized by all necessary
corporate action on the part of Holdings, Company and each of the other Loan
Parties party hereto, as the case may be.
C. No Conflict. The execution and delivery by each Loan Party
party hereto of this Amendment and the performance by such Loan Party of this
Amendment and the performance by Holdings and Company of the Amended Agreement
and performance by Loan Parties of the applicable Amended Collateral Documents
and Guaranties do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Holdings or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Holdings
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Holdings or any of its Subsidiaries, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any Contractual Obligation of Holdings or any of
its Subsidiaries, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Holdings or any of its Subsidiaries
(other than any Liens created under any of the Loan Documents in favor of
Administrative Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Holdings or any of its Subsidiaries.
D. Governmental Consents. The execution and delivery by each
Loan Party party hereto of this Amendment and the performance by such Loan Party
of this Amendment and the performance by Holdings and Company of the Amended
Agreement and performance by Loan Parties of the applicable Amended Collateral
Documents and Guaranties do not and will not
7
<PAGE>
require any registration with, consent or approval of, or notice to, or other
action to, with or by, any federal, state or other governmental authority or
regulatory body.
E. Binding Obligation. This Amendment has been duly executed
and delivered by each Loan Party party hereto and this Amendment, the Amended
Agreement and the Amended Collateral Documents and Guaranties are the legally
valid and binding obligations of such Loan Party, enforceable against such Loan
Party in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
F. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
G. Absence of Default. No event has occurred and is continuing
or will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
Section 4. ACKNOWLEDGEMENT AND CONSENT
Company is a party to certain Collateral Documents, in each
case as amended through the First Amendment Effective Date, pursuant to which
Company has created Liens in favor of Administrative Agent on certain Collateral
to secure the Obligations. Each of the other Loan Parties party hereto is a
party to certain Collateral Documents, the Subsidiary Guaranty or the Holdings
Guaranty, in each case as amended through the First Amendment Effective Date,
pursuant to which each such Loan Party has (i) guarantied the Obligations and
(ii) created Liens in favor of Administrative Agent on certain Collateral to
secure the obligations of such Loan Party under the Subsidiary Guaranty or the
Holdings Guaranty, as the case may be. The Loan Parties party hereto are
collectively referred to herein as the "Credit Support Parties", and the
Collateral Documents, the Subsidiary Guaranty and the Holdings Guaranty are
collectively referred to herein as the "Credit Support Documents".
Each Credit Support Party hereby acknowledges that it has
reviewed the terms and provisions of the Credit Agreement, the Collateral
Documents and Guaranties and this Amendment and consents to the amendment of the
Credit Agreement and Guaranties and the Collateral Documents effected pursuant
to this Amendment. Each Credit Support Party hereby confirms that each Credit
Support Document to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guaranty or secure, as the case may be, to
the
8
<PAGE>
fullest extent possible the payment and performance of all "Obligations,"
"Guarantied Obligations" and "Secured Obligations," as the case may be (in each
case as such terms are defined in the applicable Credit Support Document),
including without limitation the payment and performance of all such
"Obligations," "Guarantied Obligations" or "Secured Obligations," as the case
may be, in respect of the Obligations of Company now or hereafter existing under
or in respect of the Amended Agreement and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of
the Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement, the Amended Collateral Documents and Guaranties and the other
Credit Support Documents to which it is a party or otherwise bound are true,
correct and complete in all material respects on and as of the First Amendment
Effective Date to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
Each Credit Support Party (other than Holdings and Company)
acknowledges and agrees that (i) notwithstanding the conditions to effectiveness
set forth in this Amendment, such Credit Support Party is not required by the
terms of the Credit Agreement or any other Loan Document to consent to the
amendments to the Credit Agreement effected pursuant to this Amendment and (ii)
nothing in the Credit Agreement, this Amendment or any other Loan Document shall
be deemed to require the consent of such Credit Support Party to any future
amendments to the Credit Agreement.
9
<PAGE>
Section 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Documents.
(i) On and after the First Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" 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
Amended Agreement. On and after the First Amendment Effective Date,
each reference in any Collateral Document, the Holdings Guaranty or the
Subsidiary Guaranty to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to such Collateral Document,
the Holdings Guaranty or the Subsidiary Guaranty, and each reference in
the other Loan Documents to such "Pledge Agreement", "Security
Agreement", "Guaranty", "thereunder", "thereof" or words of like import
referring to such Collateral Document, Holdings Guaranty or Subsidiary
Guaranty shall mean and be a reference to such Collateral Document,
Holdings Guaranty or Subsidiary Guaranty, as applicable, as amended by
this Amendment.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of any right, power
or remedy of Agent or any Lender under, the Credit Agreement or any of
the other Loan Documents.
B. Fees and Expenses. Company acknowledges that all reasonable
costs, fees and expenses as described in subsection 11.2 of the Credit Agreement
incurred by Administrative Agent and its counsel with respect to this Amendment
and the documents and transactions contemplated hereby shall be for the account
of Company.
C. Headings. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE
10
<PAGE>
STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
E. Counterparts; Effectiveness. 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 an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Section 1, which shall become effective upon the satisfaction of
each of the conditions set forth in Section 2) shall become effective upon the
execution of a counterpart hereof by all Requisite Lenders and each of the other
parties hereto and receipt by Company and Administrative Agent of written or
telephonic notification of such execution and authorization of delivery thereof.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
FRD ACQUISITION CO.
By:
Title:
FRI-M CORPORATION
By:
Title:
FRI-FRD CORPORATION
By:
Title:
CFC FRANCHISING COMPANY
By:
Title:
FRI-J CORPORATION
By:
Title:
JOJOS RESTAURANTS, INC.
By:
Title:
S-12
<PAGE>
JOJOS CALIFORNIA FAMILY RESTAURANTS,
INC.
By:
Title:
COCO'S RESTAURANTS, INC.
By:
Title:
FRI-C CORPORATION
By:
Title:
CARROWS RESTAURANTS, INC.
By:
Title:
CARROWS CALIFORNIA FAMILY
RESTAURANTS, INC.
By:
Title:
FRI-DHD CORPORATION
By:
Title:
FAR WEST CONCEPTS, INC.
By:
Title:
S-13
<PAGE>
FRI-NA CORPORATION
By:
Title:
LENDERS: CREDIT LYONNAIS NEW YORK BRANCH,
individually and as Administrative Agent
By:
Title:
BANKERS TRUST COMPANY,
individually and as
Co-Syndication Agent
By:
Title:
CHEMICAL BANK, individually and
as Co-Syndication Agent
By:
Title:
CITICORP USA, INC., individually and
as Co-Syndication Agent
By:
Title:
S-14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Flagstar Companies, Inc. as contained in its Form 10-Q
for the quarterly period ended September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 1-MO 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996 SEP-30-1996
<CASH> 105,544 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 25,015 0 0
<ALLOWANCES> 1,852 0 0
<INVENTORY> 32,365 0 0
<CURRENT-ASSETS> 197,768 0 0
<PP&E> 1,864,774 0 0
<DEPRECIATION> 698,914 0 0
<TOTAL-ASSETS> 1,724,187 0 0
<CURRENT-LIABILITIES> 469,558 0 0
<BONDS> 2,251,154 0 0
0 0 0
630 0 0
<COMMON> 21,218 0 0
<OTHER-SE> (1,220,718) 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,724,187 0 0
<SALES> 0 0 0
<TOTAL-REVENUES> 0 703,838 1,880,834
<CGS> 0 0 0
<TOTAL-COSTS> 0 655,511 1,761,660
<OTHER-EXPENSES> 0 92 228
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 68,872 189,131
<INCOME-PRETAX> 0 (20,637) (70,185)
<INCOME-TAX> 0 (8,118) (12,923)
<INCOME-CONTINUING> 0 (12,519) (57,252)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 (12,519) (57,262)
<EPS-PRIMARY> 0 (.38) (1.60)
<EPS-DILUTED> 0 (.38) (1.60)
</TABLE>
