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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-18051
FLAGSTAR COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3487402
(State or other jurisdiction (I.R.S. employer
of incorporation or identification no.)
organization)
203 EAST MAIN STREET 29319-9966
SPARTANBURG, SOUTH CAROLINA (Zip code)
(Address of principal
executive offices)
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Registrant's telephone number, including area code: (864) 597-8000.
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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None None
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Securities registered pursuant to Section 12(g) of the Act:
$.50 Par Value, Common Stock
TITLE OF CLASS
$.10 Par Value, $2.25 Series A Cumulative Convertible Exchangeable Preferred
Stock
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $74,818,531 based upon the closing sales price of
registrant's Common Stock on March 7, 1996 of $3.88 per share.
As of March 7, 1996, 42,434,606 shares of registrant's Common Stock, $.50
par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held April 24, 1996, are
incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business................................................................................................... 1
Item 2. Properties................................................................................................. 9
Item 3. Legal Proceedings.......................................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders........................................................ 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................... 12
Item 6. Selected Financial Data.................................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 13
Item 8. Financial Statements and Supplementary Data................................................................ 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant......................................................... 20
Item 11. Executive Compensation..................................................................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 20
Item 13. Certain Relationships and Related Transactions............................................................. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................... 25
INDEX TO FINANCIAL STATEMENTS.......................................................................................... F-1
SIGNATURES.............................................................................................................
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Flagstar Companies, Inc. ("FCI"), through its wholly-owned subsidiary
Flagstar Corporation ("Flagstar"), is one of the largest restaurant companies in
the United States, operating (directly and through franchisees) more than 2,500
moderately priced restaurants.
Flagstar's restaurant operations are conducted through four chains or
concepts. Denny's is the nation's largest chain of family-oriented full service
restaurants, with over 1,500 units in 49 states, Puerto Rico, and four foreign
countries, including 508 in California and Florida. According to an independent
survey conducted in 1995, Denny's has the leading share of the national market
in the family segment. Hardee's is a chain of quick-service restaurants of which
Flagstar, with 593 units located primarily in the Southeast, is the largest
franchisee. Although specializing in sandwiches, Flagstar's Hardee's restaurants
serve fresh fried chicken and offer a breakfast menu that accounts for
approximately 42% of total sales and features the chain's famous
"made-from-scratch" biscuits. Quincy's, with more than 200 locations, is one of
the largest chains of family steakhouse restaurants in the southeastern United
States, offering steak, chicken and seafood entrees as well as a buffet food
bar, called the "Country Sideboard." A weekend breakfast buffet is available at
most Quincy's locations. Flagstar also operates El Pollo Loco, a chain of 217
quick-service restaurants featuring flame-broiled chicken and steak products and
related Mexican food items, with a strong regional presence in California.
Although operating in two distinct segments of the restaurant
industry -- full-service and quick-service -- the Company's restaurants benefit
from a single management strategy that emphasizes superior value and quality,
friendly and attentive service and appealing facilities. During the past year,
Flagstar remodeled 333 of its Company-owned restaurants and added a net of seven
(both franchised and Company-owned) new restaurants to its chains (reflecting an
increase of 82 franchised and international units offsetting a 75 unit decline
in Company-owned restaurants).
FCI is a holding company that was organized in Delaware in 1988 in order to
effect the acquisition of Flagstar in 1989. On November 16, 1992, FCI and
Flagstar consummated the principal elements of a recapitalization (the
"Recapitalization"), which included, among other things, an equity investment by
TW Associates, L.P. ("TW Associates") and KKR Partners II, L.P. ("KKR Partners
II") (collectively, "Associates"), partnerships affiliated with Kohlberg Kravis
Roberts & Co. ("KKR"). As a result of such transactions, Associates acquired
control of FCI and Flagstar. Prior to June 16, 1993, FCI and Flagstar had been
known, respectively, as TW Holdings, Inc. and TW Services, Inc. As used herein,
the term "Company" includes FCI, Flagstar and its subsidiaries, except as the
context otherwise requires.
As a result of the 1989 acquisition of Flagstar, the Company became and
remains very highly leveraged. While the Company's cash flows have been, and are
expected to continue to be, sufficient to cover interest costs, operating
results since the acquisition in 1989 have fallen short of expectations. Such
shortfalls have resulted from negative operating trends which are due to
increased competition, intensive pressure on pricing due to discounting,
declining customer traffic, adverse economic conditions, and relatively limited
capital resources to respond to these changes. In the fourth quarter of 1993,
management determined that the most likely projections of future results were
those based on the assumption that these historical operating trends of each of
the Company's restaurant concepts and of its now sold food and vending business
would continue, and that such projected financial results of the Company would
not support the carrying value of the remaining balance of goodwill and certain
other intangible assets. Accordingly, such balances were written-off during
1993. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes 1 and 3 to the Consolidated Financial
Statements for additional information. These operating trends have generally
continued through 1995.
RESTAURANTS
The Company believes its restaurant operations benefit from the diversity
of the restaurant concepts represented by its four chains, the strong market
positions and consumer recognition enjoyed by each of these chains, the benefits
of a centralized support system for purchasing, menu development, human
resources, management information systems, site selection, restaurant design and
construction, and an aggressive new management team. The Company owns or has
rights in all trademarks it believes are material to its restaurant operations.
Denny's and Quincy's may benefit from the demographic trend of aging baby
boomers and the growing population of elderly persons. The largest percentage of
"family style" customers comes from the 35 and up age group. The Company expects
its chain of Hardee's restaurants to maintain a strong market position in the
Southeast.
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During the fourth quarter of 1993, the Company approved a restructuring
plan for its restaurant concepts which included the following key features: (1)
the identification of units for sale, closure or conversion to another concept;
(2) changes to the field management structure to eliminate a layer of management
and increase the regional managers' "span of control"; and (3) consolidation of
certain Company operations and elimination of overhead positions in the field
and in certain of its corporate functions. The restructuring charge reflected in
the Company's 1993 Consolidated Financial Statements consisted primarily of the
write-down in the carrying value of assets referred to in (1) above and
severance and relocation costs associated with (2) and (3) above. As of December
31, 1995, the Company had closed or sold 69 restaurant units referred to in (1)
above and intends to close or dispose of an additional 17 units generally in
1996. Management intends to operate the remaining units. As of December 31,
1995, substantially all of the incremental changes relating to (2) and (3) above
had been completed. During 1995, the Company identified 36 underperforming units
for sale or closure generally during 1996. The carrying value of these units
have been written-down to estimated fair value based on sales of similar units
or other estimates of selling price, less cost to sell. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 1, 2, and 3 to the Consolidated Financial Statements for additional
information.
DENNY'S
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YEAR ENDED DECEMBER 31,
1991 1992 1993 1994
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Operating Units (end of year)
Owned/operated.................................................................... 996 1,013 1,024 978
Franchised........................................................................ 330 382 431 512
International..................................................................... 65 65 59 58
Revenues (in millions) (1).......................................................... $1,429 $1,449 $1,546 $1,548
Operating Income (Loss) (in millions) (1)........................................... $ 128 $ 130 $ (625)(2) $ 123
Depreciation and Amortization (in millions) (1)..................................... $ 75 $ 82 $ 88 $ 68
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,232 $1,231 $1,233 $1,248
Franchised........................................................................ $1,040 $1,065 $1,057 $1,060
Average Check (4)................................................................... $ 4.37 $ 4.56 $ 4.76 $ 4.75
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1995
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Operating Units (end of year)
Owned/operated.................................................................... 933
Franchised........................................................................ 596
International..................................................................... 24
Revenues (in millions) (1).......................................................... $1,491
Operating Income (Loss) (in millions) (1)........................................... $ 97(3)
Depreciation and Amortization (in millions) (1)..................................... $ 70
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,283
Franchised........................................................................ $1,086
Average Check (4)................................................................... $ 4.86
</TABLE>
(1) Includes distribution and processing operations. The distribution operations
were sold September 8, 1995.
(2) Operating income reflects the write-off of goodwill and certain other
intangible assets and the provision for restructuring charges of $716
million for the year ended December 31, 1993. For a discussion of the
write-off and restructuring and the reasons therefor, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1 and 3 to the Consolidated Financial Statements.
(3) Operating income reflects a provision for restructuring of $5 million and a
charge for impaired assets of $24 million for the year ended December 31,
1995. For a discussion of the provision for restructuring and charge for
impaired assets, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 1 and 2 to the Consolidated
Financial Statements.
(4) Amount is calculated on an average unit sales basis for owned/operated
units.
Denny's is the largest full-service family restaurant chain in the United
States in terms of both number of units and total revenues and, according to an
independent survey conducted in 1995 by Consumer Reports on Eating Share Trends
(CREST), an industry market research firm, Denny's has the leading share of the
national market in the family segment. Denny's restaurants currently operate in
49 states, Puerto Rico, and four foreign countries, with principal
concentrations in California, Florida, Texas, Arizona, Washington, Ohio,
Illinois, and Pennsylvania. Denny's restaurants are designed to provide a casual
dining atmosphere with moderately priced food and quick, efficient service to a
broad spectrum of customers. The restaurants generally are open 24 hours a day,
seven days a week. All Denny's restaurants have uniform menus (with some
regional and seasonal variations) offering traditional family fare (including
breakfast, steaks, seafood, hamburgers, chicken and sandwiches) and provide both
counter and table service for breakfast, lunch and dinner as well as a "late
night" menu.
The Company acquired the Denny's chain in September 1987. Since the
acquisition, the Company has reduced corporate level overhead (including through
the relocation of key operating personnel to the Company's Spartanburg, South
Carolina headquarters), accelerated Denny's remodeling program, added
point-of-sale ("POS") systems to the chain's restaurants, simplified the menu
and created new advertising and marketing programs.
In 1994, the Company began to implement a "reimaging" strategy intended to
result in a fundamental change in the competitive positioning of Denny's. This
reimaging strategy involved all restaurants within a market area and included an
updated exterior look, new signage, an improved interior layout with more
comfortable seating and enhanced lighting. Reimaging also included a new menu,
new menu offerings, new uniforms, and enhanced dessert offerings, including in
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some markets Baskin-Robbins(Register mark) ice cream. The Company completed the
reimaging of 306 restaurant units during 1994 and 1995. During 1995 management
curtailed the efforts of its reimaging program in order to focus its attention
on programs specifically designed at improving customer service, restaurant
efficiency, and value positioning. In 1996, the Company plans to complete
limited exterior refurbishments to enhance the curb appeal of the remaining 627
Company-owned restaurants.
To achieve improvements in customer service and restaurant efficiency,
Denny's introduced the "Managing Partners Program" during the fourth quarter of
1995. Under this program, a managing partner will typically have full
accountability for three to five restaurants and report directly to the
president of Denny's. Managing partners will be compensated for improving
customer service and running their restaurants efficiently. This program is
expected to provide additional support to the restaurants by flattening the
organizational structure and creating more open communications between the
restaurants and Denny's senior management.
The Company's POS system provides hourly sales reports, cash control and
marketing data and information regarding product volumes. POS systems provide
guest traffic information for labor scheduling, provide information to evaluate
more effectively the impact of menu changes on sales, and reduce the paperwork
of managers.
Marketing initiatives in 1996 will focus on the positioning of Denny's as
the price value leader within its segment, offering value menus at breakfast and
lunch through its tiered menu items priced at $1.99, $2.99, $3.99, and $4.99.
The Company rolled-out its value menu system-wide in January 1996. These
promotions are designed to capitalize on the strong public recognition of the
Denny's name.
The Company intends to open relatively few Company-owned Denny's
restaurants and to expand its franchising efforts in 1996 in order to increase
its market share, establish a presence in new areas and further penetrate
existing markets. To accelerate the franchise expansion, the Company will
identify units to sell to franchisees which are not part of its growth strategy
for Company-owned Denny's units. As of December 31, 1995, 15 units have been
identified for sale or closure generally during 1996. The field management
infrastructures established to serve the existing Denny's system are expected to
provide sufficient support for additional units with moderate incremental
expense. Expanded franchising also will permit the Company to exploit smaller
markets where a franchisee's ties to the local community are advantageous.
During 1995, the Company added a net of 84 new Denny's franchises, of which
36 units were previously owned by the Company, bringing total franchised units
to 596, or 38% of all Denny's restaurants. The initial fee for a single Denny's
franchise is $35,000, and the current royalty payment is 4% of gross sales. In
1995, Denny's realized $47.7 million of revenues from franchising. Franchisees
also purchase food and supplies from a Company subsidiary.
HARDEE'S
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YEAR ENDED DECEMBER 31,
1991 1992 1993 1994
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Operating Units (end of year)
Owned/operated.................................................................... 500 528 564 595
Revenues (in millions).............................................................. $ 525 $ 607 $ 682 $ 701
Operating Income (Loss) (in millions)............................................... $ 52 $ 72 $ (179)(1) $ 76
Depreciation and Amortization (in millions)......................................... $ 40 $ 44 $ 48 $ 41
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,062 $1,185 $1,255 $1,206
Average Check (3)................................................................... $ 2.72 $ 2.88 $ 3.09 $ 3.11
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1995
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Operating Units (end of year)
Owned/operated.................................................................... 593
Revenues (in millions).............................................................. $ 660
Operating Income (Loss) (in millions)............................................... $ 4(2)
Depreciation and Amortization (in millions)......................................... $ 42
Average Unit Sales (in thousands)
Owned/operated.................................................................... $1,104
Average Check (3)................................................................... $ 3.16
</TABLE>
(1) Operating income reflects the write-off of goodwill and certain other
intangible assets and the provision for restructuring charges of $260
million for the year ended December 31, 1993. For a discussion of the
write-off and restructuring and the reasons therefor, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1 and 3 to the Consolidated Financial Statements.
(2) Operating income reflects a provision for restructuring of $8 million and a
charge for impaired assets of $24 million for the year ended December 31,
1995. For a discussion of the provision for restructuring and charge for
impaired assets see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 1 and 2 to the Consolidated
Financial Statements.
(3) Amount is calculated on an average unit sales basis.
The Company's Hardee's restaurants are operated under licenses from
Hardee's Food Systems, Inc. ("HFS"). The Company is HFS' largest franchisee,
operating 17% of Hardee's restaurants nationwide. HFS is the fifth largest
sandwich chain in the United States based on national systemwide sales. Of the
593 Hardee's restaurants operated by the Company at December 31, 1995, 572 were
located in ten southeastern states. The Company's Hardee's restaurants provide
uniform menus in a quick-service format targeted to a broad spectrum of
customers. The restaurants offer hamburgers, chicken,
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roast beef and fish sandwiches, hot dogs, salads and low-fat yogurt, as well as
a breakfast menu featuring Hardee's popular "made-from-scratch" biscuits. To add
variety to its menu, further differentiate its restaurants from those of its
major competitors and increase customer traffic during the traditionally slower
late afternoon and evening periods, HFS added fresh fried chicken as a menu item
in a number of its restaurants beginning in 1991. The Company accelerated the
introduction of fresh fried chicken as a regular menu item during 1992 and
completed the rollout in 1993.
Substantially all of the Company's Hardee's restaurants have drive-thru
facilities, which provided 52% of the chain's revenues in 1995. Most of the
restaurants are open 18 hours a day, seven days a week. Operating hours of
selected units have been extended to 24 hours a day, primarily on weekends.
Hardee's breakfast menu, featuring the chain's signature "made-from-scratch"
biscuits, accounts for approximately 42% of total sales at the Company's
Hardee's restaurants.
Each Hardee's restaurant is operated under a separate license from HFS.
Each license grants the exclusive right, in exchange for a franchise fee,
royalty payments and certain covenants, to operate a Hardee's restaurant in a
described territory, generally a town or an area measured by a radius from the
restaurant site. Each license has a term of 20 years from the date the
restaurant is first opened for business and is non-cancellable by HFS, except
for the Company's failure to abide by its covenants. Earlier issued license
agreements are renewable under HFS' renewal policy; more recent license
agreements provide for successive five-year renewals upon expiration, generally
at rates then in effect for new licenses. A number of the Company's licenses are
scheduled for renewal. The Company has historically experienced no difficulty in
obtaining such renewals and does not anticipate any problems in the future.
The Company's territorial development agreement with HFS which called for
the Company to open a specified number of Hardee's restaurants in a development
territory in the Southeast (and certain adjacent areas) by the end of 1996 was
terminated during the fourth quarter of 1995. Termination of such agreement
makes the Company's development rights non-exclusive in the development
territory. As a result, other Hardee's franchisees along with the Company are
permitted to open Hardee's restaurants in such territory.
During 1995, the Company experienced an 8.6% decline in comparable store
sales at its Hardee's restaurants due to continued promotions and discounting by
quick-service competitors. In an effort to reverse these negative trends, the
Company has taken a variety of steps, including the introduction of the new
$0.79 Big Value Menu, as well as, the engagement of a new advertising agency to
create and enhance advertising for the value pricing and other Hardee's
programs. In addition, the Company is currently working together with HFS and
other large franchisees to develop a brand positioning which will better
differentiate Hardee's in the marketplace. As of December 31, 1995, 26 units
have been identified for sale or closure generally during 1996.
QUINCY'S
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YEAR ENDED DECEMBER 31,
1991 1992 1993 1994
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Operating Units (end of year)
Owned/operated.............................................................. 216 217 213 207
Revenues (in millions)........................................................ $ 283 $ 290 $ 279 $ 284
Operating Income (Loss) (in millions)......................................... $ 15 $ 11 $ (154)(1) $ 23
Depreciation and Amortization (in millions)................................... $ 22 $ 22 $ 21 $ 11
Average Unit Sales (in thousands)
Owned/operated.............................................................. $1,320 $1,335 $1,302 $1,350
Average Check (3)............................................................. $ 5.40 $ 5.32 $ 5.61 $ 5.79
<CAPTION>
1995
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Operating Units (end of year)
Owned/operated.............................................................. 203
Revenues (in millions)........................................................ $ 294
Operating Income (Loss) (in millions)......................................... $ 22(2)
Depreciation and Amortization (in millions)................................... $ 12
Average Unit Sales (in thousands)
Owned/operated.............................................................. $1,438
Average Check (3)............................................................. $ 5.88
</TABLE>
(1) Operating income reflects the write-off of goodwill and certain other
intangible assets and the provision for restructuring charges of $164
million for the year ended December 31, 1993. For a discussion of the
write-off and restructuring and the reasons therefor, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1 and 3 to the Consolidated Financial Statements.
(2) Operating income reflects a charge for impaired assets of $3 million for the
year ended December 31, 1995. For a discussion of the charge for impaired
assets see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes 1 and 2 to the Consolidatd Financial
Statements.
(3) Amount is calculated on an average unit sales basis.
Ranked by 1995 sales, Quincy's is the sixth largest family steakhouse
(grill buffet) chain in the country and one of the largest such chains in the
southeastern United States. The Quincy's chain consists of 203 Company-owned
restaurants at December 31, 1995 which are designed to provide families with
limited-service dining at moderate prices. All Quincy's are open seven days a
week for lunch and dinner. The restaurants serve steak, chicken and seafood
entrees along with a buffet-style food bar, called the "Country Sideboard,"
offering hot foods, soups, salads and desserts. In addition, weekend breakfast
service, which is available at most locations, allows Quincy's to utilize its
asset base more efficiently.
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During 1995, the Company continued its reimaging program at Quincy's with a
total of 35 restaurant units reimaged. After experimenting with a number of
formats at Quincy's during the years 1993 through 1995, including enhancements
to the scatter bar buffet and a few buffet only restaurants, the Company has
concluded that it can achieve its greatest success with Quincy's by moving away
from the low margin buffet concept and repositioning itself with a simpler menu
which emphasizes "value-steak." As of December 31, 1995, 4 units have been
identified for sale or closure generally during 1996.
EL POLLO LOCO
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YEAR ENDED DECEMBER 31,
1991 1992 1993 1994
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Operating Units (end of year)
Owned/operated.................................................................. 111 120 139 127
Franchised...................................................................... 83 77 64 78
International................................................................... 17 13 6 4
Revenues (in millions)............................................................ $ 101 $ 97 $ 109 $ 133
Operating Income (Loss) (in millions)............................................. $ (2) $ -- $(128)(1) $ 9
Depreciation and Amortization (in millions)....................................... $ 8 $ 8 $ 10 $ 6
Average Unit Sales (in thousands)
Owned/operated.................................................................. $ 808 $ 814 $ 829 $ 932
Franchised...................................................................... $ 816 $ 877 $ 918 $ 893
Average Check (2)................................................................. $6.37 $6.36 $6.54 $6.59
<CAPTION>
1995
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Operating Units (end of year)
Owned/operated.................................................................. 103
Franchised...................................................................... 112
International................................................................... 2
Revenues (in millions)............................................................ $ 127
Operating Income (Loss) (in millions)............................................. $ 13
Depreciation and Amortization (in millions)....................................... $ 5
Average Unit Sales (in thousands)
Owned/operated.................................................................. $1,019
Franchised...................................................................... $ 858
Average Check (2)................................................................. $ 6.77
</TABLE>
(1) Operating income reflects the write-off of goodwill and certain other
intangible assets and the provision for restructuring charges of $126
million for the year ended December 31, 1993. For a discussion of the
write-off and restructuring and reasons therefor, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1 and 3 to the Consolidated Financial Statements.
(2) Amount is based on an average unit sales basis for owned/operated units.
El Pollo Loco is the leading chain in the quick-service segment of the
restaurant industry to specialize in flame-broiled chicken. Approximately 91% of
these restaurants are located in Southern California. El Pollo Loco directs its
marketing at customers desiring an alternative to other fast food products. The
Company's El Pollo Loco restaurants are designed to facilitate customer viewing
of the preparation of the flame-broiled chicken. El Pollo Loco restaurants
generally are open 12 hours a day, seven days per week. El Pollo Loco
restaurants feature a limited, but expanding menu highlighted by marinated
flame-broiled chicken and steak products and related Mexican food items.
Since 1993, the Company has been able to increase average annual unit sales
at its El Pollo Loco restaurants by over 10%. Much of its recent progress can be
attributed to the remodels of units, successful menu positioning, and dual
branding of the Foster's Freeze dessert line. During 1995, the Company remodeled
57 of its Company-owned El Pollo Loco units. As of December 31, 1995, 8 units
have been identified for sale or closure generally during 1996.
Based on El Pollo Loco's recent success, the Company is optimistic about
future expansion of the El Pollo Loco concept, principally through franchising
in Texas and in other California markets. By the year 2000, the Company hopes to
add as many as 250 additional El Pollo Loco restaurant units. In the first
quarter of 1996, the Company secured the international rights to the El Pollo
Loco brand to facilitate expansion opportunities in Mexico and other countries.
OPERATIONS
The Company believes that successful execution of basic restaurant
operations in each of its restaurant chains is critical to its success.
Accordingly, significant effort is devoted to ensuring that all restaurants
offer quality food and service. Through a network of division leaders, region
leaders, district leaders and restaurant managers, the Company standardizes
specifications for the preparation and efficient service of quality food, the
maintenance and repair of its premises and the appearance and conduct of its
employees. Major emphasis is placed on the proper preparation and delivery of
the product to the consumer and on the cost-effective procurement and
distribution of quality products.
A principal feature of the Company's restaurant operations is the constant
focus on improving operations at the unit level. Unit managers are especially
hands-on and versatile in their supervisory activities. Region and district
leaders have no offices and spend substantially all of their time in the
restaurants. A significant majority of restaurant management personnel began as
hourly employees in the restaurants and therefore perform restaurant functions
and train by example. The Company benefits from an experienced management team.
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Each of the Company's restaurant chains maintains training programs for
employees and restaurant managers. Restaurant managers and assistant managers
receive training at specially designated training units. Areas of training for
managers include customer interaction, kitchen management and food preparation,
data processing and cost control techniques, equipment and building maintenance
and leadership skills. Video training tapes demonstrating various restaurant job
functions are located at each restaurant location and are viewed by employees
prior to a change in job function or utilizing new equipment or procedures.
Each of the Company's restaurant chains continuously evaluates its menu.
New products are developed in Company test kitchens and then introduced in
selected restaurants to determine customer response and to ensure that
consistency, quality standards and profitability are maintained. If a new item
proves successful at the research and development level, it is usually tested in
selected markets, both with and without market support. A successful menu item
is then incorporated into the restaurant system. In the case of the Hardee's
restaurants, menu development is coordinated through HFS.
Financial and management control of the Company's restaurants is
facilitated by the use of POS systems. Detailed sales reports, payroll data and
periodic inventory information are transmitted to the Company for management
review. These systems economically collect accounting data and enhance the
Company's ability to control and manage these restaurant operations. Such
systems are in use in all of the Company's Denny's, Hardee's, Quincy's and El
Pollo Loco restaurants.
The Company also operates a food-processing facility in Texas which
supplies beef, pork sausage, soup and many other food products currently used by
the Company's restaurants.
Food and packaging products for the Company's Hardee's restaurants are
purchased from HFS and independent suppliers approved by HFS. A substantial
portion of the products for the Company's Hardee's and Quincy's restaurants is
obtained from MBM Corporation ("MBM"), an independent supplier/distributor. In
connection with the 1995 sale of its distribution subsidiary, Proficient Food
Company ("PFC"), to MBM, the Company entered into new long-term supply contracts
with MBM for the supply of products to its Hardee's and Quincy's units and with
PFC for the supply of products to Denny's and El Pollo Loco. Adequate
alternative sources of supply for required items are believed to be available.
ADVERTISING
Denny's primarily relies upon national and regional television and radio
advertising. Advertising expenses for Denny's restaurants were $49.2 million for
1995, representing approximately 2.6% of Denny's system-wide restaurant sales.
Individual restaurants are also given the discretion to conduct local
advertising campaigns. In accordance with HFS licensing agreements, the Company
spent approximately 6.8% of Hardee's total gross sales on marketing and
advertising during 1995. Of this amount, approximately 2.1% of total gross sales
is contributed to media cooperatives and HFS' national advertising fund. The
balance is directed by the Company on local levels. HFS engages in substantial
advertising and promotional activities to maintain and enhance the Hardee's
system and image. The Company participates with HFS in planning promotions and
television support for the Company's primary markets and engages in local radio,
outdoor and print advertising for its Hardee's operations. The Company, together
with a regional advertising agency, advertises its Quincy's restaurants
primarily through television, print, radio and billboards. In addition, Quincy's
has focused on in-store promotions. The Company spent approximately 5.1% of
Quincy's gross sales on Quincy's marketing in 1995. During 1995, El Pollo Loco
spent approximately 5.1% of its system-wide restaurant sales on advertising,
primarily through regional television, radio, and print media in its market
areas.
SITE SELECTION
The success of any restaurant depends, to a large extent, on its location.
The site selection process for Company-owned restaurants consists of three main
phases: strategic planning, site identification and detailed site review. The
planning phase ensures that restaurants are located in strategic markets. In the
site identification phase, the major trade areas within a market area are
analyzed and a potential site identified. The final and most time consuming
phase is the detailed site review. In this phase, the site's demographics,
traffic and pedestrian counts, visibility, building constraints and competition
are studied in detail. A detailed budget and return on investment analysis are
also completed. The Company considers its site selection standards and
procedures to be rigorous and will not compromise those standards or procedures
in order to achieve accelerated growth.
6
<PAGE>
COMPETITION
According to the National Restaurant Association, in the past five years,
the total food service industry experienced annual real growth of approximately
1.8%. The restaurant industry not only competes within the food consumed away
from home segment of the food industry, but also with sources of food consumed
at home. In order to grow at a real growth rate in excess of 1.8%, the Company's
restaurant concepts must take market share from other competing restaurant and
non-restaurant food sources.
The restaurant industry can be divided into three main categories:
full-service restaurants, quick-service restaurants, and other miscellaneous
establishments. Since the early 1970s, growth in eating places has been driven
primarily by quick-service restaurants. On a segment-wide basis, the
full-service and quick-service restaurants currently have approximately the same
revenues and an equal share of the market. Full-service restaurants include the
mid-scale (family-style and family-steak), casual dining and upscale (fine
dining) segments. The mid-scale segment, which includes Denny's and Quincy's, is
characterized by complete meals, menu variety and moderate prices ($4-$7 average
check), and includes a small number of national chains, many local and regional
chains, and thousands of independent operators. The casual dining segment, which
typically has higher menu prices ($8-$16 average check) and availability of
alcoholic beverages, primarily consists of regional chains and small
independents. The quick-service segment, which includes Hardee's and El Pollo
Loco, is characterized by low prices ($3-$5 average check), finger foods, fast
service, and convenience. Large sandwich, pizza, and chicken chains
overwhelmingly dominate the quick-service segment.
The restaurant industry is highly competitive and affected by many factors,
including changes in economic conditions affecting consumer spending, changes in
socio-demographic characteristics of areas in which restaurants are located,
changes in customer tastes and preferences and increases in the number of
restaurants generally and in particular areas. Competition among a few major
companies that own or operate quick-service restaurant chains is especially
intense. Restaurants, particularly those in the quick-service segment, compete
on the basis of name recognition and advertising, the quality and perceived
value of their food offerings, the quality and speed of their service, the
attractiveness of their facilities and, to a large degree in a recessionary
environment, price and perceived value.
Denny's, which has a strong national presence, competes primarily with
regional family chains such as Big Boy, Shoney's, Friendly's, Perkins and
Cracker Barrel -- all of which are ranked among the top six midscale restaurant
chains. According to an independent survey conducted during 1995, Denny's had a
14.5% share of the national market in the family segment.
Hardee's restaurants compete principally with four other national fast-food
chains: McDonald's, Burger King, Wendy's and Taco Bell. In addition, Hardee's
restaurants compete with quick-service restaurants serving other kinds of foods,
such as chicken outlets (e.g., KFC and Bojangles), family restaurants (e.g.,
Shoney's and Friendly's) and dinner houses. Management believes that Hardee's
has the highest breakfast sales per unit of any major quick-service restaurant
chain. According to an independent survey conducted during 1995, Hardee's had a
17.1% share of the Southeast market in the hamburger segment.
Quincy's primary competitors include Ryan's and Golden Corral, both of
which are based in the Southeast. Quincy's also competes with other family
restaurants and with casual dining and quick-service outlets. Nationwide, the
top five chains are Sizzler, Ponderosa, Golden Corral, Ryan's, and Western
Sizzlin'. According to NATION'S RESTAURANT NEWS (published August 7, 1995),
Quincy's ranked sixth nationwide in system-wide sales and third in sales per
unit among the family steakhouse (grill buffet) chains. According to an
independent survey conducted during 1995, Quincy's had a 19.3% share of the
Southeast market in the family steakhouse segment.
El Pollo Loco's business is split approximately evenly between the lunch
daypart and the dinner daypart. During the lunch daypart, El Pollo Loco competes
primarily with McDonald's, Burger King, Taco Bell and Carl's Jr. During the
dinner daypart, El Pollo Loco's menu mix is more heavily oriented towards
bone-in chicken in large meal combinations (8 or 12 pieces), the majority of
which is taken home by consumers. El Pollo Loco's major competitors during the
dinner daypart are KFC, Popeyes, Boston Market, and the take-out and delivery
pizza restaurants (e.g., Pizza Hut and Domino's). According to an independent
survey conducted during 1995, El Pollo Loco had a 35.8% share of the Los Angeles
DMA (over 5 million households) in the chicken segment, and had a 4.6% share of
the total of all of the quick-service restaurants segment.
7
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to each executive
officer of FCI, along with certain executive officers of Flagstar.
<TABLE>
<CAPTION>
CURRENT PRINCIPAL OCCUPATION OR
NAME AGE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
James B. Adamson 48 Chairman, President and Chief Executive Officer of FCI and Flagstar (February
1995-present); Chief Executive Officer of Burger King Corporation (1993-January 1995);
Chief Operating Officer of Burger King Corporation (1991-1993); President of Burger
King U.S.A. Retail Division (1991); Executive Vice President, Marketing of Revco, Inc.
(1988-1991).
C. Robert Campbell 51 Vice President and Chief Financial Officer of FCI and Executive Vice President and
Chief Financial Officer of Flagstar (October 1995-present); Executive Vice President of
Human Resources and Administration for Ryder System, Inc. (1991-1995); Executive Vice
President -- Finance of Vehicle Leasing Division of Ryder System, Inc. (1981-1991).
Edna K. Morris 44 Executive Vice President, Human Resources and Corporate Affairs of Flagstar (February
1995-present); Senior Vice President, Human Resources of Flagstar (1993-February 1995);
Vice President, Education and Development of Flagstar (1992-1993); Senior Vice
President/Human Resources of HFS (1987-1992); Director of Employee Relations of HFS
(1987); Personnel Manager, Consolidated Diesel Company, a joint venture between J. I.
Case and Cummins Engine Company (1981-1987); Personnel Manager, Manufacturing of HFS
(1980-1981).
C. Ronald Petty 51 Executive Vice President of Flagstar and President of Denny's (1994-present); Chief
Executive Officer of Denny's (February 1995-present); Chief Operating Officer of
Denny's (1993-present); Senior Vice President of Flagstar (1993-1994); Independent
Consultant (1992-1993); President and Chief Executive Officer of Miami Subs Corporation
(1990-1992); President and Chief Operating Officer of Burger King Corporation, US
Division (1988-1990); President, International Division of Burger King Corporation
(1986-1988).
James R. Kibler 41 Senior Vice President of Flagstar and Chief Operating Officer of Flagstar Enterprises,
Inc. (1991-present); President of Flagstar Enterprises, Inc. (1994-present); President
of Quincy's Restaurants, Inc. (November 1995-present); Senior Vice President of
Flagstar Systems, Inc. (1991-present); Vice President of Operations -- Denny's West
Coast (1989-1991); Division Leader for Hardee's (1989); Region Leader for Hardee's
(1979-1989).
Rhonda J. Parish 39 Vice President and General Counsel of FCI and Senior Vice President and General Counsel
of Flagstar (January 1995-present); Secretary of FCI and Flagstar (February
1995-present); Assistant General Counsel of Wal-Mart Stores, Inc. (1990-1994);
Corporate Counsel of Wal-Mart Stores, Inc. (1983-1990).
John A. Romandetti 45 Senior Vice President of Flagstar and President of El Pollo Loco (December
1995-present); Vice President of Operations for Burger King Corporation (1981-1995).
Kent M. Smith 58 Senior Vice President and Special Assistant to the Chairman of Flagstar (March
1995-present); Consultant of Pollo Tropical (1994-February 1995); Senior Vice President
of Burger King Corporation (1992-1994); President of Strategic Marketing Group
(1984-1992).
Paul R. Wexler 52 Senior Vice President, Procurement and Distribution of Flagstar (October 1995-present);
Vice President, Procurement and Quality Assurance -- Marriott International
(1991-1995).
Donna M. Mascolo 41 Vice President and Controller of Flagstar (February 1996-present); Vice President and
Broker Associate, Transworld Business Brokers, Inc., (1995-present); President, DonMar
Global Business Services (1995-present); Regional Vice President and Chief Financial
Officer, Kentucky Fried Chicken International Latin American/Carribbean Region
(1990-1994).
William H. Mitchell 43 Vice President, Real Estate and Development of Flagstar (September 1995-present); Vice
President, Real Estate for Flagstar Enterprises, Inc. (1991-1995); Vice President of
Real Estate and Construction for Denny's, Inc.
Honorio J. Padron 43 Vice President, Business Transformation of Flagstar (March 1995-present); Senior
Director of Research and Development of Burger King Corporation (January 1995-March
1995); Director of Reengineering of Burger King Corporation (1993-January 1995);
Director of Worldwide Profit and Loss Improvement of Burger King Corporation (1993);
Manager of Systems Support of Burger King Corporation (1990-1993).
</TABLE>
8
<PAGE>
EMPLOYEES
At December 31, 1995, the Company had approximately 88,000 employees of
which less than 1% are union members. Many of the Company's restaurant employees
work part-time, and many are paid at or slightly above minimum wage levels. The
Company has experienced no significant work stoppages and considers its
relations with its employees to be satisfactory.
ITEM 2. PROPERTIES
Most of the Company's restaurants are free-standing facilities. An average
Denny's restaurant ranges from 3,900 to 5,800 square feet and seats 100 to 175
customers. Denny's restaurants generally occupy 35,000 to 45,000 square feet of
land. An average Hardee's restaurant operated by the Company has approximately
3,300 square feet and provides seating for 94 persons, and most have drive-thru
facilities. Each of the Company's Hardee's restaurants occupies approximately
50,000 square feet of land. The average Quincy's restaurant has approximately
7,100 square feet and provides seating for 250 persons. Each Quincy's restaurant
occupies approximately 63,000 square feet of land. A typical El Pollo Loco
restaurant has 2,250 square feet and seats 66 customers.
The following table sets forth certain information regarding the Company's
restaurant properties as of December 31, 1995:
<TABLE>
<CAPTION>
LAND LEASED
LAND AND AND LAND AND
BUILDING BUILDING BUILDING
OWNED OWNED LEASED
<S> <C> <C> <C>
TYPE OF RESTAURANT
DENNY'S............... 265 37 631
HARDEE'S.............. 287 104 202
QUINCY'S.............. 155 42 6
EL POLLO LOCO......... 9 34 60
Total............... 716 217 899
</TABLE>
9
<PAGE>
The number and location of the Company's restaurants in each chain as of
December 31, 1995 are presented below:
<TABLE>
<CAPTION>
DENNY'S EL POLLO LOCO
FRANCHISED FRANCHISED
STATE OWNED LICENSED HARDEE'S QUINCY'S OWNED LICENSED
<S> <C> <C> <C> <C> <C> <C>
Alabama.................................................... 1 9 156 46 -- --
Alaska..................................................... -- 4 -- -- -- --
Arizona.................................................... 32 41 -- -- -- 1
Arkansas................................................... 1 5 3 -- -- --
California................................................. 234 107 -- -- 103 104
Colorado................................................... 25 11 -- -- -- --
Connecticut................................................ 5 3 -- -- -- --
Delaware................................................... 3 -- -- -- -- --
Florida.................................................... 103 64 57 41 -- --
Georgia.................................................... -- 24 10 11 -- --
Hawaii..................................................... 4 2 -- -- -- --
Idaho...................................................... -- 7 -- -- -- --
Illinois................................................... 48 9 -- -- -- --
Indiana.................................................... 15 9 -- -- -- --
Iowa....................................................... 1 5 -- -- -- --
Kansas..................................................... 9 4 -- -- -- --
Kentucky................................................... -- 20 -- -- -- --
Louisiana.................................................. 8 2 1 -- -- --
Maine...................................................... -- 4 -- -- -- --
Maryland................................................... 14 16 -- -- -- --
Massachusetts.............................................. 9 -- -- -- -- --
Michigan................................................... 39 1 -- -- -- --
Minnesota.................................................. 13 3 -- -- -- --
Mississippi................................................ 2 2 41 8 -- --
Missouri................................................... 30 6 -- -- -- --
Montana.................................................... -- 2 -- -- -- --
Nebraska................................................... -- 6 -- -- -- --
Nevada..................................................... 12 4 -- -- -- 4
New Hampshire.............................................. 2 1 -- -- -- --
New Jersey................................................. 14 2 -- -- -- --
New Mexico................................................. 2 12 -- -- -- --
New York................................................... 19 14 -- -- -- --
North Carolina............................................. 8 12 61 39 -- --
North Dakota............................................... -- 3 -- -- -- --
Ohio....................................................... 36 22 19 1 -- --
Oklahoma................................................... 9 9 -- -- -- --
Oregon..................................................... 5 18 -- -- -- --
Pennsylvania............................................... 52 3 2 -- -- --
Rhode Island............................................... -- -- -- -- -- --
South Carolina............................................. 9 5 125 42 -- --
South Dakota............................................... -- 1 -- -- -- --
Tennessee.................................................. 3 10 115 12 -- --
Texas...................................................... 66 47 -- -- -- 3
Utah....................................................... 7 10 -- -- -- --
Vermont.................................................... -- 2 -- -- -- --
Virginia................................................... 20 6 3 3 -- --
Washington................................................. 50 18 -- -- -- --
West Virginia.............................................. -- 3 -- -- -- --
Wisconsin.................................................. 13 7 -- -- -- --
Wyoming.................................................... -- 5 -- -- -- --
Canada..................................................... 10 16 -- -- -- --
International.............................................. -- 24 -- -- -- 2
Total.................................................... 933 620 593 203 103 114
</TABLE>
At December 31, 1995, the Company owned one manufacturing facility in
Texas.
The Company also owns a 19-story, 187,000 square foot office tower, which
serves as its corporate headquarters, located in Spartanburg, South Carolina.
The Company's corporate offices currently occupy approximately 14 floors of the
tower, with the balance leased to others.
See "Certain Relationships and Related Transactions -- Description of
Indebtedness" and Note 4 to the accompanying Consolidated Financial Statements
for information concerning encumbrances on certain properties of the Company.
ITEM 3. LEGAL PROCEEDINGS
FCI, Flagstar, El Pollo Loco and Denny's, along with several former
officers and directors of those companies, are named as defendants in an action
filed on August 28, 1991 in the Superior Court of Orange County, California. The
plaintiffs, who are current and former El Pollo Loco franchisees allege that the
defendants, among other things, failed or caused a failure to promote, develop
and expand the El Pollo Loco franchise system in breach of contractual
obligations to the plaintiff franchisees and made certain misrepresentations to
the plaintiffs concerning the El Pollo Loco system.
10
<PAGE>
Asserting various legal theories, the plaintiffs seek actual and punitive
damages in excess of $90 million, together with declaratory and certain other
equitable relief. The defendants have denied all material allegations, and
certain defendants have filed cross-complaints against various plaintiffs in the
action for breach of contract and other claims. Since the filing of the action
the defendants have entered into settlements with five of the plaintiffs leaving
three remaining in the lawsuit. The cost of the settlements, which included the
purchase of 15 operating EPL franchises, was in the aggregate amount of $20.6
million. With respect to the remaining plaintiffs, the litigation is in the
final stages of discovery, with a trial date to hear the outstanding issues in
the case, anticipated sometime during 1996.
The Company has received proposed deficiencies from the Internal Revenue
Service (the "IRS") for federal income taxes and penalties totalling
approximately $12.7 million. The proposed deficiencies relate to examinations of
certain income tax returns filed by the Company for the seven fiscal periods
ended December 31, 1992. The deficiencies primarily involve the proposed
disallowance of deductions associated with borrowings and other costs incurred
prior to, at and just following the time of the acquisition of Flagstar in 1989.
The Company intends to vigorously contest the proposed deficiencies because it
believes the proposed deficiencies are substantially incorrect.
The Company is also the subject of pending and threatened employment
discrimination claims principally in California and Alabama. In certain of these
claims, the plaintiffs have threatened to seek to represent a class alleging
racial discrimination in employment practices at Company restaurants and to seek
actual, compensatory and punitive damages, and injunctive relief. The Company
believes that these claims also lack merit and, unless there is an early
resolution thereof, intends to defend them vigorously.
On June 15, 1994, a derivative action was filed in the Alameda County
Superior Court for the State of California by Mr. Adam Lazar, purporting to act
on behalf of the Company, against the Company's directors and certain of its
current and former officers alleging breach of fiduciary duty and waste of
corporate assets by the defendants relating to alleged acts of mismanagement or
the alleged failure to act with due care, resulting in policies and practices at
Denny's that allegedly gave rise to certain public accommodations class action
lawsuits against the Company that were settled in 1994. The action seeks
unspecified damages against the defendants on behalf of the Company and its
stockholders, including punitive damages, and injunctive relief. There has been
only limited discovery in this action to date. Accordingly, it is premature to
express a judgment herein as to the likely outcome of the action.
Other proceedings are pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company, and in
others presenting allegations that are nonroutine and include compensatory or
punitive damage claims. The ultimate legal and financial liability of the
Company with respect to the matters mentioned above and these other proceedings
cannot be estimated with certainty. However, the Company believes, based on its
examination of these matters and its experience to date, that sufficient
accruals have been established by the Company to provide for known
contingencies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of FCI, $.50 par value per share (the "Common Stock"), is
currently traded on the NASDAQ National Market System using the symbol "FLST."
As of March 7, 1996, 42,434,606 shares of Common Stock were outstanding, and
there were approximately 12,000 record and beneficial stockholders. FCI has not
paid and does not expect to pay dividends on its outstanding Common Stock.
Restrictions contained in the instruments governing the outstanding indebtedness
of Flagstar restrict its ability to provide funds that might otherwise be used
by FCI for the payment of dividends on its Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 4 to the accompanying
Consolidated Financial Statements of the Company. The closing sales prices
indicated below for the Common Stock were obtained from the National Association
of Securities Dealers, Inc.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1994
First quarter................................................................... 12 3/4 9
Second quarter.................................................................. 10 1/2 7 3/4
Third quarter................................................................... 10 1/4 7 1/2
Fourth quarter.................................................................. 9 3/4 5 1/2
1995
First quarter................................................................... 7 7/8 5 1/2
Second quarter.................................................................. 6 1/2 4 1/4
Third quarter................................................................... 6 1/8 4 5/8
Fourth quarter.................................................................. 5 1/2 2 7/8
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are certain selected financial data concerning the Company
for each of the five years ended December 31, 1995. Such data generally have
been derived from the Consolidated Financial Statements of the Company for such
periods which have been audited. The following information should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes
thereto presented elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1991 1992 1993 1994
(1) (1) (1) (1) 1995
<S> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT RATIOS)
Income Statement data:
Operating revenue.................................. $2,338.7 $2,443.0 $2,615.2 $2,666.0 $2,571.5
Operating income (loss)............................ 179.3 196.7 (1,102.4)(2) 211.5(3) 98.2(4)
Loss from continuing operations (5)................ (54.1) (39.2) (1,238.6) (16.8) (132.9)
Primary earnings (loss) per share applicable to
common shareholders:
Continuing operations............................ (2.44) (1.82) (29.56) (0.14) (3.47)
Discontinued operations (5)...................... (0.60) (0.50) (9.67) 7.52 1.82
Net income (loss)(6)............................. (3.04) (9.29) (40.14) 7.16 (1.64)
Fully diluted earnings (loss) per share applicable
to common shareholders:
Continuing operations............................ (2.44) (1.82) (29.56) 0.26 (3.47)
Discontinued operations (5)...................... (0.60) (0.50) (9.67) 6.05 1.82
Net income (loss) (6)............................ (3.04) (9.29) (40.14) 6.13 (1.64)
Cash dividends per common share (7)................ -- -- -- -- --
Ratio of earnings to fixed charges (8)............. -- -- -- -- --
Deficiency in the coverage of fixed charges to
earnings before fixed charges (8)................ 69.8 45.8 1,318.2 19.3 133.0
Balance Sheet data (at end of period):
Current assets (9)................................. 95.3 98.4 122.2 186.1 285.3
Working capital (deficiency) (9)(10)............... (326.7) (256.3) (273.0) (205.6) (122.2)
Net property and equipment......................... 1,256.9 1,269.9 1,167.2 1,196.4 1,104.4
Total assets....................................... 3,186.9 3,170.9 1,538.9 1,587.5 1,507.8
Long-term debt..................................... 2,255.3 2,171.3 2,341.2 2,067.6 1,996.1
</TABLE>
(1) Certain amounts for the four years ended December 31, 1994 have been
reclassified to conform to the 1995 presentation.
12
<PAGE>
(2) Operating loss for the year ended December 31, 1993 reflects charges for
the write-off of goodwill and certain other intangible assets of $1,104.6
million and the provision for restructuring charges of $158.6 million.
(3) Operating income for the year ended December 31, 1994 reflects a recovery
of restructuring charges of $7.2 million.
(4) Operating income for the year ended December 31, 1995 reflects a provision
for restructuring charges of $15.9 million and a charge for impaired assets
of $51.4 million.
(5) The Company has reclassified as discontinued operations Preferred Meal
Systems, Inc., which was sold in 1991, Canteen Corporation, a food and
vending subsidiary, sold in 1994, TW Recreational Services, Inc. ("TWRS"),
a recreation services subsidiary, and Volume Services ("VS"), Inc., a
stadium concessions subsidiary. TWRS and VS were sold during 1995.
(6) For the year ended December 31, 1992, net loss includes extraordinary
losses of $6.25 per share related to premiums paid to retire certain
indebtedness and to charge-off the related unamortized deferred financing
costs and losses of $0.72 per share for the cumulative effect of a change
in accounting principle related to implementation of Statement of Financial
Accounting Standards No. 106. For the year ended December 31, 1993, net
loss includes extraordinary losses of $0.62 per share related to the
repurchase of Flagstar's 10% Convertible Junior Subordinated Debentures Due
2014 (the "10% Debentures") and to the charge-off of unamortized deferred
financing costs related to a prepayment of Flagstar's senior term loan; net
loss for 1993 also includes a charge of $0.29 per share related to a change
of accounting method pursuant to Staff Accounting Bulletin No. 92. For the
year ended December 31, 1994, net income includes an extraordinary loss of
$0.22 per share, as calculated for primary earnings per share, and $0.18
per share, as calculated for fully diluted earnings per share, relating to
the charge off of unamortized deferred financing costs associated with the
Company's prepayment of its senior term loan and working capital facility
during the second quarter of 1994. For the year ended December 31, 1995,
net loss includes a $0.01 per share extraordinary gain relating to the
repurchase of $24,975,000 of senior indebtedness net of the charge-off of
unamortized deferred financing costs.
(7) Flagstar's bank credit agreement prohibits, and its public debt indentures
significantly limit, distribution to FCI of funds that might otherwise be
used by it to pay Common Stock dividends. See Note 4 to the accompanying
Consolidated Financial Statements appearing elsewhere herein.
(8) The ratio of earnings to fixed charges has been calculated by dividing
pre-tax earnings by fixed charges. Earnings, as used to compute the ratio,
equal the sum of income from continuing operations before income taxes and
fixed charges excluding capitalized interest. Fixed charges are the total
interest expense including capitalized interest, amortization of debt
expenses and a rental factor that is representative of an interest factor
(estimated to be one third) on operating leases.
(9) The current assets and working capital deficiency amounts presented exclude
assets held for sale of $503.0 million, $480.8 million, $103.2 million, and
$77.3 million as of December 31, 1991 through 1994, respectively. Such
assets held for sale relate to the Company's food and vending and
concessions and recreation services subsidiaries.
(10) A negative working capital position is not unusual for a restaurant
operating company. At December 31, 1992, the decrease in the working
capital deficiency from December 31, 1991 is due primarily to decreased
current maturities of the Company's bank debt as a result of the
Recapitalization. The increase in the working capital deficiency from
December 31, 1992 to December 31, 1993 is attributable primarily to an
increase in restructuring and other liabilities. The decrease in the
working capital deficiency from December 31, 1993 to December 31, 1994 is
due primarily to an increase in cash following the sale of the Company's
food and vending subsidiary during 1994. The decrease in the working
capital deficiency from December 31, 1994 to December 31, 1995 is due
primarily to an increase in cash following the 1995 sales of the Company's
(i) distribution subsidiary, Proficient Food Company, net of current assets
and liabilities of such subsidiary, and (ii) the concession and recreation
services subsidiaries.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data and the Consolidated Financial Statements" and other more
detailed financial information appearing elsewhere herein.
1995 COMPARED TO 1994
OPERATING TRENDS: During 1995, the Company experienced comparable store
sales increases at Denny's, Quincy's, and El Pollo Loco, due to the success of
the Denny's value menu strategy, the impact of remodelings at Quincy's, and El
13
<PAGE>
Pollo Loco's successful menu positioning, dual-branding of Foster's Freeze, and
favorable results from remodeled restaurants. However, the Company experienced a
significant decline in comparable store sales at Hardee's due to continued
competitive promotions and discounting by quick-service competitors. Primarily
as a result of lower revenues at Hardee's, the Company experienced a reduction
in operating income (before considering the provision for (recovery of)
restructuring charges and charge for impaired assets) of $38.8 million. As a
result, the trends experienced since the 1989 acquisition generally have
continued through 1995; operating income has been insufficient to cover the
interest and debt expense (although operating cash flows have been sufficient to
cover interest costs), resulting in continued losses from continuing operations.
The external factors that have contributed to such trends, including increased
competition and intensive pressure on pricing due to discounting, are expected
to continue.
In response to these factors, during 1995, management instituted the
changes described above that have contributed to improving sales on a comparable
store basis at Denny's, Quincy's, and El Pollo Loco. Management continues to
explore alternatives in an attempt to reverse the negative sales trends at
Hardee's. During 1995 the Company began the upgrading of all marketing programs
by hiring new marketing agencies for all its restaurant concepts and completed
the analytical stage of a comprehensive business transformation program which is
intended to result in better customer support at the restaurant level, increased
operational efficiencies, and a more streamlined organizational structure. In
addition, the proceeds from the sale of certain operations have partially been
used to reduce the Company's long-term debt; however, the majority of such
proceeds have been retained in short-term liquidity or have been used to fund
capital expenditures.
OPERATING REVENUES: Operating revenues from continuing operations for 1995
decreased by approximately $94.5 million (3.5%) as compared with 1994 primarily
reflecting the sale of non-core assets coupled with continued weakness at
Hardee's.
Denny's revenues decreased by $57.3 million (3.7%), of which $53.0 million
was attributable to a decrease in outside revenues at the Company's food
processing and distribution subsidiaries. Such revenue decrease reflects the
sale of the Company's distribution subsidiary during the third quarter of 1995.
The remaining decrease of $4.3 million is primarily due to a 45-unit net
decrease in the number of Company-owned restaurants at December 31, 1995 as
compared to December 31, 1994 which was partially offset by an 84-unit increase
in the number of franchised restaurants. Comparable store sales at Denny's
increased 2.4% during 1995 as compared with 1994 reflecting increases in average
check of 2.3% and 0.2% in traffic. During 1995, Denny's completed remodels on
182 Company-owned restaurants.
Hardee's revenues decreased during 1995 by $40.6 million to $659.9 million
from $700.5 million during 1994 principally due to a decline of 8.6% in
comparable store sales. The decrease in comparable store sales resulted from a
10.0% decline in traffic which was mitigated by a 1.6% increase in average
check. Although Hardee's traffic continues to be impacted by continued
aggressive promotions and discounting by quick service competitors, active
involvement by the Company with Hardee's Food Systems, Inc. and a continued
focus on a value menu strategy is planned to address this issue. During 1995,
the Company remodeled 59 Hardee's restaurants.
Quincy's revenues increased by $9.9 million (3.5%) during 1995 as compared
with 1994 despite a 4-unit decrease in the number of restaurants operated at
December 31, 1995 as compared to December 31, 1994. Such increase in revenues is
primarily due to a 4.8% increase in comparable store sales as a result of
increases of 3.3% in traffic and 1.5% in average check. During 1995, the
increased traffic is partially attributable to the remodeling of 35 of its
Quincy's restaurants.
Revenues at El Pollo Loco decreased $6.4 million (4.8%) to $126.7 million
during 1995 from $133.1 million during 1994 primarily due to a 24-unit net
decrease in the number of Company-owned restaurants following the sales of units
to franchisees. Comparable store sales at Company-owned El Pollo Loco units
increased by 2.0% reflecting an increase in average check of 2.4% which was
partially offset by a 0.4% decrease in traffic. During 1995, El Pollo Loco
completed remodels on 57 of its Company-owned restaurants.
OPERATING EXPENSES: The Company's operating expenses from continuing
operations, before considering the effects of the provision for (recovery of)
restructuring charges and charge for impaired assets, decreased by $55.7 million
(2.3%) in 1995 as compared with 1994.
Operating expenses before the provision for restructuring charges and
charge for impaired assets at Denny's decreased $59.9 million principally due to
decreases in product costs including $43.6 million attributable to Denny's
distribution subsidiary which was sold in September 1995. Operating expenses for
1994 include twelve months of charges for the food distribution subsidiary;
whereas, 1995 includes approximately nine months of such charges. Denny's
operating expenses before the provision for restructuring charges and charge for
impaired assets were also reduced during 1995 by gains on the sale of
restaurants to franchisees of $20.7 million, including a gain on the sale of
Denny's joint venture in
14
<PAGE>
Mexico for $6.0 million. This compares to gains in 1994 of $8.8 million. Such
decreases in operating expenses were offset, in part, by an increase in
advertising expense of $6.0 million.
At Hardee's, operating expenses before considering the effects of the
provision for restructuring charges and charge for impaired assets decreased by
$0.8 million. This reflects increased expenses during 1995 of $12.8 million for
general and administrative, payroll and benefits, restructuring of field
management, workers' compensation charges, and expenses related to promotional
programs. Such increases were more than offset by a $13.6 million decrease in
product costs directly associated with decreased revenues in 1995.
An increase in operating expenses before considering the effects of the
provision for restructuring charges and charge for impaired assets of $9.8
million at Quincy's is principally attributable to increases in payroll and
benefits expense of $4.4 million, product costs of $3.3 million associated with
an increase in revenues during 1995, and advertising expense of $2.7 million.
Operating expenses before considering the effects of the provision for
restructuring charges and charge for impaired assets at El Pollo Loco decreased
by $9.6 million during 1995 due primarily to a 24-unit net decrease at December
31, 1995 as compared with December 31, 1994 in the number of Company-operated
restaurants following the sale of restaurants to franchisees. El Pollo Loco's
operating expenses before considering the effects of the provision for
restructuring charges and charge for impaired assets during 1995 included gains
on the sale of restaurants of $3.8 million as compared with $1.2 million during
1994.
Corporate and other expenses before considering the effects of the
provision for (recovery of) restructuring charges and charge for impaired assets
increased by $4.8 million during 1995 as compared with 1994 due primarily to
increased charges of $4.2 million related to various management recruiting,
training, and information services initiatives.
RESTRUCTURING: Effective in the fourth quarter of 1995, as a result of a
comprehensive financial and operational review, the Company approved a
restructuring plan. The plan generally involves the reduction in personnel and a
decision to outsource the Company's information systems function. Operating
expenses for 1995 reflect a provision for restructuring of $15.9 million
including charges for severance of $5.4 million, $7.6 million for the write-down
of computer hardware and other assets, and $2.9 million for various other
charges. Approximately $7.5 million of the restructuring charges represent cash
charges of which approximately $0.6 million was incurred and paid in 1995.
ACCOUNTING CHANGE: During 1995 the Company adopted Statement of Financial
Accounting Standards No. 121 which resulted in a charge to operating expenses of
$51.4 million for the write-down of Denny's, Hardee's, and Quincy's restaurant
properties. This charge reflects the write-down of 99 units which the Company
will continue to operate and an additional 36 units which will be closed or sold
generally in 1996. See Note 2 to the Consolidated Financial Statements for
further details. As a result of this write-down, the Company estimates that its
depreciation expense in future years will be reduced by an average of $6.0
million annually over the estimated remaining useful life of such assets.
INTEREST AND DEBT EXPENSE: Total interest and debt expense from continuing
and discontinued operations decreased by $18.1 million in 1995 as compared to
1994 ($18.5 million decrease attributable to discontinued operations offset by a
$0.4 million increase in continuing operations) principally as a result of a
reduction in interest expense of $7.0 million following the payment during June
1994 of the principal amount ($170.2 million) outstanding under the term
facility of the Company's Restated Credit Agreement then outstanding and certain
other indebtedness upon the sale of the Company's food and vending subsidiary, a
reduction in interest expense of $4.0 million during 1995 for other indebtedness
which was related to such subsidiaries which have been sold, and a decrease in
interest expense of $6.1 million during 1995 related to interest rate exchange
agreements.
DISCONTINUED OPERATIONS: The Company's concession and recreation services
businesses were sold during 1995 and resulted in a net gain of $77.9 million.
These businesses are accounted for as discontinued operations and recorded
operating revenues of $322.3 million during 1995, a decrease of $3.1 million
(0.9%) from 1994. Revenues related to the stadium concession subsidiary
increased $9.2 million during 1995 to $190.8 million from $181.6 million in
1994. Operating income and depreciation and amortization expense of the
concession subsidiary were $2.4 million and $10.9 million, respectively, during
1995 as compared with $6.5 million and $9.8 million, respectively in 1994. Such
decrease in operating income during 1995 is due principally to a decrease in
average attendance at major league baseball games during the 1995 season.
Revenues related to the recreation services subsidiary decreased by $12.3
million during 1995 to $131.5 million from $143.8 million during 1994. Operating
income and depreciation and amortization expense of the recreation services
subsidiary for 1995 were $14.7 million and $3.8 million, respectively, as
compared with $16.3 million and $4.7 million,
15
<PAGE>
respectively, during 1994. Such decrease in revenues and operating income of the
recreation services subsidiary is due principally to the loss of the service
contract at the Kennedy Space Center during 1995.
EXTRAORDINARY ITEMS: The Company recognized an extraordinary gain totaling
$0.5 million, net of income taxes, during 1995 which represents a gain on the
repurchase of $24,975,000 principal amount of certain indebtedness, net of the
charge-off of the related unamortized deferred financing costs. During 1994, the
Company also recognized an extraordinary loss totaling $11.7 million, net of
income tax benefits of $0.2 million representing the charge-off of unamortized
deferred financing costs associated with the prepayment in June 1994 of senior
bank debt.
1994 COMPARED TO 1993
OPERATING REVENUES: Operating revenues from continuing operations for 1994
increased by approximately $50.8 million (1.9%) as compared with 1993.
Denny's revenues increased $1.9 million (0.1%) due to increased outside
revenues of $36.3 million from its food distribution operations offset in part
by a reduction of restaurant revenues of $34.4 million, principally as a result
of a net decrease of 46 units in the number of Company-owned units. This
decrease in the number of Company-owned units was partially offset by a net
increase of 81 units in the number of franchise-owned restaurants and by a 0.3%
increase in comparable store sales during 1994 as compared to 1993. The increase
in comparable store sales resulted from a 0.6% increase in customer traffic
offset, in part, by a decrease in average check of 0.4%. Management believes
that the positive trend in customer traffic, primarily during the third and
fourth quarters of 1994, was the result of the Company-wide $1.99 Original Grand
Slam Breakfast promotion.
Hardee's revenues increased $18.8 million (2.8%) during 1994 as compared to
the prior year due to a net increase of 31 units. Although Hardee's total
revenues increased, comparable store sales decreased 3.6% as a result of a 3.9%
decrease in customer traffic mitigated, in part, by a 0.3% increase in average
check. The decline in customer traffic at Hardee's during 1994 was principally
the result of aggressive discounting by the Company's quick-service competitors.
Quincy's revenues increased by $5.6 million (2.0%) in 1994 as compared with
1993, primarily due to successful product promotions and the impact of remodeled
restaurants resulting in a 2.9% increase in comparable store sales which more
than offset a net decrease of 6 units. The increase in comparable store sales at
Qunicy's reflects an increase of 3.2% in average check and a 0.3% decrease in
customer traffic.
Revenues at El Pollo Loco increased by $24.6 million (22.7%) during 1994
over 1993 due primarily to new products and combination meals, including
barbeque chicken, additional taco and burrito entrees, and new side orders such
as french fries, black beans, corn, and potatoes, introduced during 1994, and
the acquisition of high-volume franchise restaurants in late 1993. Comparable
store sales increased 6.5% and reflect increases in customer traffic of 6.0% and
in average check of 0.5%.
OPERATING EXPENSE: The Company's overall operating expenses before
considering the effects of the write-off of goodwill and certain other
intangible assets and the provisions for restructuring charges in 1993 increased
by $0.5 million in 1994 as compared with 1993.
At Denny's, operating expenses before considering the effects of the
write-off of goodwill and certain other intangible assets and the provision for
restructuring charges in 1993 decreased by $29.9 million in 1994 as compared
with 1993. A significant portion of the decrease ($20.7 million) was
attributable to a reduction in depreciation and amortization expense related to
the year-end 1993 write-off of assets and a reduction of $18.5 million in
payroll and benefits expense. Such decreases were partially offset by a $3.9
million increase in occupancy expense and a $2.1 million increase in
advertising. In addition, Denny's operating expenses for 1994 reflect a gain of
approximately $8.8 million related to the sale of Company-owned restaurants.
At Hardee's, an increase in operating expenses of $24.4 million was mainly
attributable to the increase in the number of restaurants in operation and
reflects increases in payroll and benefits expenses of $14.6 million, product
costs of $7.4 million, occupancy and maintenance expenses of $2.6 million, and
utilities expense of $1.8 million. Such increases were partially offset by
reduced depreciation and amortization charges of $1.2 million related to the
year-end 1993 write-off of assets.
A decrease in operating expenses of $7.6 million at Quincy's was
principally attributable to a decrease in depreciation and amortization charges
of $9.6 million related to the year-end 1993 write-off of assets which was
offset, in part, by increased payroll and benefits expense of $2.3 million.
16
<PAGE>
General corporate overhead expense (before allocation to specific operating
companies) decreased by $5.2 million in 1994 as compared to 1993 primarily as a
result of the effect of the Company's 1993 restructuring plan.
INTEREST AND DEBT EXPENSE: Interest and debt expense increased by $13.9
million in 1994 as compared to 1993. During 1993, $45.6 million was allocated to
discontinued operations; however, the allocation decreased to $33.7 million as a
result of the sale of the Company's food and vending subsidiary in June 1994.
Cash interest increased by $6.9 million during 1994 as compared with 1993 due to
the higher fixed interest rates on the $400.0 million of the 10 3/4% Senior
Notes due 2001 (the "10 3/4% Notes") and 11 3/8% Senior Subordinated Debentures
due 2003 (the "11 3/8% Debentures") issued during the third quarter of 1993, the
proceeds of which were used to refinance a portion of the Company's bank
facility that during 1993 had interest at lower variable rates. Interest expense
for 1994 included charges of $9.2 million related to interest rate exchange
agreements compared to charges of $12.2 million during 1993. See Notes 1 and 4
to the Consolidated Financial Statement for additional information relating to
the interest rate exchange agreements.
DISCONTINUED OPERATIONS: The Company's concession and recreation services
businesses, which are accounted for as discontinued operations, recorded a
revenue increase of $3.3 million (1.0%) to $325.4 million during 1994 as
compared to 1993. During April 1994, the Company announced its intent to dispose
of these businesses. See Note 13 to the accompanying Consolidated Financial
Statements for additional information.
WRITE-OFF OF GOODWILL AND CERTAIN OTHER INTANGIBLES AND RESTRUCTURING CHARGES IN
1993
During the fourth quarter of 1993, management determined that the most
likely projections of future operating results would be based on the assumption
that historical operating trends of the Company derived from the prior four
years (1990-1993) would continue, and that such projections indicated an
inability to recover the recorded balance of goodwill and certain other
intangible assets. The Company's operating results since the 1989 acquisition of
Flagstar had fallen short of projections prepared at the date of such
acquisition due to increased competition, intensive pressure on pricing due to
discounting, declining customer traffic, adverse economic conditions, and
relatively limited capital resources to respond to these changes. Accordingly,
such assets were written off in 1993, resulting in non-cash charges of $1,475
million ($1,104.6 million to continuing operations and $370.2 million to
discontinued operations). Also in response to such trends, the Company adopted a
plan of restructuring that resulted in a separate charge in 1993 of $192.0
million ($158.6 million to continuing operations and $33.4 million to
discontinued operations).
While total operating revenues increased 2.8% in 1992 and 6.7% in 1993,
operating income for each of the four full years from the Company's 1989
acquisition of Flagstar through 1993 were insufficient to cover the Company's
interest and debt expense as discussed under "Operating Trends", and this trend
has continued through 1995. Operating cash flows have been sufficient to cover
interest costs. The primary factor affecting the Company's ability to generate
operating income sufficient to cover interest and debt expenses and amortization
of goodwill and other intangibles has been the comparable store sales at the
restaurant concepts and the sales volume at the Company's contract food and
vending operation. At the time of the Company's 1989 acquisition of Flagstar,
projections of future operations assumed annual growth rates in comparable store
sales at all concepts and corresponding increases in operating income. Such
projections and those prepared since the 1989 acquisition and prior to the
fourth quarter of 1993, indicated that the Company would become profitable
within several years. However, since the 1989 acquisition through the end of
1993, and despite increases in comparable store sales at Hardee's, comparable
store sales at Denny's and Quincy's increased only slightly and food and vending
sales volume declined through 1993. (Since 1993, comparable store sales have
increased at Denny's and Quincy's, however, Hardee's comparable store sales have
declined during that time.) Projections prepared during the fourth quarter of
1993 indicated that, if the four years trends in customer traffic and other
operating factors were to continue future operating income less interest and
debt expenses would continue to be insufficient to recover the carrying value of
goodwill and other intangible assets. The projections assumed that comparable
store sales at each of the restaurants concepts and food and vending sales
volume would increase or decrease consistent with the four year historical
trends described above. These fourth quarter 1993 projections assumed no
additional borrowings to fund new unit growth (because even if new units
continued to be developed at historical levels, it would not have a material
impact on projected net income) and no reversal of the historical trends that
may result from successful restructuring and reimaging programs instituted by
management in 1993, since management determined, based on all information then
available, that historical trends provided the best estimate of future operating
results.
Also as a result of the historical operating trends described above and in
an attempt to reverse them, effective in the fourth quarter of 1993, the Company
approved a restructuring plan that included the sale, closure, or conversion of
restaurants, a reduction in personnel, and a reorganization of certain
management structures. The restructuring charge
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<PAGE>
(for continuing operations) included primarily a non-cash charge of $130.7
million (including $15 million related to reserves for operating leases) to
write-down assets, and incremental charges of $27.9 million for severance,
relocation, and other costs. The restructuring charge for discontinued
operations was $33.4 million. In conjunction with this plan, 240 units were
identified for sale, closure, or conversion to another concept. As of December
31, 1995, 69 units had been closed, sold, or converted to another concept, and
17 units are intended to be disposed of generally during 1996. Management
intends to operate the remaining units. As of December 31, 1995, substantially
all of the other incremental charges identified in conjunction with the 1993
restructuring have been incurred.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has met its liquidity requirements with
internally generated funds and external borrowings. The Company expects to
continue to rely on internally generated funds, supplemented by available
working capital advances under its Amended and Restated Credit Agreement, dated
as of October 26, 1992, among Flagstar and TWS Funding, Inc., as borrowers,
certain lenders and co-agents named therein, and Citibank, N.A., as managing
agent (as amended, from time to time, including by means of a second amended and
restated credit agreement (the "New Facility") anticipated to be consummated in
early 1996, the "Restated Credit Agreement"), and other external borrowings, as
its primary sources of liquidity. The Company believes that funds from these
sources will be sufficient for the next twelve months to meet the Company's
working capital, debt service, and capital expenditure requirements.
The Company reported a net loss in 1995 attributable in major part to
non-cash charges, including a provision for restructuring charges and a charge
for impaired assets related to certain restaurants properties. The following
table sets forth, for each of the years indicated, a calculation of the
Company's cash from operations available for debt repayment, dividends on the
Preferred Stock (as defined below), and capital expenditures:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
DECEMBER DECEMBER
31, 31,
1994 1995
<S> <C> <C>
Net income (loss)..................................................... $364.1 $(55.2)
Charge for impaired assets............................................ -- 51.4
Provision for (recovery of) restructuring charges..................... (7.2) 15.9
Non-cash charges (credits)............................................ 128.7 120.3
Deferred income tax benefits.......................................... (2.8) (3.5)
Discontinued operations............................................... (392.7) (77.2)
Extraordinary items, net.............................................. 11.8 (0.5)
Change in certain working capital items............................... (24.4) (6.1)
Change in other assets and other liabilities, net..................... (22.9) (31.0)
Cash from operations available for debt repayment, dividends on
Preferred Stock, and capital expenditures........................... $54.6 $14.1
</TABLE>
The Restated Credit Agreement currently consists of a working capital and
letter of credit facility of up to $160.1 million with a working capital
sublimit of $78.6 million and a letter of credit sublimit of $125.0 million. By
its terms, the Restated Credit Agreement expires in June 1996. The Company is
currently in the process of renewing its bank credit agreement. It is
anticipated that the New Facility will consist of a $150 million working capital
and letter of credit facility secured by a pledge of the stock of the Company's
operating subsidiaries and all of its and their respective trademarks,
tradenames, copyrights, hedge agreements, tax sharing agreements and bank
accounts. The New Facility, as presently contemplated, would terminate March 31,
1999, subject to mandatory prepayments and commitment reductions under certain
circumstances upon the Company's sale of assets or incurrence of additional
debt. The New Facility would also include certain financial and other operating
covenants generally consistent with those provided in the Restated Credit
Agreement currently in effect.
The Restated Credit Agreement and the indentures governing the Company's
outstanding public debt contain negative covenants that restrict, among other
things, the Company's ability to pay dividends, incur additional indebtedness,
further encumber its assets and purchase or sell assets. In addition, the
Restated Credit Agreement includes provisions for the maintenance of a minimum
level of interest coverage, limitations on ratios of indebtedness to earnings
before interest, taxes, depreciation and amortization (EBITDA) and limitations
on annual capital expenditures.
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<PAGE>
At December 31, 1995 scheduled debt maturities of long-term debt for the
years 1996 through 2000 are as follows:
<TABLE>
<CAPTION>
AMOUNT
(IN
MILLIONS)
<S> <C>
1996........................................................................ $ 38.8
1997........................................................................ $ 38.5
1998........................................................................ $ 32.7
1999........................................................................ $ 26.3
2000........................................................................ $322.2
</TABLE>
In addition to scheduled maturities of principal, approximately $240
million of cash will be required in 1996 to meet interest payments on long-term
debt and dividends on FCI's $2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock, par value $0.10 per share ("the Preferred Stock").
The projections of future operating results prepared in the fourth quarter
of 1993, which resulted in the conclusion that goodwill and certain other
intangibles were impaired (see "Write-off of Goodwill and Certain Other
Intangibles and Restructuring Charges in 1993"), assumed that the historical
operating trends experienced by the Company since the 1989 acquisition will
continue in the future. Such trends have generally continued through 1995. If
historical trends are not reversed, the Company may need to refinance or
renegotiate the terms of existing debt prior to their maturities. While
management believes that the Company will be able, if necessary, to refinance or
renegotiate the terms of its existing debt prior to maturity, no assurance can
be given that it will be able to do so on acceptable terms.
The Company's principal capital requirements are those associated with
opening new restaurants and remodeling and maintaining its existing restaurants
and facilities. During 1995, total capital expenditures were approximately
$129.2 million, of which approximately $71.7 million was used to reimage
existing restaurants, $7.2 million was used to open new restaurants, and $50.3
million was used to maintain existing facilities. Of these expenditures,
approximately $5.5 million were financed through capital leases. Capital
expenditures during 1996 are expected to total approximately $60 million to $80
million. The Company currently expects to finance such capital expenditures
internally through continuing operations and asset sales.
The Company is able to operate with a substantial working capital
deficiency because (i) restaurant operations and most food service operations
are conducted primarily on a cash (and cash equivalent) basis with a low level
of accounts receivable, (ii) rapid turnover allows a limited investment in
inventories, and (iii) accounts payable for food, beverages, and supplies
usually become due after the receipt of cash from the related sales. At December
31, 1995, the Company's working capital deficiency was $122.2 million as
compared with $128.3 million at the end of 1994. Such decrease is attributable
primarily to an increase in cash of approximately $130.2 million as a result of
the sale of the Company's distribution and concession and recreation services
businesses during 1995, net of the current assets and liabilities of the
distribution subsidiary and the net assets of the concession and recreation
services businesses which had been included in working capital.
On February 22, 1996, the Company entered into an agreement with Integrated
Systems Solutions Corporation (ISSC). The ten year agreement for $323 million
provides for ISSC to manage and operate the Company's information systems, as
well as develop and implement new systems and applications to enhance
information technology for the Company's corporate headquarters, restaurants,
and field management. ISSC will oversee data center operations, applications
development and maintenance, voice and data networking, help desk operations,
and point-of-sale technology.
On March 1, 1995, the Company entered into an agreement to acquire the
Coco's and Carrows restaurant chains, consisting of approximately 350 units
operating in the family dining segment. The purchase is subject to the signing
of certain ancillary agreements and other customary terms and conditions. If
consummated, the purchase price (including estimated expenses) would consist of
$131 million of cash ($56 million of which will be financed by bank term loans),
the issuance of notes payable to the seller of $150 million, and the assumption
of certain capital lease obligations of approximately $31.5 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements which appears on page F-1 herein.
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<PAGE>
FORM 11-K INFORMATION
FCI, pursuant to Rule 15d-21 promulgated under the Securities Exchange Act
of 1934, as applicable, will file as an amendment to this Annual Report of Form
10-K the information, financial statements and exhibits required by Form 11-K
with respect to the Flagstar Thrift Plan and the Denny's Inc. Profit Sharing
Retirement Plan.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to the Company's directors
and compliance by the Company's directors, executive officers and certain
beneficial owners of the Company's Common Stock with Section 16(a) of the
Securities Exchange Act of 1934 is furnished by incorporation by reference of
all information under the captions entitled "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement for its Annual Meeting of the Stockholders to be held
on April 24, 1996 (the "Proxy Statement"). The information required by this item
with respect to the Company's executive officers appears in Item I of Part I of
this Annual Report on Form 10-K under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is furnished by incorporation by
reference of all information under the caption entitled "Executive Compensation"
in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is furnished by incorporation by
reference of all information under the caption "General -- Ownership of Capital
Securities" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
The information required by this item is furnished by incorporation by
reference of all information under the caption "Certain Transactions" in the
Company's Proxy Statement.
DESCRIPTION OF INDEBTEDNESS
The following summary of the principal terms of the current indebtedness of
the Company does not purport to be complete and is qualified in its entirety by
reference to the documents governing such indebtedness, including the
definitions of certain terms therein, copies of which have been filed as
exhibits to this Annual Report on Form 10-K. Whenever particular provisions of
such documents are referred to herein, such provisions are incorporated herein
by reference, and the statements are qualified in their entirety by such
reference.
THE RESTATED CREDIT AGREEMENT
In connection with the Recapitalization, Flagstar entered into the Restated
Credit Agreement, pursuant to which senior debt facilities were established
consisting (after certain adjustments and prepayments subsequent to the closing
of the Recapitalization) of (i) a $171.3 million senior term loan (the "Term
Facility"), and (ii) a $350 million senior revolving credit facility (the
"Revolving Credit Facility" and, together with the Term Facility, the "Bank
Facilities"), with sublimits for working capital advances and standby letters of
credit, and a swing line facility of up to $30 million. The proceeds of the Term
Facility were used principally to refinance comparable facilities under a prior
credit agreement and the balance was used to finance the redemption of certain
debt securities pursuant to the Recapitalization and to pay certain transaction
costs. Proceeds of the Revolving Credit Facility may be used solely to provide
working capital to the Company.
In connection with the sale of its food and vending operation on June 17,
1994 the Term Facility was repaid in full and the Revolving Credit Facility was
reduced to $250 million. The sale of PFC, TWRS, and VS during 1995 further
reduced the Revolving Credit Facility to $160 million at December 31, 1995.
Under the Restated Credit Agreement, the
20
<PAGE>
Revolving Credit Facility is scheduled to terminate on June 17, 1996 (the
"Termination Date"), the second anniversary of the repayment of the Term
Facility. The Company is currently negotiating the terms of a new working
capital and letter of credit facility. For additional information concerning
such New Facility see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
Flagstar has obtained the waivers and consents necessary under the Restated
Credit Agreement to permit it to enter into and perform its obligations under
the Coco's and Carrows transactions described elsewhere herein. See
"Management's Discussion and Analysis of Financial Condition -- Liquidity and
Capital Resources."
The Restated Credit Agreement as currently in effect provides generally
that the working capital advances under the Revolving Credit Facility must be
repaid in full and not reborrowed for at least 30 consecutive days during any
thirteen-month period but at least once during each fiscal year. Under the
Restated Credit Agreement, Flagstar is required to permanently reduce the
Revolving Credit Facility by the aggregate amount of Net Cash Proceeds (as
defined therein) received from (i) the sale, lease, transfer or other
disposition of assets of the Company (other than dispositions of assets
permitted by the terms of the Restated Credit Agreement and other dispositions
of assets not exceeding $5,000,000 in any fiscal year or $1,000,000 in any
transaction or series of related transactions) and (ii) the sale or issuance by
FCI or any of its subsidiaries of any Debt (as defined therein) (other than Debt
permitted by the terms of the Restated Credit Agreement and to the extent the
Net Cash Proceeds are applied to refinance certain existing Subordinated Debt
(as defined therein)).
The Restated Credit Agreement contains covenants customarily found in
credit agreements for leveraged financings that restrict, among other things,
(i) liens and security interests other than liens securing the obligations under
the Restated Credit Agreement, certain liens existing as of the date of
effectiveness of the Restated Credit Agreement, certain liens in connection with
the financing of capital expenditures, certain liens arising in the ordinary
course of business, including certain liens in connection with intercompany
transactions and certain other exceptions; (ii) the incurrence of Debt, other
than Debt in respect of the Recapitalization, Debt under the Loan Documents (as
defined therein), the 10 3/4% Notes, the 11 3/8% Debentures, certain capital
lease obligations, certain Debt in existence on the date of the Restated Credit
Agreement, certain Debt in connection with the financing of capital
expenditures, certain Debt in connection with Investments (as defined therein)
in new operations, properties and franchises, certain trade letters of credit,
certain unsecured borrowings in the ordinary course of business, certain
intercompany indebtedness and certain other exceptions; (iii) lease obligations,
other than obligations in existence as of the effectiveness of the Restated
Credit Agreement, certain leases entered into in the ordinary course of
business, certain capital leases, certain intercompany leases and certain other
exceptions; (iv) mergers or consolidations, except for certain intercompany
mergers or consolidations and certain mergers to effect certain transactions
otherwise permitted under the Restated Credit Agreement; (v) sales of assets,
other than certain dispositions of inventory and obsolete or surplus equipment
in the ordinary course of business, certain dispositions in the ordinary course
of business of properties no longer used or useful to the business of the
Company, certain intercompany transactions, certain dispositions in connection
with the sale and leaseback transactions, and certain exchanges of real
property, fixtures and improvements for other real property, fixtures and
improvements; (vi) investments, other than certain intercompany indebtedness,
certain investments made in connection with joint venture or franchise
arrangements, certain loans to employees, investments in new operations,
properties or franchises subject to certain limitations and certain other
exceptions; (vii) payment of dividends or other distributions with respect to
capital stock of Flagstar, other than dividends from Flagstar to FCI to enable
FCI to repurchase Common Stock and FCI stock options from employees in certain
circumstances, payments to FCI with respect to fees and expenses incurred in the
ordinary course of business by FCI in its capacity as a holding company for
Flagstar, payments under a tax sharing agreement among FCI, Flagstar and its
subsidiaries and certain other exceptions; (viii) sales or dispositions of the
capital stock of subsidiaries other than sales by certain subsidiaries of
Flagstar to Flagstar or certain other subsidiaries and certain other exceptions;
(ix) the conduct by Flagstar or certain of its subsidiaries of business
inconsistent with its status as a holding company or single purpose subsidiary,
as the case may be, or entering into transactions inconsistent with such status;
and (x) the prepayment of Debt, other than certain payments of Debt in existence
on the date of the Restated Credit Agreement, certain payments to retire Debt in
connection with permitted dispositions of assets, certain prepayments of
advances under the Restated Credit Agreement and certain other exceptions.
The Restated Credit Agreement also contains covenants that require Flagstar
and its subsidiaries on a consolidated basis to meet certain financial ratios
and tests described below:
TOTAL DEBT TO EBITDA RATIO. Flagstar and its subsidiaries on a consolidated
basis are required not to permit the ratio of (a) Adjusted Total Debt (as
defined below) outstanding on the last day of any fiscal quarter to (b) EBITDA
(as defined
21
<PAGE>
below) for the Rolling Period (as defined below) ending on such day to be more
than a specified ratio, ranging from a ratio of 5.70:1.00 applicable upon the
effectiveness of the Restated Credit Agreement to a ratio of 6.50:1.00
applicable on or after December 31, 1995.
SENIOR DEBT TO EBITDA RATIO. Flagstar and its subsidiaries on a
consolidated basis are required not to permit the ratio of (a) Adjusted Senior
Debt (as defined below) outstanding on the last day of any fiscal quarter to (b)
EBITDA for the Rolling Period ending on such day to be more than a specified
ratio, ranging from a ratio of 3.50:1.00 applicable upon the effectiveness of
the Restated Credit Agreement to a ratio of 2.50:1.00 on or after December 31,
1999 (3.30:1.00 as of the Termination Date).
INTEREST COVERAGE RATIO. Flagstar and its subsidiaries on a consolidated
basis are required not to permit the ratio, determined on the last day of each
fiscal quarter for the Rolling Period then ended, of (a) EBITDA less Adjusted
Cash Capital Expenditures (as defined below) to (b) Adjusted Cash Interest
Expense (as defined below) to be less than a specified ratio, ranging from a
ratio of 1.20:1.00 applicable upon the effectiveness of the Restated Credit
Agreement to a ratio of 1.60:1.00 on or after December 31, 1997 (1.25:1.00 as of
the Termination Date).
CAPITAL EXPENDITURES TEST. Flagstar and its subsidiaries are prohibited
from making capital expenditures in excess of $195,000,000, $210,000,000, and
$200,000,000 in the aggregate for the fiscal years ending December 31, 1992
through 1994, respectively. For the fiscal year ending December 31, 1995
Flagstar and its subsidiaries are prohibited from making capital expenditures in
excess of the sum of $175,000,000 plus the available cash proceeds received
during such period from the PFC and TWRS sales transactions, subject to certain
restrictions, including, without limitation, a reduction equal to the amount of
certain prepayments of funded debt during such period. Subsequent to 1995,
capital expenditures in excess of $275,000,000 in the aggregate are prohibited
for each fiscal year thereafter.
"Adjusted Cash Capital Expenditures" is defined in the Restated Credit
Agreement to mean, for any period, Cash Capital Expenditures (as defined below)
less, for each of the Rolling Periods (as defined below) ending September 30,
1995 through March 31, 1996, an amount equal to the sum of (i) a specified
amount, ranging from $125,000,000 for the Rolling Period ending September 30,
1995 to $65,000,000 for the Rolling Period ending March 31, 1996, plus (ii) the
available cash proceeds received during such rolling period from the PFC and
TWRS sales transactions, subject to certain restrictions, including, without
limitation, a reduction equal to the amount of certain prepayments of funded
debt during such period.
"Adjusted Cash Interest Expense" is defined in the Restated Credit
Agreement to mean, for any Rolling Period (as defined below), Cash Interest
Expense (as defined below) for such Rolling Period.
"Adjusted Senior Debt" is defined in the Restated Credit Agreement to mean
Senior Debt (as defined therein) outstanding on the last day of any fiscal
quarter.
"Adjusted Total Debt" is defined in the Restated Credit Agreement to mean
Total Debt (as defined below) outstanding on the last day of any fiscal quarter.
"Capex Financing" is defined in the Restated Credit Agreement to mean, with
respect to any capital expenditure, the incurrence by certain subsidiaries of
Flagstar of any Debt (including capitalized leases) secured by a mortgage or
other lien on the asset that is the subject of such capital expenditure, to the
extent that the Net Cash Proceeds of such Debt do not exceed the amount of such
capital expenditure.
"Cash Capital Expenditures" is defined in the Restated Credit Agreement to
mean, for any period, without duplication, capital expenditures of the Company
for such period, LESS (without duplication) (i) the Net Cash Proceeds of all
Capex Financings during such period and (ii) the aggregate amount of the
principal component of all obligations of the Company in respect of capitalized
leases entered into during such period.
"Cash Interest Expense" is defined in the Restated Credit Agreement to
mean, for any Rolling Period, without duplication, interest expense net of
interest income, whether paid or accrued during such Rolling Period (including
the interest component of capitalized lease obligations) on all Debt, INCLUDING,
without limitation, (a) interest expense in respect of advances under the
Restated Credit Agreement, the 10 7/8% Notes (as defined below) and the
Subordinated Debt (as defined therein), (b) commissions and other fees and
charges payable in connection with letters of credit, (c) the net payment, if
any, payable in connection with all interest rate protection contracts and (d)
interest capitalized during construction, but EXCLUDING, in each case, interest
not payable in cash (including amortization of discount and deferred debt
expenses), all as determined in accordance with generally accepted accounting
principles as in effect on December 31, 1991.
22
<PAGE>
"EBITDA" of any person is defined in the Restated Credit Agreement to mean,
for any period, on a consolidated basis, net income (or net loss) PLUS the sum
of (a) interest expense net of interest income, (b) income tax expense, (c)
depreciation expense, (d) amortization expense and (e) extraordinary or unusual
losses included in net income (net of taxes to the extent not already deducted
in determining such losses) LESS extraordinary or unusual gains included in net
income (net of taxes to the extent not already deducted in determining such
gains), in each case determined in accordance with generally accepted accounting
principles as in effect on December 31, 1991.
"Funded Debt" is defined in the Restated Credit Agreement to mean the
principal amount of Debt in respect of advances under the Bank Facilities and
the principal amount of all Debt that should, in accordance with generally
accepted accounting principles as in effect on December 31, 1991, be recorded as
a liability on a balance sheet and matures more than one year from the date of
creation or matures within one year from such date but is renewable or
extendible, at the option of the debtor, to a date more than one year from such
date or arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during period of more than one year from such
date, including, without limitation, all amounts of Funded Debt required to be
paid or prepaid within one year from the date of determination.
"Rolling Period" is defined in the Restated Credit Agreement to mean, for
any fiscal quarter, such quarter and the three preceding fiscal quarters.
"Total Debt" outstanding on any date is defined in the Restated Credit
Agreement to mean the sum, without duplication, of (a) the aggregate principal
amount of all Debt of Flagstar and its subsidiaries, on a consolidated basis,
outstanding on such date to the extent such Debt constitutes indebtedness for
borrowed money, obligations evidenced by notes, bonds, debentures or other
similar instruments, obligations created or arising under any conditional sale
or other title retention agreement with respect to property acquired or
obligations as lessee under leases that have been or should be, in accordance
with generally accepted accounting principles, recorded as capital leases, (b)
the aggregate principal amount of all Debt of Flagstar and its subsidiaries , on
a consolidated basis, outstanding on such date constituting direct or indirect
guarantees of certain Debt of others and (c) the aggregate principal amount of
all Funded Debt of Flagstar and its subsidiaries on a consolidated basis
consisting of obligations, contingent or otherwise, under acceptance, letter of
credit or similar facilities; PROVIDED that advances under the Revolving Credit
Facility shall be included in Total Debt only to the extent of the average
outstanding principal amount thereof outstanding during the 12-month period
ending on the date of determination.
Under the Restated Credit Agreement, an event of default will occur if,
among other thing, (i) any person or group of two or more persons acting in
concert (other than KKR, Gollust Tierney & Oliver and their respective
affiliates) acquires, directly or indirectly, beneficial ownership of securities
of FCI representing, in the aggregate, more of the votes entitled to be cast by
all voting stock of FCI than the votes entitled to be cast by all voting stock
of FCI beneficially owned, directly or indirectly, by KKR and its affiliates,
(ii) any person or group of two or more persons acting in concert (other than
KKR and its affiliates) acquires by contract or otherwise, or enters into a
contract or arrangement that results in its or their acquisition of the power to
exercise, directly or indirectly, a controlling influence over the management or
policies of Flagstar or FCI or (iii) Flagstar shall cease at any time to be a
wholly-owned subsidiary of FCI. If such an event of default were to occur, the
lenders under the Related Credit Agreement would be entitled to exercise a
number of remedies, including acceleration of all amounts owed under the
Restated Credit Agreement.
PUBLIC DEBT
As part of the Recapitalization, Flagstar consummated on November 16, 1992
the sale of $300 million aggregate principal amount of 10 7/8% Senior Notes Due
2002 (the "10 7/8% Notes") and issued pursuant to an exchange offer for
previously outstanding debt issues $722.4 million principal amount of 11.25%
Senior Subordinated Debentures Due 2004 (the "11.25% Debentures"). On September
23, 1993, Flagstar consummated the sale of $275 million aggregate principal
amount of 10 3/4% Senior Notes Due 2001 (the "10 3/4% Notes") and $125 million
aggregate principal amount of 11 3/8% Senior Subordinated Debentures Due 2003
(the "11 3/8% Debentures"). The 10 7/8% Notes and the 10 3/4% Notes are general
unsecured obligations of Flagstar and rank PARI PASSU in right of payment with
Flagstar's obligations under the Restated Credit Agreement. The 11.25%
Debentures are general unsecured obligations of Flagstar and are subordinate in
right of payment to the obligations of Flagstar under the Restated Credit
Agreement, the 10 7/8% Notes and the 10 3/4% Notes. The 11.25% Debentures rank
PARI PASSU in right of payment with the 11 3/8% Debentures. All such debt is
senior in right of payment to the 10% Debentures.
23
<PAGE>
THE SENIOR NOTES. Interest on the 10 7/8% Notes is payable semi-annually in
arrears on each June 1 and December 1. They will mature on December 1, 2002. The
10 7/8% Notes will be redeemable, in whole or in part, at the option of
Flagstar, at any time on or after December 1, 1997, initially at a redemption
price equal to 105.4375% of the principal amount thereof to and including
November 30, 1998, at a decreased price thereafter to and including November 30,
1999 and thereof at 100% of the principal amount thereof, together in each case
with accrued interest.
Interest on the 10 3/4% Notes is payable semi-annually in arrears on each
March 15 and September 15. They will mature on September 15, 2001. The 10 3/4%
Notes may not be redeemed prior to maturity, except that prior to September 15,
1996, the Company may redeem up to 35% of the original aggregate principal
amount of the 10 3/4% Notes, at 110% of their principal amount, plus accrued
interest, with that portion, if any, of the net proceeds of any public offering
for cash of the Common Stock that is used by FCI to acquire from the Company
shares of common stock of the Company.
THE SENIOR SUBORDINATED DEBENTURES. Interest on the 11.25% Debentures is
payable semi-annually in arrears on each May 1 and November 1. They will mature
on November 1, 2004. The 11.25% Debentures will be redeemable, in whole or in
part, at the option of Flagstar, at any time on or after November 1, 1997,
initially at a redemption price equal to 105.625% of the principal amount
thereof to and including October 31, 1998, at decreasing prices thereafter to
and including October 31, 2002 and thereafter at 100% of the principal amount
thereof, together in each case with accrued interest.
Interest on the 11 3/8% Debentures is payable semi-annually in arrears on
each March 15 and September 15. They will mature on September 15, 2003. The
11 3/8% Debentures will be redeemable, in whole or in part, at the option of the
Flagstar, at any time on or after September 15, 1998, initially at a redemption
price equal to 105.688% of the principal amount thereof to and including
September 14, 1999, at 102.844% of the principal amount thereof to and including
September 14, 2000 and thereafter at 100% of the principal amount thereof,
together in each case with accrued interest.
THE 10% DEBENTURES. Interest on the 10% Debentures is payable semi-annually
in arrears on each May 1 and November 1. The 10% Debentures mature on November
1, 2014. Unless previously redeemed, the 10% Debentures are convertible at any
time at the option of the holders thereof by exchange into shares of Common
Stock at a conversion price of $24.00 per share, subject to adjustment. The 10%
Debentures are redeemable, in whole or in part, at the option of the Company
upon payment of a premium. The Company is required to call for redemption on
November 1, 2002 and on November 1 of each year thereafter, through and
including November 1, 2013, $7,000,000 principal amount of the 10% Debentures. A
"Change of Control" having occurred on November 16, 1992, holders of the 10%
Debentures had the right, under the indenture relating thereto, to require the
Company, subject to certain conditions, to repurchase such securities at 101% of
their principal amount together with interest accrued to the date of purchase.
On February 19, 1993, FCI made such an offer to repurchase the $100 million of
10% Debentures then outstanding. On March 24, 1993 the Company repurchased
$741,000 principal amount of the 10% Debentures validly tendered and accepted
pursuant to such offer.
MORTGAGE FINANCINGS
A subsidiary of Flagstar had issued and outstanding, at December 31, 1995,
$202.7 million in aggregate principal amount of 10 1/4% Guaranteed Secured Bonds
due 2000. Interest is payable semi-annually in arrears on each November 15 and
May 15. As a result of the downgrade of Flagstar's outstanding debt securities
during 1994, certain payments by the Company which fund such interest payments
are due and payable on a monthly basis. Principal payments total $12.5 million
annually for the years 1996 through 1999; and $152.7 million in 2000. The bonds
are secured by a financial guaranty insurance policy issued by Financial
Security Assurance, Inc. and by collateral assignment of mortgage loans on 238
Hardee's and 148 Quincy's restaurants.
Another subsidiary of Flagstar had outstanding $160 million aggregate
principal amount of 11.03% Notes due 2000. Interest is payable quarterly in
arrears, with the principal maturing in a single installment payable in July
2000. These notes are redeemable, in whole, at the subsidiary's option, upon
payment of a premium. They are secured by a pool of cross-collateralized
mortgages on approximately 240 Denny's restaurant properties.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) -- Financial Statements:
See the Index to Financial Statements which appears on page F-1
hereof.
(2) -- Financial Statement Schedules:
No schedules are filed herewith because of the absence of
conditions under which they are required or because the
information called for is in the Consolidated Financial
Statements or Notes thereto.
(3) -- Exhibits:
Certain of the exhibits to this Report, indicated by an
asterisk, are hereby incorporated by reference to other
documents on file with the Commission with which they
are physically filed, to be a part hereof as of their
respective dates.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 3.1 Restated Certificate of Incorporation of FCI and amendment thereto dated November 16, 1992 (incorporated by
reference to Exhibit 3.1 to FCI's 1992 Form 10-K, File No. 0-18051 (the "1992 Form 10-K")).
* 3.2 Certificate of Designations for the $2.25 Series A Cumulative Convertible Exchangeable Preferred Stock of FCI
(incorporated by reference to Exhibit 3.2 to the 1992 Form 10-K).
* 3.3 Certificate of Ownership and Merger of FCI dated June 16, 1993 (incorporated by reference to Exhibit 3.3 to FCI's
1993 Form 10-K, File No. 0-18051 (the "1993 Form 10-K")).
* 3.4 Certificate of Amendment to the Restated Certificate of Incorporation of FCI dated June 16, 1993 (incorporated by
reference to Exhibit 3.4 to the 1993 Form 10-K).
3.5 By-Laws of FCI as amended through July 26, 1995.
* 4.1 Specimen certificate of Common Stock of FCI (incorporated by reference to Exhibit 4.5 to the Registration Statement
on Form S-1 (No. 33-29769) of FCI (the "Form S-1")).
* 4.2 Specimen certificate of $2.25 Series A Cumulative Convertible Exchangeable Preferred Stock of FCI (incorporated by
reference to Exhibit 4.25 to the Registration Statement on Form S-1 (No. 33-47339) of FCI (the "Preferred Stock
S-1")).
* 4.3 Indenture between Flagstar and United States Trust Company of New York, as Trustee, relating to the 10% Debentures
(including the form of security) (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form
S-4 (No. 33-48923) of Flagstar (the "11.25% Debentures S-4")).
* 4.4 Supplemental Indenture, dated as of August 7, 1992, between Flagstar and United States Trust Company of New York,
as Trustee, relating to the 10% Debentures (incorporated by reference to Exhibit 4.9A to the 11.25% Debentures
S-4).
* 4.5 Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing, and Assignment of
Leases and Rents, from Denny's Realty, Inc. to State Street Bank and Trust Company, dated July 12, 1990
(incorporated by reference to Exhibit 4.9 to Post-effective Amendment No. 1 to the Registration Statement on Form
S-1 (No. 33-29769) of FCI (the "Form S-1 Amendment")).
* 4.6 Lease between Denny's Realty, Inc. and Denny's, Inc., dated as of December 29, 1989, as amended and restated as of
July 12, 1990 (incorporated by reference to Exhibit 4.10 to the Form S-1 Amendment).
* 4.7 Indenture dated as of July 12, 1990 between Denny's Realty, Inc. and State Street Bank and Trust Company relating
to certain mortgage notes (incorporated by reference to Exhibit 4.11 to the Form S-1 Amendment).
* 4.8 Mortgage Note in the amount of $10,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.15 to the 11.25% Debentures S-4).
* 4.9 Mortgage Note in the amount of $52,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.16 to the 11.25% Debentures S-4).
* 4.10 Mortgage Note in the amount of $98,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.17 to the 11.25% Debentures S-4).
* 4.11 Indenture between Secured Restaurants Trust and The Citizens and Southern National Bank of South Carolina, dated as
of November 1, 1990, relating to certain Secured Bonds (incorporated by reference to Exhibit 4.18 to the 11.25%
Debentures S-4).
* 4.12 Amended and Restated Trust Agreement between Spartan Holdings, Inc., as Depositor for Secured Restaurants Trust,
and Wilmington Trust Company, dated as of October 15, 1990 (incorporated by reference to Exhibit 3.3 to the
Registration Statement on Form S-11 (No. 33-36345) of Secured Restaurants Trust (the "Form S-11")).
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 4.13 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 7/8% Notes
(incorporated by reference to Exhibit 4.13 to the 1992 Form 10-K).
* 4.14 Supplemental Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 7/8%
Notes (incorporated by reference to Exhibit 4.14 to the 1992 Form 10-K).
* 4.15 Form of 10 7/8% Note (incorporated by reference to Exhibit 4.15 to the 1992 Form 10-K).
* 4.16 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to the 11.25%
Debentures (incorporated by reference to Exhibit 4.16 to the 1992 Form 10-K).
* 4.17 Form of 11.25% Debenture (incorporated by reference to Exhibit 4.17 to the 1992 Form 10-K).
* 4.18 Amended and Restated Credit Agreement, dated as of October 26, 1992, among Flagstar and TWS Funding, Inc., as
borrowers, certain lenders and co-agents named therein, and Citibank, N.A., as managing agent (incorporated by
reference to Exhibit 28.1 to the Current Report on Form 8-K of Flagstar filed as of November 20, 1992 (the "Form
8-K")).
* 4.19 Closing Agreement dated as of November 12, 1992, among Flagstar and TWS Funding Inc., as borrowers, certain lenders
and co-agents named therein, and Citibank, N.A., as managing agent (incorporated by reference to Exhibit 28.2 to
the Form 8-K).
* 4.20 First Amendment to the Amended and Restated Credit Agreement dated as of December 23, 1992 (incorporated by
reference to Exhibit 4.20 to the 1992 Form 10-K).
* 4.21 Second Amendment to the Amended and Restated Credit Agreement dated as of August 5, 1993 (incorporated by reference
to Exhibit 4.23 to the Registration Statement on Form S-2 (No. 33-49843) of Flagstar (the "Form S-2")).
* 4.22 Third Amendment to the Amended and Restated Credit Agreement dated as of December 15, 1993 (incorporated by
reference to Exhibit 4.22 to the 1993 Form 10-K).
* 4.23 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 3/4% Notes
(incorporated by reference to Exhibit 4.23 to the 1993 Form 10-K).
* 4.24 Form of 10 3/4% Note (incorporated by reference to Exhibit 4.24 to the 1993 Form 10-K).
* 4.25 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to the 11 3/8%
Debentures (incorporated by reference to Exhibit 4.25 to the 1993 Form 10-K).
* 4.26 Form of 11 3/8% Debenture (incorporated by reference to Exhibit 4.26 to the 1993 Form 10-K).
* 4.27 Fourth Amendment to the Amended and Restated Credit Agreement dated as of April 26, 1994 (incorporated by reference
to Exhibit 10.2 to FCI's Quarterly Report on Form 10-Q for the quarterly period ending March 31, 1994 (the "1994
Form 10-Q")).
* 4.28 Sixth Amendment to the Amended and Restated Credit Agreement dated as of June 17, 1994 (incorporated by reference
to Exhibit 4.28 to FCI's 1994 Form 10-K, File No. 0-18051 (the "1994 Form 10-K").
* 4.29 Seventh Amendment to the Amended and Restated Credit Agreement dated as of October 7, 1994 (incorporated by
reference to Exhibit 4.29 to the 1994 Form 10-K).
4.30 Eighth Amendment to the Amended and Restated Credit Agreement dated as of January 6, 1995.
4.31 Ninth Amendment to the Amended and Restated Credit Agreement dated as of August 24, 1995.
4.32 Tenth Amendment to the Amended and Restated Credit Agreement dated as of November 21, 1995.
*10.1 Stock Purchase Agreement, dated as of April 26, 1994, among Flagstar, Canteen Holdings, Inc., Compass Group PLC and
Compass Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the 1994 Form 10-Q).
*10.2 Warrant Agreement, dated November 16, 1992, among FCI, TW Associates and KKR Partners II (incorporated by reference
to Exhibit 10.41 to the 1992 Form 10-K).
*10.3 Consent Order dated March 26, 1993 between the U.S. Department of Justice, Flagstar and Denny's, Inc. (incorporated
by reference to Exhibit 10.42 to the Form S-2).
*10.4 Fair Share Agreement dated July 1, 1993 between FCI and the NAACP (incorporated by reference to Exhibit 10.43 to
the Form S-2).
*10.5 Amendment No. 2 to Stockholders' Agreement, dated as of April 6, 1993, among FCI, GTO and certain affiliated
partnerships, DLJ Capital, Jerome J. Richardson and Associates (incorporated by reference to Exhibit 10 to
Flagstar's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, File No. 1-9364).
*10.6 Amendment (No. 3) to Stockholders' Agreement, dated as of January 1, 1995, among FCI, GTO and certain affiliated
partnerships, DLJ Capital, Jerome J. Richardson and Associates (incorporated by reference to Exhibit 10.6 to the
1994 Form 10-K).
*10.7 Form of Agreement providing certain supplemental retirement benefits (incorporated by reference to Exhibit 10.7 to
the 1992 Form 10-K).
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
*10.8 Form of Supplemental Executive Retirement Plan Trust of Flagstar (incorporated by reference to Exhibit 10.8 to the
1992 Form 10-K).
*10.9 FCI 1989 Non-Qualified Stock Option Plan, as adopted December 1, 1989 and amended through June 7, 1994
(incorporated by reference to Exhibit 10.9 to the 1994 Form 10-K).
*10.10 FCI 1990 Non-Qualified Stock Option Plan, as adopted July 31, 1990 and amended through April 28, 1992 (incorporated
by reference to Exhibit 10.10 to the 1994 Form 10-K).
*10.11 Form of Non-Qualified Stock Option Award Agreement pursuant to FCI 1990 Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10.10 to the Form S-1 Amendment).
*10.12 Form of Mortgage related to Secured Restaurants Trust transaction (incorporated by reference to Exhibit 10.1 to the
Form S-11).
*10.13 Mortgage Note in the amount of $521,993,982, made by Flagstar Enterprises, Inc. in favor of Spartan Holdings, Inc.,
dated as of February 1, 1990, as amended and restated November 15, 1990 (incorporated by reference to Exhibit 10.12
to the 11.25% Debentures S-4).
*10.14 Mortgage Note in the amount of $210,077,402, made by Quincy's Restaurants, Inc. in favor of Spartan Holdings, Inc.,
dated as of February 1, 1990, as amended and restated November 15, 1990 (incorporated by reference to Exhibit 10.13
to the 11.25% Debentures S-4).
*10.15 Loan Agreement between Secured Restaurants Trust and Spardee's Realty, Inc., dated as of November 1, 1990
(incorporated by reference to Exhibit 10.14 to the 11.25% Debentures S-4).
*10.16 Loan Agreement between Secured Restaurants Trust and Quincy's Realty, Inc., dated as of November 1, 1990
(incorporated by reference to Exhibit 10.15 to the 11.25% Debentures S-4).
*10.17 Insurance and Indemnity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.16 to the 11.25% Debentures S-4).
*10.18 Intercreditor Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.17 to the 11.25% Debentures S-4).
*10.19 Bank Intercreditor Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.18 to the 11.25% Debentures S-4).
*10.20 Indemnification Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.19 to the 11.25% Debentures S-4).
*10.21 Liquidity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction (incorporated
by reference to Exhibit 10.20 to the 11.25% Debentures S-4).
*10.22 Financial Guaranty Insurance Policy, issued November 15, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.21 to the 11.25% Debentures S-4).
*10.23 Amended and Restated Lease between Quincy's Realty, Inc. and Quincy's Restaurants, Inc., dated as of November 1,
1990 (incorporated by reference to Exhibit 10.22 to the 11.25% Debentures S-4).
*10.24 Amended and Restated Lease between Spardee's Realty, Inc. and Spardee's Restaurants, Inc., dated as of November 1,
1990 (incorporated by reference to Exhibit 10.23 to the 11.25% Debentures S-4).
*10.25 Collateral Assignment Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.24 to the 11.25% Debentures S-4).
*10.26 Form of Assignment of Leases and Rents related to Secured Restaurants Trust transaction (incorporated by reference
to Exhibit 10.12 to the Form S-11).
*10.27 Spartan Guaranty, dated as of November 1, 1990, related to Secured Restaurants Trust transaction (incorporated by
reference to Exhibit 10.26 to the 11.25% Debentures S-4).
*10.28 Form of Hardee's License Agreement related to Secured Restaurants Trust transaction (incorporated by reference to
Exhibit 10.14 to the Form S-11).
*10.29 Stock Pledge Agreement among Flagstar Enterprises, Inc. and Secured Restaurants Trust, dated as of November 1, 1990
(incorporated by reference to Exhibit 10.28 to the 11.25% Debentures S-4).
*10.30 Stock Pledge Agreement among Quincy's Restaurants, Inc. and Secured Restaurants Trust, dated as of November 1, 1990
(incorporated by reference to Exhibit 10.29 to the 11.25% Debentures S-4).
*10.31 Management Agreement, dated as of November 1, 1990, related to the Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.30 to the 11.25% Debentures S-4).
*10.32 Form of Collateral Assignment of Security Documents related to Secured Restaurants Trust transaction (incorporated
by reference to Exhibit 10.17 to the Form S-11).
*10.33 Flagstar Indemnity Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.32 to the 11.25% Debentures S-4).
*10.34 Subordinated Promissory Note, dated July 28, 1992, from Flagstar to FCI (incorporated by reference to Exhibit 10.33
to the 11.25% Debentures S-4).
*10.35 Development Agreement between the Company and Hardee's Food Systems, Inc., dated January 1992 (incorporated by
reference to Exhibit 10.33 to the Preferred Stock S-1).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
*10.36 Stock and Warrant Purchase Agreement, dated as of August 11, 1992, between FCI and TW Associates (incorporated by
reference to Exhibit 10.38 to the 11.25% Debentures S-4).
*10.37 Stockholders' Agreement, dated as of August 11, 1992, among FCI, GTO (on behalf of itself and certain affiliated
partnerships), DLJ Capital, Jerome J. Richardson and TW Associates (incorporated by reference to Exhibit 10.39 to
the 11.25% Debentures S-4).
*10.38 Technical Amendment to the Stockholders' Agreement dated as of September 30, 1992, among FCI, GTO and certain
affiliated partnerships, DLJ Capital, Jerome J. Richardson and TW Associates (incorporated by reference to Exhibit
10.39A to the 11.25% Debentures S-4).
*10.39 Richardson Shareholder Agreement, dated as of August 11, 1992, between FCI and Jerome J. Richardson (incorporated
by reference to Exhibit 10.40 to the 11.25% Debentures S-4).
*10.40 Employment Agreement, dated as of August 11, 1992, between Flagstar and Jerome J. Richardson (incorporated by
reference to Exhibit 10.41 to the 11.25% Debentures S-4).
10.41 Amended and Restated Employment Agreement, dated as of January 1, 1996, between Flagstar and Jerome J. Richardson.
*10.42 Employment Agreement, dated as of January 10, 1995, between FCI and James B. Adamson (incorporated by reference to
Exhibit 10.42 to the 1994 Form 10-K).
*10.43 Adamson Shareholder Agreement, dated as of January 10, 1995, between Associates and James B. Adamson (incorporated
by reference to Exhibit 10.43 to the 1994 Form 10-K.)
*10.44 Amendment to Employment Agreement, dated as of February 27, 1995, between FCI and James B. Adamson (incorporated by
reference to Exhibit 10.44 to the 1994 Form 10-K).
*10.45 Employment Agreement, dated as of June 7, 1993, between Flagstar and C. Ronald Petty (incorporated by reference to
Exhibit 10.47 to the 1994 Form 10-K).
*10.46 Form of Agreement providing certain severance benefits (incorporated by reference to Exhibit 10.48 to the 1994 Form
10-K)
*10.47 Amended Consent Decree dated May 24, 1994 (incorporated by reference to Exhibit 10.50 to the 1994 Form 10-K).
*10.48 Consent Decree dated May 24, 1994 among certain named claimants, individually and on behalf of all others similarly
situated, Flagstar and Denny's, Inc. (incorporated by reference to Exhbit 10.51 to the 1994 Form 10-K).
11 Computation of Earnings (Loss) Per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Flagstar.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
</TABLE>
* Certain of the exhibits to this Annual Report on Form 10-K, indicated by an
asterisk, are hereby incorporated by reference to other documents on file with
the Commission with which they are physically filed, to be part hereof as of
their respective dates.
(b) The Company filed a report of Form 8-K on December 28, 1995 providing
certain information in Item 2. Acquisition or Disposition of Assets of such
report. This filing reported the consummation of sales of the Company's
subsidiaries engaged in the recreation services business and in the
concessions business. An unaudited pro forma condensed consolidated balance
sheet for September 30, 1995 and unaudited pro forma condensed consolidated
statements of operations for the year ended December 31, 1994 and the nine
months ended September 30, 1995 were included in such filing.
28
<PAGE>
FLAGSTAR COMPANIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report........................................................................................... F-2
Statements of Consolidated Operations for the Three Years Ended December 31, 1993, 1994 and 1995....................... F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995........................................................... F-4
Statements of Consolidated Cash Flows for the Three Years Ended December 31, 1993, 1994 and 1995....................... F-5
Notes to Consolidated Financial Statements............................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
FLAGSTAR COMPANIES, INC.
We have audited the accompanying consolidated balance sheets of Flagstar
Companies, Inc. and subsidiaries (the Company) as of December 31, 1994 and 1995,
and the related statements of consolidated operations and consolidated cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1994 and 1995 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1995
the Company changed its method of accounting for the impairment of long-lived
assets.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 14, 1996
F-2
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
Operating revenue.............................................................. $ 2,615,169 $ 2,665,966 $2,571,487
Operating expenses:
Product cost................................................................. 899,145 919,087 864,505
Payroll & benefits........................................................... 905,231 919,928 916,951
Depreciation & amortization expense.......................................... 170,231 129,633 132,872
Utilities expenses........................................................... 99,767 99,021 98,212
Other........................................................................ 379,992 394,012 393,482
Write-off of goodwill and certain other intangible assets (Note 3)........... 1,104,553 -- --
Provision for (recovery of) restructuring charges (Note 2)................... 158,620 (7,207 ) 15,873
Charge for impaired assets (Note 2).......................................... -- -- 51,358
3,717,539 2,454,474 2,473,253
Operating income (loss)........................................................ (1,102,370 ) 211,492 98,234
Other charges (credits):
Interest and debt expense (Note 4)........................................... 214,541 232,515 232,874
Interest income.............................................................. (1,416 ) (5,077 ) (3,725)
Other -- net................................................................. 2,397 3,087 2,005
215,522 230,525 231,154
Loss before income taxes....................................................... (1,317,892 ) (19,033 ) (132,920)
Benefit from income taxes (Note 6)............................................. (79,328 ) (2,213 ) (14)
Loss from continuing operations................................................ (1,238,564 ) (16,820 ) (132,906)
Gain on sale of discontinued operation, net of income tax provision of: 1994 --
$9,999; 1995 -- $10,092 (Note 13)............................................ -- 399,188 77,877
Loss from discontinued operations, net of income tax provision (benefit) of:
1993 -- $(1,821); 1994 -- $471; 1995 -- $(1,361) (Note 13)................... (409,671 ) (6,518 ) (636)
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle......................................................... (1,648,235 ) 375,850 (55,665)
Extraordinary items, net of income tax provision (benefit) of: 1993 -- $(196);
1994 -- $(174); 1995 -- $25 (Note 11)........................................ (26,405 ) (11,757 ) 466
Cumulative effect of change in accounting principles, net of income tax benefit
of: 1993 -- $90 (Note 1)..................................................... (12,010 ) -- --
Net income (loss).............................................................. (1,686,650 ) 364,093 (55,199)
Dividends on preferred stock................................................... (14,175 ) (14,175 ) (14,175)
Net income (loss) applicable to common shareholders............................ $(1,700,825 ) $ 349,918 $ (69,374)
Per share amounts applicable to common shareholders (Note 10):
Primary
Loss from continuing operations.............................................. $ (29.56 ) $ (0.14 ) $ (3.47)
Income (loss) from discontinued operations, net.............................. (9.67 ) 7.52 1.82
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle....................................................... (39.23 ) 7.38 (1.65)
Extraordinary items, net..................................................... (0.62 ) (0.22 ) 0.01
Cumulative effect of change in accounting principle, net..................... (0.29 ) -- --
Net income (loss)............................................................ $ (40.14 ) $ 7.16 $ (1.64)
Average outstanding and equivalent common shares............................. 42,370 52,223 42,431
Fully diluted
Income (loss) from continuing operations..................................... $ (29.56 ) $ 0.26 $ (3.47)
Income (loss) from discontinued operations, net.............................. (9.67 ) 6.05 1.82
Income (loss) before extraordinary items and cumulative effect of change in
accounting principle....................................................... (39.23 ) 6.31 $ (1.65)
Extraordinary items, net..................................................... (0.62 ) (0.18 ) 0.01
Cumulative effect of change in accounting principle, net..................... (0.29 ) -- --
Net income (loss)............................................................ $ (40.14 ) $ 6.13 $ (1.64)
Average outstanding and equivalent shares.................................... 42,370 64,921 42,431
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FLAGSTAR COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................................... $ 66,720 $ 196,966
Receivables, less allowance for doubtful accounts of: 1994 -- $4,561;
1995 -- $2,506............................................................................... 37,381 29,844
Merchandise and supply inventories............................................................. 62,293 32,445
Net assets held for sale (Note 13)............................................................. 77,320 --
Other.......................................................................................... 19,676 26,087
263,390 285,342
Property:
Property owned (at cost) (Notes 2 and 4):
Land......................................................................................... 273,411 255,719
Buildings and improvements................................................................... 813,305 838,956
Other property and equipment................................................................. 462,421 484,684
Total property owned............................................................................. 1,549,137 1,579,359
Less accumulated depreciation.................................................................... 477,176 569,079
Property owned -- net............................................................................ 1,071,961 1,010,280
Buildings and improvements, vehicles, and other equipment held under capital leases (Note 5)..... 194,348 170,859
Less accumulated amortization.................................................................... 69,958 76,778
Property held under capital leases -- net........................................................ 124,390 94,081
1,196,351 1,104,361
Other Assets:
Other intangible assets, net of accumulated amortization: 1994 -- $14,646; 1995 --
$17,051...................................................................................... 25,009 22,380
Deferred financing costs -- net (Note 11)...................................................... 71,955 63,482
Other (including loan receivable from former officer of: 1994 -- $15,657; 1995 -- $16,454)
(Note 12).................................................................................... 30,762 32,186
127,726 118,048
$ 1,587,467 $ 1,507,751
LIABILITIES
Current Liabilities:
Current maturities of long-term debt (Note 4).................................................. $ 31,408 $ 38,835
Accounts payable............................................................................... 127,769 125,467
Accrued salaries and vacations................................................................. 48,680 41,102
Accrued insurance.............................................................................. 44,675 48,060
Accrued taxes.................................................................................. 21,795 30,705
Accrued interest and dividends................................................................. 47,568 42,916
Other.......................................................................................... 69,753 80,445
391,648 407,530
Long-Term Liabilities:
Debt, less current maturities (Note 4)......................................................... 2,067,648 1,996,111
Deferred income taxes (Note 6)................................................................. 21,679 18,175
Liability for self-insured claims.............................................................. 58,128 53,709
Other non-current liabilities and deferred credits............................................. 110,864 163,203
2,258,319 2,231,198
Commitments and Contingencies (Notes 5 and 8)
Shareholders' Equity (Deficit) (Notes 7 and 9):
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock:
$0.10 par value; 1994 and 1995, 25,000 shares authorized; 6,300 shares issued and
outstanding; liquidation preference $157,500................................................ 630 630
Common stock:
$0.50 par value; shares authorized -- 200,000; issued and outstanding 1994 -- 42,369,
1995 -- 42,434............................................................................. 21,185 21,218
Paid-in capital................................................................................ 724,545 724,912
Deficit........................................................................................ (1,807,900 ) (1,877,274 )
Minimum pension liability adjustment........................................................... (960 ) (463 )
(1,062,500 ) (1,130,977 )
$ 1,587,467 $ 1,507,751
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................................... $(1,686,650 ) $ 364,093 $ (55,199 )
Adjustments to Reconcile Net Income (Loss) to Cash Flows from Operating
Activities:
Write-off of goodwill and certain other intangible assets................ 1,104,553 -- --
Provision for (recovery of) restructuring charges........................ 158,620 (7,207 ) 15,873
Charge for impaired assets............................................... -- -- 51,358
Depreciation and amortization of property................................ 129,222 122,870 126,488
Amortization of goodwill................................................. 27,449 -- --
Amortization of other intangible assets.................................. 13,560 6,763 6,384
Amortization of deferred financing costs................................. 9,416 6,453 7,504
Deferred income tax benefit.............................................. (84,413 ) (2,793 ) (3,451 )
Other.................................................................... 5,666 (7,363 ) (20,028 )
Loss from discontinued operations, net................................... 409,671 6,518 636
Gain on sale of discontinued operation, net.............................. -- (399,188 ) (77,877 )
Extraordinary items, net................................................. 26,405 11,757 (466 )
Cumulative effect of change in accounting principle, net................. 12,010 -- --
Changes in Assets and Liabilities Net of Effects from
Dispositions and Restructurings:
Decrease (increase) in assets:
Receivables.............................................................. (10,105 ) (4,452 ) (4,713 )
Inventories.............................................................. (5,159 ) 340 (848 )
Other current assets..................................................... (864 ) (11,849 ) (7,086 )
Other assets............................................................. 2,873 2,241 (2,622 )
Increase (decrease) in liabilities:
Accounts payable......................................................... 10,105 9,029 16,496
Accrued salaries and vacations........................................... 612 8,821 (5,551 )
Accrued taxes............................................................ 10,878 (9,582 ) (429 )
Other accrued liabilities................................................ 60,796 (16,696 ) (4,014 )
Other noncurrent liabilities and deferred credits........................ (65,737 ) (25,198 ) (28,364 )
Net cash flows from operating activities...................................... 128,908 54,557 14,091
Cash Flows from Investing Activities:
Purchase of property........................................................ (99,007 ) (154,480 ) (123,739 )
Proceeds from dispositions of property...................................... 33,678 20,135 25,693
Advances to discontinued operations, net.................................... (51,607 ) (9,670 ) (6,952 )
Proceeds from sale of discontinued operations............................... -- 447,073 172,080
Proceeds from sale of subsidiary............................................ -- -- 122,500
Purchase of other long-term assets.......................................... (19,070 ) (6,205 ) (3,217 )
Net cash flows provided by (used in) investing activities..................... (136,006 ) 296,853 186,365
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Net working capital advances (repayments) under credit agreements........... $ 54,000 $(93,000) $ --
Long-term debt issued in connection with refinancings....................... 400,778 -- --
Other long-term borrowings.................................................. 22,146 -- --
Deferred financing costs.................................................... (11,388 ) (25) --
Long-term debt payments..................................................... (440,750 ) (201,664) (56,035)
Cash dividends on preferred stock........................................... (14,175 ) (14,175) (14,175)
Net cash flows provided by (used in) financing activities................... 10,611 (308,864) (70,210)
Increase in cash and cash equivalents....................................... 3,513 42,546 130,246
Cash and Cash Equivalents at:
Beginning of period......................................................... 20,661 24,174 66,720
End of period............................................................... $ 24,174 $ 66,720 $196,966
Supplemental Cash Flow Information:
Income taxes paid........................................................... $ 4,917 $ 8,035 $ 3,591
Interest paid............................................................... $ 233,671 $244,478 $238,832
Non-cash financing activities:
Capital lease obligations................................................ $ 64,029 $ 18,800 $ 5,505
Other financings......................................................... $ 1,278 $ -- --
Dividends declared but not paid.......................................... $ 3,544 $ 3,544 $ 3,544
Non Cash investing activities:
Other investing.......................................................... $ -- $ -- $ 8,185
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
Flagstar Companies, Inc. (Company) was incorporated under the laws of the
State of Delaware on September 24, 1988 to effect the acquisition of Flagstar
Corporation (Flagstar). Prior to June 16, 1993 the Company and Flagstar had been
known, respectively, as TW Holdings, Inc. and TW Services, Inc.
The acquisition was accounted for under the purchase method of accounting
as of July 20, 1989. Accordingly, the Company has allocated its total purchase
cost of approximately $1.7 billion to the assets and liabilities of Flagstar
based upon their respective fair values, which were determined by valuations and
other studies. As discussed in Note 3, during 1993 the Company determined that
goodwill and certain intangible assets arising principally from the acquisition
were impaired resulting in a write-off of such assets.
The Company conducts business through its Denny's, Hardee's, Quincy's, and
El Pollo Loco restaurant concepts. Denny's, a full service family restaurant
chain, operates in forty-nine states, Puerto Rico, and four foreign countries,
with principal concentrations in California, Florida, Texas, Washington,
Arizona, Pennsylvania, Illinois, and Ohio. Hardee's competes in the
quick-service sandwich segment and Quincy's operates in the steakhouse segment.
The Company's Hardee's and Quincy's restaurant chains are located primarily in
the southeastern United States; El Pollo Loco is a quick-service flame-broiled
chicken concept which operates primarily in southern California.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies and methods of their application that significantly
affect the determination of financial position, cash flows and results of
operations are as follows:
(a) CONSOLIDATED FINANCIAL STATEMENTS. The Consolidated Financial
Statements include the accounts of the Company, and its subsidiaries.
See also Note 13, related to subsidiaries held for sale as of December
31, 1994. Certain 1993 and 1994 amounts have been reclassified to
conform to the 1995 presentation.
(b) FINANCIAL STATEMENT ESTIMATES. The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) CASH AND CASH EQUIVALENTS. For purposes of the Statements of
Consolidated Cash Flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less
to be cash equivalents.
(d) INVENTORIES. Merchandise and supply inventories are valued primarily at
the lower of average cost or market.
(e) PROPERTY AND DEPRECIATION. Property and equipment owned are depreciated
on the straight-line method over its estimated useful life. Property
held under capital leases (at capitalized value) is amortized over its
estimated useful life, limited generally by the lease period. The
following estimated useful service lives were in effect during all
periods presented in the financial statements:
Merchandising equipment -- Principally five to ten years
Buildings -- Fifteen to forty years
Other equipment -- Two to ten years
Leasehold improvements -- Estimated useful life limited by the lease
period.
(f) GOODWILL AND OTHER INTANGIBLE ASSETS. The excess of cost over the fair
value of net assets of companies acquired had been amortized over a
40-year period on the straight-line method prior to being written-off
at December 31, 1993. Other intangible assets consist primarily of
costs allocated in the acquisition to tradenames, franchise and other
operating agreements. Such assets are being amortized on the
straight-line basis over the useful lives of the franchise or the
contract period of the operating agreements. Certain tradenames,
franchise and other operating
F-7
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
agreements were amortized over periods up to 40 years on the
straight-line basis prior to being written-off at December 31, 1993.
The Company assesses the recoverability of goodwill and other
intangible assets by projecting future net income, before the effect of
amortization of intangible assets, over the remaining amortization
period of such assets. Management believes that the projected future
results are the most likely scenario assuming historical trends
continue. See Note 3 for further discussion of the write-off of
goodwill and certain other intangible assets.
(g) IMPAIRMENT OF LONG-LIVED ASSETS. During 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 121 (SFAS
No. 121) "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ". Pursuant to this statement, the
Company reviews long-lived assets and certain identifiable intangibles
to be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. In addition, long-lived assets and certain identifiable
intangibles to be disposed of are reported at the lower of carrying
amount or estimated fair value less costs to sell. See Note 2 for
further discussion of the impairment of long-lived assets.
(h) DEFERRED FINANCING COSTS. Costs related to the issuance of debt are
deferred and amortized as a component of interest and debt expense over
the terms of the respective debt issues using the interest method.
(i) PREOPENING COSTS. The Company capitalizes certain costs incurred in
conjunction with the opening of restaurants and amortizes such costs
over a twelve month period from the date of opening.
(j) INCOME TAXES. Income taxes are accounted for under the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes."
(k) INSURANCE. The Company is primarily self insured for workers
compensation, general liability, and automobile risks which are
supplemented by stop loss type insurance policies. The liabilities for
estimated incurred losses are discounted to their present value based
on expected loss payment patterns determined by independent actuaries
or experience. During 1993, the Company changed its method of
determining the discount rate applied to insurance liabilities,
retroactive to January 1, 1993, pursuant to Staff Accounting Bulletin
(SAB) No. 92 issued by the staff of the Securities and Exchange
Commission in June 1993 concerning the accounting for environmental and
other contingent liabilities. The SAB requires, among other things,
that a risk free rate be used to discount such liabilities rather than
a rate based on average cost of borrowing, which had been the Company's
practice. As a result of this change, the Company recognized an
additional liability, measured as of January 1, 1993, through a
one-time pre-tax charge of $12,100,000. The effect of this accounting
change on 1993 operating results, in addition to recording the
cumulative effect for years prior to 1993, was to increase insurance
expense and decrease interest expense by approximately $5,900,000. The
total discounted self-insurance liabilities recorded at December 31,
1994 and 1995 were $90,800,000 and $91,000,000 respectively, reflecting
a 4% discount rate. The related undiscounted amounts at such dates were
$98,800,000 and $98,000,000, respectively.
(l) INTEREST RATE EXCHANGE AGREEMENTS. As a hedge against fluctuations in
interest rates, the Company has entered into interest rate exchange
agreements to swap a portion of its fixed rate interest payment
obligations for floating rates without the exchange of the underlying
principal amounts. The Company does not speculate on the future
direction of interest rates nor does the Company use these derivative
financial instruments for trading purposes. Since such agreements are
not entered into on a speculative basis, the Company uses the
settlement basis of accounting. See Note 4 for further discussion of
the interest rate exchange agreements.
(m) ADVERTISING COSTS. The Company expenses advertising costs as incurred.
Advertising expense for the years ended December 31, 1993, 1994 and
1995 was $89,365,000, $85,799,000, and $93,012,000, respectively.
(n) DISCONTINUED OPERATIONS. The Company has allocated to discontinued
operations a pro-rata portion of interest and debt expense related to
its acquisition debt based on a ratio of the net assets of its
discontinued operations to its total consolidated net assets as of the
1989 acquisition date. Interest included in discontinued operations for
F-8
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
the years ended December 31, 1993, 1994, and 1995 was $53.0 million,
$37.4 million, and $18.9 million, respectively.
(o) POSTEMPLOYMENT BENEFITS. During 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits" which requires that
benefits provided to former or inactive employees prior to retirement
be recognized as an obligation when earned, subject to certain
conditions, rather than when paid. The impact of Statement No. 112 on
the Company's statement of consolidated operations for 1994 and 1995 is
not material.
(p) DEFERRED GAIN. In September 1995, the Company sold its distribution
subsidiary, Proficient Food Company (PFC), for approximately $128.0
million including receipt of cash of approximately $122.5 million. In
conjunction with the sale, the Company entered into an eight year
distribution contract with the acquirer of PFC. This transaction
resulted in a deferred gain of approximately $72.0 million that is
being amortized over the life of the distribution contract as a
reduction of product cost. The portion of the deferred gain recognized
as a reduction in product costs in 1995 was approximately $2.8 million.
(q) CASH OVERDRAFTS. The Company has included in accounts payable on the
accompanying consolidated balance sheets cash overdrafts totalling
$59.8 million and $54.4 million at December 31, 1994 and 1995,
respectively.
NOTE 2 RESTRUCTURING AND IMPAIRMENT OF LONG-LIVED ASSETS
Effective in the fourth quarter of 1995, as a result of a comprehensive
financial and operational review, the Company approved a restructuring plan. The
plan generally involved the reduction in personnel and a decision to outsource
the Company's information systems function.
In addition, the Company adopted SFAS No. 121 during 1995 (see Note 1(g)).
In connection with such adoption, 99 restaurant units, which will continue to be
operated, were identified as impaired as the future undiscounted cash flows of
each of these units is estimated to be insufficient to recover the related
carrying value. As such, the carrying values of these units were written down to
the Company's estimate of fair value based on sales of similar units or other
estimates of selling price.
During 1995, the Company also identified 36 underperforming units for sale
or closure generally during 1996. The carrying value of these units have been
written-down to estimated fair value, based on sales of similar units or other
estimates of selling price, less costs to sell.
Charges attributable to the restructuring plan and the adoption of SFAS No.
121 during the year ended December 31, 1995 are comprised of the following:
<TABLE>
<S> <C>
Restructuring:
Severance................................................................................ $ 5,376
Write-down of computer hardware and software and other assets............................ 7,617
Other.................................................................................... 2,880
$15,873
Impairment of Long-lived Assets:
Write-down attributable to the restaurant units the Company
will continue to operate.............................................................. $41,670
Write-down attributable to the restaurant units to be disposed........................... 9,688
$51,358
</TABLE>
F-9
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 RESTRUCTURING AND IMPAIRMENT OF LONG-LIVED ASSETS -- Continued
Approximately $7.5 million of the restructuring charges represent cash
charges of which approximately $600,000 was incurred and paid in 1995. Unpaid
amounts are included in other current liabilities on the accompanying
consolidated balance sheet. The Company anticipates completion of its
restructuring plan generally in 1996.
The 36 units identified in 1995 for disposal had aggregate operating
revenues of approximately $26.1 million and negative operating income of
approximately $2.9 million during 1995, and an aggregate carrying value of
approximately $5.8 million as of December 31, 1995.
Effective in the fourth quarter of 1993 the Company approved a
restructuring plan. The plan involved the sale or closure of restaurants, a
reduction in personnel, a reorganization of certain management structures and a
decision to fundamentally change the competitive positioning of Denny's, El
Pollo Loco and Quincy's. The plan resulted in a restructuring charge during the
year ended December 31, 1993 comprised of the following:
<TABLE>
<S> <C>
Write-down of assets...................................................................... $130,711
Severance and relocation.................................................................. 17,080
Other..................................................................................... 10,829
Continuing operations..................................................................... 158,620
Discontinued operations................................................................... 33,383
Total..................................................................................... $192,003
</TABLE>
The write-down of assets represented predominantly non-cash adjustments
made to reduce to net realizable value approximately 240 of the Company's 1,376
Denny's, Quincy's and El Pollo Loco restaurants. These 240 restaurants were
identified for sale, conversion to another concept, or closure. As of December
31, 1995, 69 units had been sold, closed or converted to another concept and 17
are intended to be disposed of generally during 1996, with an additional charge
of approximately $744,000 recorded in 1995 for such units. Management intends to
operate the remaining units. The 17 units to be disposed generally during 1996
had aggregate operating revenues of approximately $11.8 million and negative
operating income of approximately $1.3 million during 1995 and an aggregate
carrying value of approximately $1.0 million as of December 31, 1995.
NOTE 3 WRITE-OFF OF GOODWILL AND CERTAIN OTHER INTANGIBLE ASSETS
For the year ended December 31, 1993, the Company's consolidated statement
of operations reflects charges totaling $1,474.8 million ($1,104.6 million in
continuing operations and $370.2 million in discontinued operations) for the
write-off of goodwill and certain other intangible assets, primarily tradenames
and franchise agreements.
Since the acquisition of Flagstar in 1989, the Company has not achieved the
revenue and earnings projections prepared at the time of the acquisition. In
assessing the recoverability of goodwill and other intangible assets prior to
1993, the Company developed projections of future operations which indicated the
Company would become profitable within several years and fully recover the
carrying value of the goodwill and certain other intangible assets.
However, actual results have fallen short of these projections primarily
due to increased competition, intensive pressure on pricing due to discounting,
declining customer traffic, adverse economic conditions, and relatively limited
capital resources to respond to these changes. During the fourth quarter of
1993, management determined that the most likely projections of future operating
results would be based on the assumption that historical operating trends would
continue. Thus, the Company determined that the projected financial results
would not support the future amortization of the remaining goodwill balance and
certain other intangible assets at December 31, 1993.
The methodology employed to assess the recoverability of the Company's
goodwill and certain other intangible assets involved a detailed six year
projection of operating results extrapolated forward 30 years, which
approximated the maximum remaining amortization period for such assets as of
December 31, 1993. The Company then evaluated the recoverability of goodwill and
certain other intangibles on the basis of this projection of future operations.
Based on this projection over the next six years, the Company would have a net
loss each year before income taxes and amortization of
F-10
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 WRITE-OFF OF GOODWILL AND CERTAIN OTHER INTANGIBLE ASSETS -- Continued
goodwill and certain other intangibles. Extension of these trends to include the
entire 36 year amortization period indicated that there would be losses each
year, unless the restructuring plan or other activities were successful in
reversing the present operating trends; thus, the analysis indicated that there
was insufficient net income to recover the goodwill and certain other intangible
asset balances at December 31, 1993. Accordingly, the Company wrote off the
goodwill balance and certain other intangible asset balances including tradename
and franchise agreements for its Denny's, Quincy's, and El Pollo Loco restaurant
operations and tradename and location contracts for its former contract food and
vending services operations.
The projections generally assumed that historical trends experienced by the
Company over the previous four years would continue. The current mix between
company-owned and franchised restaurants was assumed to continue, customer
traffic for Denny's, Quincy's, and El Pollo Loco was assumed to decline at
historical rates, average check amounts for Denny's, Hardee's, Quincy's, and El
Pollo Loco were assumed to increase indefinitely at historical rates due to
inflation and changes in product mix, volume for Canteen (see Note 13) was
assumed to decline at historical rates, and pricing for Canteen was assumed to
increase at historical rates, as a result of inflation. Capital expenditures
were assumed to continue at a level necessary to repair and maintain current
facilities and systems. No new unit growth was assumed. Variable costs for food
and labor were assumed to remain at their historical percentage of revenues.
Other costs were assumed to increase at the historical inflation rate consistent
with revenue pricing increases. Through the year 1999, the Company's projections
indicated that interest expense would exceed operating income, which was
determined after deducting annual depreciation expense; however, operating
income before depreciation would be adequate to cover interest expense. A
continuation of this trend for the next 30 years did not generate cash to repay
the current debt and management assumes it will be refinanced at constant
interest rates.
NOTE 4 DEBT
At December 31, 1995, the Restated Credit Agreement includes a working
capital and letter of credit facility of up to a total of $160.1 million which
includes a working capital sublimit of $78.6 million and a letter of credit
sublimit of $125.0 million. At such date, the Company had no working capital
borrowings; however, letters of credit outstanding were $93.4 million. All
outstanding amounts under the Restated Credit Agreement must be repaid by June
17, 1996. See also discussion below.
F-11
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
<S> <C> <C>
(IN THOUSANDS)
Notes and Debentures:
10.75% Senior Notes due September 15, 2001, interest payable semi-annually...................... $ 275,000 $ 270,000
10.875% Senior Notes due December 1, 2002, interest payable semi-annually....................... 300,000 280,025
11.25% Senior Subordinated Debentures due November 1, 2004, interest payable
semi-annually................................................................................ 722,411 722,411
11.375% Senior Subordinated Debentures due September 15, 2003, interest payable semi-annually... 125,000 125,000
10% Convertible Junior Subordinated Debentures due 2014 (10% Convertible Debentures), interest
payable semi-annually; convertible into Company common stock any time prior to maturity at
$24.00 per share............................................................................. 99,259 99,259
Mortgage Notes Payable:
10.25% Guaranteed Secured Bonds due 2000........................................................ 205,612 202,715
11.03% Notes due 2000........................................................................... 160,000 160,000
Other notes payable, mature over various terms to 20 years, payable in monthly or quarterly
installments with interest rates ranging from 7.5% to 13.25% (a)............................. 23,129 17,415
Capital lease obligations (see Note 5)............................................................ 170,697 144,573
Notes payable secured by equipment, mature over various terms up to 7 years, payable in monthly
installments with interest rates ranging from 8.5% to 9.64%(b).................................. 17,948 13,548
Total............................................................................................. 2,099,056 2,034,946
Less current maturities (c)....................................................................... 31,408 38,835
$2,067,648 $1,996,111
</TABLE>
(a) Collateralized by restaurant and other properties with a net book value of
$22.8 million at December 31, 1995.
(b) Collateralized by equipment with a net book value of $14.7 million at
December 31, 1995.
(c) Aggregate annual maturities during the next five years of long-term debt are
as follows (in thousands): 1996 -- $38,835; 1997 -- $38,470;
1998 -- $32,660; 1999 -- $26,267, and 2000 -- $322,188.
The borrowings under the Restated Credit Agreement are secured by the stock
of certain operating subsidiaries and the Company's trade and service marks and
are guaranteed by certain operating subsidiaries. Such guarantees are further
secured by certain operating subsidiary assets.
The Restated Credit Agreement and indentures under which the debt
securities have been issued contain a number of restrictive covenants. Such
covenants restrict, among other things, the ability of Flagstar and its
subsidiaries to incur indebtedness, create liens, engage in business activities
which are not in the same field as that in which the Company currently operates,
mergers and acquisitions, sales of assets, transactions with affiliates and the
payment of dividends. In addition, the Restated Credit Agreement contains
affirmative and negative financial covenants including provisions for the
maintenance of a minimum level of interest coverage (as defined), limitations on
ratios of indebtedness (as defined) to earnings before interest, taxes,
depreciation and amortization (EBITDA), and limitations on annual capital
expenditures.
The Company was in compliance with the terms of the Restated Credit
Agreement at December 31, 1995. Under the most restrictive provision of the
Restated Credit Agreement (ratio of senior debt to EBITDA, as defined), at
December 31, 1995, the Company could incur approximately $31 million of
additional indebtedness.
The Company is currently in the process of renewing its bank credit
agreement. It is anticipated that the new agreement will consist of a $150
million working capital and letter of credit facility secured by a pledge of the
stock of the Company's operating subsidiaries and all of its and their
respective trademarks, tradenames, copyrights, hedge agreements, tax sharing
agreements and bank accounts. The new agreement, as presently contemplated,
would terminate March 31, 1999, subject to mandatory prepayments and commitment
reductions under certain circumstances upon the
F-12
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
Company's sale of assets or incurrence of additional debt. The new agreement
would also include certain financial and other operating covenants generally
consistent with those provided in the Restated Credit Agreement currently in
effect.
At December 31, 1995, the 10.25% guaranteed bonds were secured by, among
other things, mortgage loans on 386 restaurants, a lien on the related
restaurant equipment, assignment of intercompany lease agreements, and the stock
of the issuing subsidiaries. At December 31, 1995, the restaurant properties and
equipment had a net book value of $327.2 million. In addition, the bonds are
insured with a financial guaranty insurance policy written by a company that
engages exclusively in such coverage. Principal and interest on the bonds is
payable semiannually; certain payments are made by the Company on a monthly
basis. Principal payments total $12.5 million annually through 1999 and $152.7
million in 2000. The Company through its operating subsidiaries covenants that
it will maintain the properties in good repair and expend annually to maintain
the properties at least $18.1 million in 1996 and increasing each year to $23.7
million in 2000.
The 11.03% mortgage notes are secured by a pool of cross collateralized
mortgages on 240 restaurants with a net book value at December 31, 1995 of
$225.5 million. In addition, the notes are collateralized by, among other
things, a security interest in the restaurant equipment, the assignment of
intercompany lease agreements and the stock of the issuing subsidiary. Interest
on the notes is payable quarterly with the entire principal due at maturity in
2000. The notes are redeemable, in whole, at the issuer's option. The Company
through its operating subsidiary covenants that it will use each property as a
food service facility, maintain the properties in good repair and expend at
least $5.3 million per annum and not less than $33 million, in the aggregate, in
any five year period to maintain the properties.
At December 31, 1995, the Company has $775 million aggregate notional
amount in effect of reverse interest rate exchange agreements with maturities
ranging from twelve to forty-eight months. These notional amounts reflect only
the extent of the Company's involvement in these financial instruments and do
not represent the Company's exposure to market risk. The Company receives
interest at fixed rates calculated on such notional amounts and pays interest at
floating rates based on six months LIBOR in arrears calculated on like notional
amounts. The net expense from such agreements is reflected in interest and debt
expense and totalled $12.2 million, $9.2 million, and $3.1 million for the years
ended December 31, 1993, 1994, and 1995, respectively. Subsequent to year end,
the Company terminated interest rate exchange agreements with notional aggregate
amounts totalling $200 million that were scheduled to mature in 1997. Management
intends to maintain its remaining exchange agreements until maturity, unless
there is a material change in the underlying hedged instruments of the Company.
The counterparties to the Company's interest rate exchange agreements are
major financial institutions who participate in the Company's senior bank credit
facility. Such financial institutions are leading market-makers in the financial
derivatives markets, are well capitalized, and are expected to fully perform
under the terms of such exchange agreements, thereby mitigating the credit risk
to the Company.
The Company is exposed to market risk for such exchange agreements due to
the interest rate differentials described above. The Company monitors its market
risk by periodically preparing sensitivity analyses of various interest rate
fluctuation scenarios and the results of such scenarios on the Company's cash
flows on a nominal and discounted basis. In addition, the Company obtains
portfolio mark-to-market valuations from market-makers of financial derivatives
products.
Information regarding the Company's reverse interest rate exchange
agreements at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
AMOUNT OF WEIGHTED AVERAGE
YEAR OF NOTIONAL INTEREST RATE
MATURITY PAYMENT RECEIVED PAID
<S> <C> <C> <C>
1997 $475,000 5.21% 5.61%
1998 200,000 5.57% 5.66%
1999 100,000 5.82% 5.66%
$775,000 5.38% 5.63%
</TABLE>
The estimated fair value of the Company's long-term debt (excluding capital
lease obligations) is approximately $1.75 billion at December 31, 1995. Such
computations are based on market quotations for the same or similar debt issues
or
F-13
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
the estimated borrowing rates available to the Company. At December 31, 1995,
the estimated fair value of the $775 million notional amount of reverse interest
rate swaps was a net payable of approximately $2.7 million and represents the
estimated amount that the Company would be required to pay to terminate the swap
agreements at December 31, 1995. This estimate is based upon a mark-to-market
valuation of the Company's swap portfolio obtained from a major financial
institution which is one of the counterparties to the exchange agreements.
NOTE 5 LEASES AND RELATED GUARANTEES
The Company's operations utilize property, facilities, equipment and
vehicles leased from others. In addition, certain owned and leased property,
facilities and equipment are leased to others.
Buildings and facilities leased from others primarily are for restaurants
and support facilities. At December 31, 1995, 899 restaurants were operated
under lease arrangements which generally provide for a fixed basic rent, and, in
some instances, contingent rental based on a percentage of gross operating
profit or gross revenues. Initial terms of land and restaurant building leases
generally are not less than twenty years exclusive of options to renew. Leases
of other equipment primarily consist of merchandising equipment, computer
systems and vehicles, etc.
Information regarding the Company's leasing activities at December 31, 1995
is as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
MINIMUM MINIMUM MINIMUM MINIMUM
LEASE SUBLEASE LEASE SUBLEASE
PAYMENTS PAYMENTS PAYMENTS PAYMENTS
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Year:
1996....................................................................... $ 33,943 $ 2,106 $ 44,586 $9,372
1997....................................................................... 30,998 2,010 42,148 9,006
1998....................................................................... 25,248 1,776 38,940 8,291
1999....................................................................... 20,424 1,404 35,403 6,208
2000....................................................................... 15,977 1,031 31,550 5,448
Subsequent years........................................................... 129,168 5,643 175,578 23,932
Total................................................................... 255,758 $13,970 $368,205 $62,257
Less imputed interest........................................................ 111,185
Present value of capital lease obligations................................... $144,573
</TABLE>
The total rental expense included in the determination of operating income
for the years ended December 31, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
(IN THOUSANDS)
Basic rents................................................................... $ 48,870 $ 49,234 $ 48,269
Contingent rents.............................................................. 12,306 12,178 11,274
Total......................................................................... $ 61,176 $ 61,412 $ 59,543
</TABLE>
Total rental expense does not reflect sublease rental income of $8,998,000,
$9,975,000, and $14,426,000 for the years ended December 31, 1993, 1994, and
1995, respectively.
F-14
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INCOME TAXES
A summary of the provision for (benefit from) income taxes attributable to
the loss before discontinued operations, extraordinary items, and cumulative
effect of change in accounting principles is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal..................................................................... $ 1,323 $ 365 $ 1,940
State, Foreign and Other.................................................... 3,762 215 1,497
5,085 580 3,437
Deferred:
Federal..................................................................... (74,606) -- --
State, Foreign and Other.................................................... (9,807) (2,793) (3,451)
(84,413) (2,793) (3,451)
Benefit from income taxes..................................................... $ (79,328) $ (2,213) $ (14)
The total provision for (benefit from) income taxes related to:
Loss before discontinued operations, extraordinary items, and cumulative
effect of change in accounting principles................................ $ (79,328) $ (2,213) $ (14)
Discontinued operations..................................................... (1,821) 10,470 8,731
Extraordinary items......................................................... (196) (174) 25
Cumulative effect of change in accounting principles........................ (90) -- --
Total provision for (benefit from) income taxes............................... $ (81,435) $ 8,083 $ 8,742
</TABLE>
For the year ended December 31, 1993, the Company utilized regular tax net
operating loss carryforwards of approximately $9.5 million. For the years ended
December 31, 1994 and 1995, the provision for income taxes relating to
discontinued operations was reduced due to the utilization of regular tax net
operating loss carryforwards of approximately $89 million in 1994 and $75
million in 1995. In addition, the deferred federal tax benefit for the year
ended December 31, 1993, has been offset by approximately $2.7 million due to
the 1% corporate tax rate increase included in the Omnibus Budget Reconciliation
Act of 1993.
F-15
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INCOME TAXES -- Continued
The following represents the approximate tax effect of each significant
type of temporary difference and carryforward giving rise to the deferred income
tax liability or asset:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Deferred income....................................................................................... $ -- $ 24,326
Self-insurance reserves............................................................................... 40,269 33,522
Capitalized leases.................................................................................... 18,539 15,823
Assets held for sale.................................................................................. 7,343 --
Other accruals and reserves........................................................................... 38,246 6,924
Alternative minimum tax credit carryforwards.......................................................... 14,125 18,444
General business credit carryforwards................................................................. 13,225 21,623
Net operating loss carryforwards...................................................................... 44,450 9,764
Less: valuation allowance............................................................................. (28,767) (54,452)
Total deferred tax assets............................................................................. 147,430 75,974
Deferred tax liabilities:
Depreciation of fixed assets.......................................................................... 164,465 89,787
Amortization of intangible assets..................................................................... 4,644 4,362
Total deferred tax liabilities........................................................................ 169,109 94,149
Total deferred income tax liability................................................................... $ 21,679 $ 18,175
</TABLE>
The Company has provided a valuation allowance for the portion of the
deferred tax asset for which it is more likely than not that a tax benefit will
not be realized.
The difference between the statutory federal income tax rate and the
effective tax rate on loss from continuing operations before discontinued
operations, extraordinary items and cumulative effect of accounting change is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
Statutory rate................................................................ 35% 35% 35%
Differences:
State, foreign, and other taxes, net of federal income tax benefit.......... -- 12 --
Amortization and write-off of goodwill...................................... (26) -- --
Portion of losses not benefited as a result of the establishment of
valuation allowance...................................................... (3) (35) (35)
Effective tax rate............................................................ 6% 12% --%
</TABLE>
At December 31, 1995, the Company has available, to reduce income taxes
that become payable in the future, general business credit carryforwards of
approximately $22 million, most of which expire in 2002 through 2007, and
alternative minimum tax (AMT) credits of approximately $18 million. The AMT
credits may be carried forward indefinitely. In addition, the Company has
available regular income tax net operating loss carryforwards of approximately
$28 million which expire in 2007. Due to the Recapitalization of the Company
which occurred during 1992, the Company's ability to utilize general business
credits, and AMT credits which arose prior to 1992 will be limited to a
specified annual amount. The annual limitation for the utilization of the tax
credit carryforwards is approximately $8 million. The remaining amount of net
operating loss carryforward which arose in 1992 of approximately $28 million is
presently not subject to any annual limitation.
F-16
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS
The Company maintains several defined benefit plans which cover a
substantial number of employees. Benefits are based upon each employee's years
of service and average salary. The Company's funding policy is based on the
minimum amount required under the Employee Retirement Income Security Act of
1974. The Company also maintains defined contribution plans.
Total net pension cost of defined benefit plans for the years ended
December 31, 1993, 1994, and 1995 amounted to $3,724,000, $3,995,000 and
$5,594,000, respectively, of which $2,802,000, $3,270,000 and $3,260,000 related
to funded defined benefit plans and $922,000, $725,000 and $2,334,000 related to
nonqualified unfunded supplemental defined benefit plans for executives.
The components of net pension cost of the funded and unfunded defined
benefit plans for the years ended December 31, 1993, 1994, and 1995 determined
under SFAS No. 87 follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost-benefits earned during the year.................................. $ 2,625 $ 3,076 $ 2,829
Interest cost on projected benefit obligations................................ 2,281 2,427 2,651
Actual return on plan assets.................................................. (1,284) 761 (3,722)
Net amortization and deferral................................................. 102 (2,269) 2,074
Curtailment/settlement losses (due to early retirements of certain
participants)............................................................... -- -- 1,762
Net pension cost.............................................................. $ 3,724 $ 3,995 $ 5,594
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's balance sheet for its funded defined benefit plans:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested benefits....................................................................................... $19,887 $23,993
Non-vested benefits................................................................................... 1,412 1,466
Accumulated benefit obligations......................................................................... $21,299 $25,459
Plan assets at fair value............................................................................... $21,859 $26,513
Projected benefit obligation............................................................................ 27,556 32,059
Funded status........................................................................................... (5,697) (5,546)
Unrecognized net loss from past experience different from that assumed.................................. 7,270 6,301
Unrecognized prior service cost......................................................................... 137 69
Prepaid pension costs................................................................................... $ 1,710 $ 824
</TABLE>
Assets held by the Company's plans are invested in money market and other
fixed income funds as well as equity funds.
F-17
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS -- Continued
The following sets forth the funded status and amounts recognized in the
Company's balance sheet for its unfunded defined benefit plans:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested benefits........................................................................................ $ 3,888 $ 4,080
Non-vested benefits.................................................................................... 343 12
Accumulated benefit obligations.......................................................................... $ 4,231 $ 4,092
Plan assets at fair value................................................................................ $ -- $ --
Projected benefit obligation............................................................................. (4,623) (4,188)
Funded status............................................................................................ (4,623) (4,188)
Unrecognized net (gain) loss from past experience different from that assumed............................ 468 (112)
Unrecognized prior service cost.......................................................................... 738 109
Unrecognized net asset at January 1, 1987 being amortized over 15 years.................................. (123) (49)
Additional liability..................................................................................... (1,163) (543)
Other -- 24
Accrued pension costs.................................................................................... $(4,703) $$(4,759)
</TABLE>
Significant assumptions used in determining net pension cost and funded
status information for all the periods shown above are as follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Discount rate.................................................................... 8.25 % 8.0 %
Rates of salary progression...................................................... 4.0 % 4.0 %
Long-term rates of return on assets.............................................. 10.0 % 10.0 %
</TABLE>
In addition, the Company has defined contribution plans whereby eligible
employees can elect to contribute from 1%-15% of their compensation to the
plans. These plans include profit sharing and savings plans under which the
Company makes matching contributions, with certain limitations. Amounts charged
to income under these plans were $3,767,000, $3,932,000, and $3,911,000 for the
years ended December 31, 1993, 1994, and 1995, respectively.
Incentive compensation plans provide for awards to management employees
based on meeting or exceeding certain levels of income as defined by such plans
The amounts charged to income under the plans for the years ended December 31,
1993, 1994, and 1995 were as follows: zero, $4,212,000, and $610,000. In
addition to these incentive compensation plans, certain operations have
incentive plans in place under which regional, divisional and local management
participate.
The 1989 Stock Option Plan permits a Committee of the Board of Directors to
grant options to key employees of the Company and its subsidiaries to purchase
shares of common stock of the Company at a stated price established by the
Committee. Such options are exercisable at such time or times either in whole or
part, as determined by the Committee. The 1989 Stock Option Plan authorizes
grants of up to 6,500,000 common shares. Options of 3,308,200 and 4,302,120,
respectively, were outstanding at December 31, 1994 and 1995 of which 241,610
and 728,221, respectively, were exercisable. Such options have exercise prices
of between $5.13 and $17.50 per share and become exercisable between one and two
years after the date of grant with an additional twenty to twenty-five percent
of such options becoming exercisable each year thereafter. During 1994 and 1995
no options were exercised. If not exercised, the options expire ten years from
the date of grant.
On June 21, 1995, generally all of the outstanding options held by the then
current employees of the Company under the 1989 Stock Option Plan were repriced
to $6.00 per share, the market value of the common stock at the date of the
repricing. All officer level employees were given the choice of either retaining
their current options at their existing exercise prices and vesting schedule or
surrendering their existing options in exchange for an option to purchase the
same number of shares exercisable at a rate of 20% per annum beginning on the
first anniversary date of the new grant. All non-
F-18
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS -- Continued
officer employees received the new exercise price of $6.00 per share and
retained their original vesting schedules for all of their outstanding options
previously granted.
In 1990, the Board of Directors adopted a 1990 Non-qualified Stock Option
Plan (the 1990 Option Plan) for its directors who do not participate in
management and are not affiliated with GTO (see Note 12). Such plan, as
currently in effect, authorizes the issuance of up to 110,000 shares of common
stock. The plan is substantially similar in all respects to the 1989 Option Plan
described above. The Committee of the Board administering the 1990 Option Plan
granted options for 30,000 shares as of July 31, 1990 at $29.05 per share, the
market price per share on the date of grant. At December 31, 1994 and 1995,
respectively, options outstanding under the 1990 Option Plan totalled 10,000
shares.
During January 1995, the Company issued 65,306 shares of common stock and
granted an option under the 1989 Stock Option Plan to purchase 800,000 shares of
the Company's common stock, at market value at the date of grant, for a ten-year
period. Such grant becomes exercisable at the rate of 20% per year beginning on
January 9, 1996 and each anniversary thereafter.
NOTE 8 COMMITMENTS AND CONTINGENCIES
There are various claims and pending legal actions against or indirectly
involving the Company, including actions concerned with civil rights of
employees and customers, other employment related matters, taxes, sales of
franchise rights, and other matters. Certain of these are seeking damages in
substantial amounts. The amounts of liability, if any, on these direct or
indirect claims and actions at December 31, 1995, over and above any insurance
coverage in respect to certain of them, are not specifically determinable at
this time.
Flagstar has received proposed deficiencies from the Internal Revenue
Service (IRS) for federal income taxes totalling 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. The deficiencies primarily involve the proposed disallowance of
deductions associated with borrowings and other costs incurred prior to, at and
just following the time of the acquisition of Flagstar in 1989. The Company
intends to vigorously contest the proposed deficiencies because it believes the
proposed deficiencies are substantially incorrect.
The Company is also the subject of pending and threatened employment
discrimination claims principally in California and Alabama. In certain of these
claims, the plaintiffs have threatened to seek to represent a class alleging
racial discrimination in employment practices at Company restaurants and to seek
actual, compensatory and punitive damages, and injunctive relief.
It is the opinion of Management (including General Counsel), after
considering a number of factors, including but not limited to the current status
of the litigation (including any settlement discussions), the views of retained
counsel, the nature of the litigation or proposed tax deficiencies, the prior
experience of the consolidated companies, and the amounts which the Company has
accrued for known contingencies that the ultimate disposition of these matters
will not materially affect the consolidated financial position or results of
operations of the Company.
The Company is guarantor on capital lease obligations of approximately $5.7
million at December 31, 1995 from the sale of PFC. See Note 1(p).
F-19
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
TOTAL SHAREHOLDERS'
OTHER EQUITY DEFICIT EQUITY (DEFICIT)
<S> <C> <C> <C>
(IN THOUSANDS)
Balance December 31, 1992...................................................... $746,360 $ (456,993) $ 289,367
Activity:
Net Loss.................................................................. -- (1,686,650) (1,686,650)
Dividends on Preferred Stock.............................................. -- (14,175) (14,175)
Minimum pension liability adjustment...................................... (11,091) -- (11,091)
Balance December 31, 1993...................................................... 735,269 (2,157,818) (1,422,549)
Activity:
Net Income................................................................ -- 364,093 364,093
Dividends on Preferred Stock.............................................. -- (14,175) (14,175)
Minimum pension liability adjustment...................................... 10,131 -- 10,131
Balance December 31, 1994...................................................... 745,400 (1,807,900) (1,062,500)
Activity:
Net Loss.................................................................. -- (55,199) (55,199)
Dividends on Preferred Stock.............................................. -- (14,175) (14,175)
Issuance of Common Stock.................................................. 400 -- 400
Minimum pension liability adjustment...................................... 497 -- 497
Balance December 31, 1995...................................................... $746,297 $(1,877,274) $ (1,130,977)
</TABLE>
Each share of the $2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock ($2.25 Preferred Stock) is convertible at the option of the
holder, unless previously redeemed, into 1.359 shares of common stock. The
Preferred Stock may be exchanged at the option of the Company, in up to two
parts, at any dividend payment date for the Company's 9% Convertible
Subordinated Debentures (Exchange Debentures) due July 15, 2017 in a principal
amount equal to $25.00 per share of $2.25 Preferred Stock. Each $25.00 principal
amount of Exchange Debenture, if issued, would be convertible at the option of
the holder into 1.359 shares of common stock of the Company. The $2.25 Preferred
Stock may be redeemed at the option of the Company, in whole or in part, on or
after July 15, 1994 at $26.80 per share if redeemed during the twelve
month-period beginning July 15, 1994, and thereafter at prices declining
annually to $25.00 per share on or after July 15, 2002.
At December 31, 1995, there are warrants outstanding which entitle the
holder, an affiliate of Kohlberg, Kravis, Roberts & Co. (KKR), a shareholder of
the Company, to purchase 15 million shares of Company common stock at $17.50 per
share, subject to adjustment for certain events. Such warrants may be exercised
through November 16, 2000.
NOTE 10 EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
The outstanding warrants as well as the stock options issued to management
and directors are common stock equivalents. The $2.25 Preferred Stock and 10%
Convertible Debentures, which are convertible into the common stock of the
Company (see Note 4), are not common stock equivalents; however, such securities
are considered "other potentially dilutive securities" which may become dilutive
in the calculation of fully diluted per share amounts.
The calculations of primary and fully diluted loss per share amounts for
the years ended December 31, 1993 and 1995 have been based on the weighted
average number of Company shares outstanding. The warrants, options, $2.25
Preferred Stock, and 10% Convertible Debentures have been omitted from the
calculations for 1993 and 1995 because
they have an antidilutive effect on loss per share.
For the year ended December 31, 1994, the calculation of primary earnings
per share has been based on the weighted average number of outstanding shares as
adjusted by the assumed dilutive effect that would occur if the outstanding
warrants and stock options were exercised, using the modified treasury stock
method. The calculation of fully
F-20
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS -- Continued
diluted earnings per share has been based on additional adjustments to the
primary earnings per share amount for the dilutive effect of the assumed
conversion of the $2.25 Preferred Stock and 10% Convertible Debentures.
NOTE 11 EXTRAORDINARY ITEMS
The Company recorded losses from extraordinary items as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
INCOME LOSSES,
TAX NET OF
LOSSES BENEFITS TAXES
<S> <C> <C> <C>
(IN THOUSANDS)
Prepayment of Term Loan:
Write-off of unamortized deferred financing costs on indebtedness retired................. $26,469 $ (179) $26,290
Recapitalization:
Premiums and costs to repurchase 10% Convertible Debentures............................... 90 (12) 78
Write-off of unamortized deferred financing costs on indebtedness retired................. 42 (5) 37
132 (17) 115
Total....................................................................................... $26,601 $ (196) $26,405
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
INCOME LOSSES,
TAX NET OF
LOSSES BENEFITS TAXES
<S> <C> <C> <C>
(IN THOUSANDS)
Prepayment of Term Loan:
Write-off of unamortized deferred financing costs on indebtedness retired............. $11,931 $ (174) $11,757
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
INCOME GAIN
TAX (LOSS),
GAIN PROVISION NET OF
(LOSS) (BENEFITS) TAXES
<S> <C> <C> <C>
(IN THOUSANDS)
Repurchase of Senior Indebtness:
Gain on repurchase of senior indebtedness................................................ $ 1,461 $ 74 $ 1,387
Write-off of deferred financing costs on repurchase of senior indebtedness............... (970) (49) (921)
Total...................................................................................... $ 491 $ 25 $ 466
</TABLE>
During the third quarter of 1993, the prepayment of $387.5 million of the
Company's term loan under the Restated Credit Agreement resulted in a charge-off
of $26.5 million of unamortized deferred financing costs.
During the first quarter of 1993, the Company purchased $741,000 in
principal amount of 10% Convertible Debentures at 101% of their principal amount
plus unpaid accrued interest, pursuant to change in control provisions of the
indenture. The repurchase of the 10% Convertible Debentures resulted in a charge
of $132,000.
During the second quarter of 1994, the Company sold Canteen Corporation, a
wholly-owned subsidiary. A portion of the proceeds from the sale was used to
prepay $170.2 million of term and $126.1 million of working capital advances
which were outstanding under the Company's Restated Credit Agreement resulting
in a charge-off of $11.9 million of unamortized deferred financing costs.
During the third quarter of 1995, the Company recognized an extraordinary
gain totaling $0.5 million, net of income taxes, which represents the repurchase
of $24,975,000 principal amount of certain senior indebtedness, net of the
charge-off of the related unamortized deferred financing costs of $0.9 million.
F-21
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 RELATED PARTY TRANSACTIONS
The Company expensed annual advisory fees of $250,000 for the years ended
December 31, 1993 and 1994, respectively, for Gollust, Tierney & Oliver,
Incorporated (GTO), a stockholder of the Company.
Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), a stockholder of
the Company, received $4,059,000 during the year ended December 31, 1993 for
investment banking services related to the issuance of indebtedness by the
Company.
KKR received annual financial advisory fees of $1,250,000 for the years
ended December 31, 1993, 1994, and 1995.
The Company has a loan receivable at December 31, 1995 from its former
chairman totaling $16,454,000. The proceeds of the loan were used during 1992 by
the former chairman to repay a 1989 loan obtained for the purchase of Company
common stock. The loan is due in November 1997 and is secured by 812,000 shares
of common stock and certain other collateral. The Company earned for the years
ended December 31, 1993, 1994, and 1995 $789,000, $842,000, and $886,000,
respectively, on such loan which accrues interest at 5.6% per annum and is
payable at maturity.
NOTE 13 DISCONTINUED OPERATIONS
During April 1994, the Company announced the signing of a definitive
agreement to sell the food and vending business and its intent to dispose of the
remaining concession and recreation services businesses of its subsidiary,
Canteen Holdings, Inc. The Company sold Canteen Corporation, a food and vending
subsidiary, for $447.1 million during June 1994, and recognized a net gain of
approximately $399.2 million, net of income taxes, during the year ended
December 31, 1994.
During December 1995, the Company sold TW Recreational Services, Inc., a
concession and recreation services subsidiary, for $98.7 million and Volume
Services, Inc., a stadium concession services subsidiary for $73.4 million, both
subject to certain adjustments, and recognized gains totaling $77.9 million, net
of income taxes.
The financial statements and related notes presented herein classify
Canteen Holdings, Inc. and its subsidiaries as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30. Revenues and
operating income (loss) of the discontinued operations for the years ended
December 31, 1993, 1994, and 1995 were $1.37 billion, $859.7 million, and $322.3
million and $(313.3) million, $32.6 million, and $17.1 million, respectively.
F-22
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 QUARTERLY DATA (UNAUDITED)
The results for each quarter include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for
interim periods. The consolidated financial results on an interim basis are not
necessarily indicative of future financial results on either an interim or an
annual basis. Selected consolidated financial data for each quarter within 1994
and 1995 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, 1994:
Operating Revenue......................................................... $626,273 $679,563 $700,589 $ 659,541
Operating expenses:
Product costs........................................................... 217,607 234,770 239,479 227,231
Payroll & benefits...................................................... 227,318 241,419 238,075 213,116
Depreciation & amortization expense..................................... 31,713 31,767 32,866 33,287
Utilities expense....................................................... 24,438 24,003 27,370 23,210
Other................................................................... 86,445 102,168 100,684 104,715
Recovery of restructuring charges....................................... -- -- -- (7,207)
Operating income.......................................................... $ 38,752 $ 45,436 $ 62,115 $ 65,189
Income (loss) before extraordinary item................................... $(23,072) $361,619 $ 23,519 $ 13,784
Net income (loss) applicable to common shareholders....................... $(26,616) $347,253 $ 19,976 $ 9,305
Primary per share amounts applicable to common shareholders:
Income (loss) before extraordinary items and cumulative effect of change
in accounting principle.............................................. $ (0.63) $ 7.09 $ 0.47 $ 0.24
Net income (loss)....................................................... $ (0.63) $ 6.88 $ 0.47 $ 0.22
Fully diluted per share amounts applicable to common shareholders:
Income (loss) before extraordinary item and cumulative effect of change
in accounting principle.............................................. $ (0.63) $ 5.78 $ 0.47 $ 0.24
Net income (loss)....................................................... $ (0.63) $ 5.61 $ 0.47 $ 0.22
Year Ended December 31, 1995:
Operating Revenue......................................................... $636,464 $681,464 $676,899 $ 576,660
Operating expenses:
Product costs........................................................... 218,246 238,514 229,446 178,299
Payroll & benefits...................................................... 228,809 238,889 229,368 219,885
Depreciation & amortization expense..................................... 33,249 33,748 32,802 33,073
Utilities expense....................................................... 23,261 23,708 27,361 23,882
Other................................................................... 95,561 96,471 101,634 99,816
Provision for restructuring charges..................................... -- -- -- 15,873
Charge for impaired assets.............................................. -- -- -- 51,358
Operating income (loss)................................................... $ 37,338 $ 50,134 $ 56,288 $ (45,526)
Income (loss) before extraordinary item................................... $(31,060) $(13,554) $ 13,765 $ (24,816)
Net income (loss) applicable to common shareholders....................... $(34,604) $(17,098) $ 10,688 $ (28,360)
Primary and fully diluted per share amounts applicable to common
shareholders:
Income (loss) before extraordinary item................................. $ (0.82) $ (0.40) $ 0.24 $ (0.67)
Net income (loss)....................................................... $ (0.82) $ (0.40) $ 0.25 $ (0.67)
</TABLE>
F-23
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 QUARTERLY DATA (UNAUDITED) -- Continued
During the second quarter of 1994, the Company sold its food and vending
subsidiary (see Note 13) and recorded a $383.9 million net gain on the sale of
the discontinued operation. During the fourth quarter of 1994, the Company
increased its gain by $15.3 million to reflect the final settlement of such
sale.
During the fourth quarter of 1994, the Company recognized a reduction in
operating expenses of approximately $15.0 million principally due to favorable
claims trends associated with the Company's self-insurance liabilities.
During the fourth quarter of 1995, the Company sold its concession and
recreation services subsidiaries and recorded a $77.9 million net gain on the
sales of such discontinued operations.
The effect of the Company's other potentially dilutive securities (see Note
10) on the computations of fully diluted loss per share amounts for the first,
third, and fourth quarters of 1994 and 1995 quarters were anti-dilutive.
Accordingly, the primary and fully diluted loss per share amounts for such
quarters are equivalent.
NOTE 15 SUBSEQUENT EVENTS (UNAUDITED)
On February 22, 1996, the Company entered into an agreement with Integrated
Systems Solutions Corporation (ISSC). The ten year agreement for $323 million
provides for ISSC to manage and operate the Company's information systems, as
well as, develop and implement new systems and applications to enhance
information technology for the Company's corporate headquarters, restaurants,
and field management. ISSC will oversee data center operations, applications
development and maintenance, voice and data networking, help desk operations and
point-of-sale technology.
On March 1, 1996, the Company entered into an agreement to acquire the
Coco's and Carrows restaurant chains, consisting of approximately 350 units
operating in the family dining segment. The purchase is subject to the signing
of certain ancillary agreements and other customary terms and conditions. If
consummated, the purchase price (including estimated expenses) would consist of
$131 million of cash ($56 million of which will be financed by bank term loans),
the issuance of notes payable to the seller of $150 million, and the assumption
of certain capital lease obligations of approximately $31.5 million.
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FLAGSTAR COMPANIES, INC.
By: /s/ RHONDA J. PARISH
Rhonda J. Parish
(Vice President, General Counsel and
Secretary)
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ JAMES B. ADAMSON Director, Chairman, President and Chief Executive March 29, 1996
Officer (Principal Executive Officer)
(James B. Adamson)
/s/ C. ROBERT CAMPBELL Vice President and Chief Financial Officer March 29, 1996
(Principal Financial and Accounting Officer)
(C. Robert Campbell)
/s/ MICHAEL CHU Director March 29, 1996
(Michael Chu)
/s/ VERA KING FARRIS Director March 29, 1996
(Vera King Farris)
/s/ HENRY R. KRAVIS Director March 29, 1996
(Henry R. Kravis)
/s/ ANDREW A. LEVISON Director March 29, 1996
(Andrew A. Levison)
/s/ PAUL E. RAETHER Director March 29, 1996
(Paul E. Raether)
/s/ CLIFTON S. ROBBINS Director March 29, 1996
(Clifton S. Robbins)
/s/ GEORGE R. ROBERTS Director March 29, 1996
(George R. Roberts)
/s/ ELIZABETH A. SANDERS Director March 29, 1996
(Elizabeth A. Sanders)
/s/ L. EDWIN SMART Director March 29, 1996
(L. Edwin Smart)
/s/ MICHAEL T. TOKARZ Director March 29, 1996
(Michael T. Tokarz)
</TABLE>
<PAGE>
EXHIBIT 3.5
BY-LAWS1
OF
FLAGSTAR COMPANIES, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in
the State of Delaware shall be in the City of Wilmington.
SECTION 2. OTHER OFFICES. The Corporation may have other offices, either
within or without the state of Delaware, at such place or places as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting shall be held at such place, either within or without the state
of Delaware, and at such time and date, commencing in the year 1989, as the
Board of Directors, by resolution, shall determine and as set forth in the
notice of the meeting. If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next business day.
At each annual meeting, the stockholders entitled to vote shall elect a
Board of Directors and they may transact such other corporate business as shall
be stated in the notice of the meeting. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section. The Chairman of the
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of this Section, and if he should so determine, he shall so declare
to the meeting, and any such business not properly brought before the meeting
shall not be transacted.
SECTION 2. OTHER MEETINGS. Special meetings of stockholders for any purpose
may be held at such time and place, within or without the state of Delaware, as
may be fixed by the Board of Directors and shall be stated in the notice of
meeting.
SECTION 3. INSPECTOR OF ELECTION. At each meeting of stockholders at which
an election of directors is to be held, the chairman of the meeting may, but
shall not be required to, appoint one person, who need not be a
1 As amended through July 26, 1995
<PAGE>
stockholder, to act as inspector of election at such meeting. The inspector so
appointed, before entering on the discharge of his duties, shall take and
subscribe to an oath or affirmation to faithfully execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability, and thereupon the inspector shall take charge of the polls and
after the balloting shall canvas the votes and make a certificate of the results
of the vote taken. No director or candidate for the office of director shall be
appointed inspector.
SECTION 4. VOTING. At each meeting of the stockholders, each stockholder
entitled to vote at such meeting in accordance with the terms of the Certificate
of Incorporation and in accordance with the provisions of these By-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. Every proxy must
be executed in writing by the stockholder or by the stockholder's duly
authorized attorney. Upon the demand of any stockholder, the vote for directors
and the vote upon any question before the meeting, shall be by ballot. All
elections for directors and all other questions shall be decided by majority
vote except as otherwise provided by the Certificate of Incorporation or the
laws of the state of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 5. QUORUM. At all meetings of the stockholders, except as otherwise
required by law, by the Certificate of Incorporation or by these By-laws, the
presence, in person or by proxy, of stockholders of record holding a majority of
the shares of stock of the Corporation issued, outstanding and entitled to vote
thereat shall constitute a quorum for the transaction of business. In case a
quorum shall not be present at any meeting, the holders of record of a majority
of the shares of stock entitled to vote thereat, present in person or by proxy,
shall have the power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until the requisite amount of stock
entitled to vote shall be present. At any such adjourned meeting at which the
requisite amount of stock entitled to vote shall be represented, any business
may be transacted which might have been transacted at the meeting as originally
called; but only those stockholders entitled to vote at the meeting as
originally called shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 6. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board of Directors, the
President or the Secretary, or by resolution of the Board of Directors.
SECTION 7. NOTICE OF MEETINGS. Written notice, stating the place, date and
time of the meeting, and the general nature of the business to be considered,
shall be given to each stockholder entitled to vote thereat at his address as it
appears on the records of the Corporation, not less than ten nor more than sixty
days before the date of the meeting. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Such written consent shall be filed in the minute
book of the Corporation.
2
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ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors of the Corporation
shall be not less than one nor more than fifteen. Within the limits above
specified, the number of directors shall be determined from time to time by the
stockholders or by the Board of Directors at any meeting thereof. The directors
shall be elected at the annual meeting of the stockholders. Each director shall
be elected to serve until his successor shall be elected and shall qualify or
until his earlier death, resignation or removal as provided in these By-laws.
Directors need not be stockholders. No person who has attained the age of 70
shall be eligible to stand for election or re-election by the stockholders or
otherwise to be appointed to serve as a director of the Corporation.
SECTION 2. RESIGNATION. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing to the
Board of Directors, the Chairman of the Board of Directors, the President or the
Secretary. Unless otherwise specified therein, such resignation shall take
effect on receipt thereof. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director, member of a committee
or other officer becomes vacant, the remaining directors in office, though less
than a quorum, by a majority vote, may appoint any qualified person to fill such
vacancy, who shall hold office for the unexpired term and until his successor
shall be duly chosen or until his earlier death, resignation or removal. In the
event that the resignation of any director shall specify that it shall take
effect at a future date, the vacancy resulting from such resignation may be
filled prospectively in the same manner as provided in this paragraph.
SECTION 4. REMOVAL. Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose, and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Any director may be removed at any time for cause by the action of the
directors, at a special meeting called for that purpose, by the vote in favor of
removal of a majority of the total number of directors.
SECTION 5. INCREASE OF NUMBER. The maximum number of directors may be
increased by amendment of these By-laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by the affirmative vote of a
majority interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify or until their earlier death,
resignation or removal.
SECTION 6. POWERS. The Board of Directors shall exercise all of the powers
of the Corporation except such as are by law, by the Certificate of
Incorporation of the Corporation or by these By-laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation; and, unless the resolution, these By-laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
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SECTION 8. MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such places
and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors, the President or the Secretary on the written request of
any two directors on at least two days' notice to each director and shall be
held at such place or places as may be determined by the directors, or shall be
stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM. A majority of the total number of directors shall
constitute a quorum for the transaction of business. If a quorum shall be
present, the act of a majority of the directors present shall be the act of the
Board of Directors, except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. If at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned.
SECTION 10. COMPENSATION. Directors shall not receive any stated salary for
their services as directors or as members of committees, but by resolution of
the Board of Directors a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, if prior to such action a written consent thereto is
signed by all members of the Board of Directors, or of such committee as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or committee.
SECTION 12. RULES AND REGULATIONS. The Board of Directors may adopt such
rules and regulations for the conduct of its meetings and for the management of
the property, affairs and business of the Corporation as it may deem proper,
except as otherwise provided by law, by the Certificate of Incorporation or by
these By-laws.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of
the Board of Directors, if any shall have been elected, a President, a
Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and who shall hold office until their successors are elected and
qualified or until their earlier death, resignation or removal. In addition, the
Board of Directors may elect one or more Vice Presidents and such Assistant
Secretaries and Assistant Treasurers as they may deem proper. None of the
officers of the Corporation need be directors (except for the Chairman of the
Board of Directors, if any) or stockholders. The officers shall be elected at
the first meeting of the Board of Directors after each annual meeting. Any
person may hold one or more offices. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors. The Board of
Directors may delegate to any officer or officers the power to appoint any such
officer, to fix their respective terms of office, to prescribe their respective
powers and duties, to remove them and to fill vacancies in any such offices.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders, and absent instructions to the contrary by the Board of Directors,
shall exercise general supervision over the property, affairs and business of
the Corporation, shall authorize the other officers of
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the Corporation to exercise such powers as he may deem to be in the best
interests of the Corporation and shall have and perform such other duties as
from time to time may be assigned to him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall have such duties as may from time
to time be delegated to him by the Board of Directors. In the event there shall
be no Chairman, the President shall exercise all powers conferred on the
Chairman by Section 3 of this Article. In the event a Chairman is elected, the
President shall be the Chief Executive Officer of the Corporation and, in the
absence or disability of the Chairman, shall have the powers of the Chairman.
SECTION 5. VICE PRESIDENTS. Each Vice President shall have such powers and
shall perform such duties as shall be assigned to him by the directors. The
Board of Directors may further designate the area or areas of responsibility
assigned to a Vice President by appropriate words, such as Senior Vice President
or Group Vice President added to the title of the office or offices held by such
Vice President.
SECTION 6. TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the Corporation in such
depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation in such manner as
may be ordered by the Board of Directors, the Chairman or the President, taking
proper vouchers for such disbursements. He shall render to the Chairman, the
President and the Board of Directors at the regular meetings of the Board of
Directors, or whenever they may request it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
SECTION 7. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman, the President, or the directors, or stockholders, upon whose
requisition the meeting is called as provided in these By-laws. He shall record
all the proceedings of the meetings of the Corporation and of the directors, in
a book to be kept for that purpose, and shall perform such other duties as may
be assigned to him by the directors, the Chairman or the President. He shall
have the custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
SECTION 9. RESIGNATION. Any officer may resign at any time, unless
otherwise provided in any contract with the Corporation, by giving written
notice to the Chairman, if any, or the President or the Secretary. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof.
SECTION 10. REMOVAL. Any officer may be removed at any time by an
affirmative vote of a majority of the Board of Directors, with or without cause.
Any officer not elected by the Board of Directors may be removed in such manner
as may be determined by, or pursuant to delegation from the Board of Directors.
SECTION 11. VACANCIES. If a vacancy shall occur in any office, such vacancy
may be filled for the unexpired portion of the term by the Board of Directors.
SECTION 12. SURETY BONDS. In the event the Board of Directors shall so
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sum and with such surety or sureties as the Board of
Directors may direct, conditioned on the faithful performance of the officer's
duties to the Corporation.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. A certificate or certificates of stock,
signed by the Chairman of the Board of Directors, if one be elected, the
President or a Vice President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, and sealed with the seal of the
Corporation, shall be issued to each stockholder certifying the number of shares
owned by him in the Corporation. Any of or all of the signatures may be
facsimiles. The certificate or certificates of stock shall be in such form as
the Board of Directors may from time to time adopt and shall be
5
<PAGE>
countersigned and registered in such manner, if any, as the Board of Directors
may prescribe. In case any officer who shall have signed, or whose facsimile
signature shall have been used on any such certificate, shall cease to be such
officer of the Corporation before such certificate shall have been issued by the
Corporation, such certificate may nevertheless be adopted by the Corporation and
be issued and delivered as though the person who signed such certificate, or
whose facsimile signature shall have been used thereon, had not ceased to be
such officer; and such issuance and delivery shall constitute adoption of such
certificate by the Corporation.
There shall be entered on the books of the Corporation the number of each
certificate issued, the number (and class or series, if any) of shares
represented thereby, the name and address of the person to whom such certificate
was issued and the date of issuance thereof.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. A new certificate of
stock may be issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, and the directors
may, in their discretion, require the owner of the lost, stolen or destroyed
certificate, or his legal representatives, to give the Corporation a bond, in
such sum as they may direct, not exceeding double the value of the stock, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate and to provide such evidence of loss, theft or destruction as
the Board of Directors may require.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the Corporation shall
be transferable only upon its books by the holders of record thereof in person
or by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificates shall be surrendered, along with such evidence of
the authenticity of such transfer, authorization and other matters as the
Corporation or its agents may reasonably require, to the Corporation by the
delivery thereof to the person in charge of the stock and transfer books, or to
such other person as the directors may designate, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
SECTION 4. REGULATIONS, TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may make such rules and regulations as it may deem expedient
concerning the issuance and transfer of certificates for shares of the stock of
the Corporation, may appoint transfer agents or registrars, or both, and may
require all certificates of stock to bear the signature of either or both.
Nothing herein shall be construed to prohibit the Corporation from acting as its
own transfer agent at any of its offices.
SECTION 5. STOCKHOLDERS RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. SHAREHOLDERS RECORD OWNERSHIP. The Corporation shall be entitled
to recognize the exclusive right of a person registered as such on the books of
the Corporation as the owner of shares of the Corporation's stock to receive
dividends and to vote as such owner. The Corporation shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, regardless of whether the Corporation shall have express or
other notice thereof, except as otherwise provided by law.
SECTION 7. DIVIDENDS AND RESERVES. Subject to the applicable provisions of
law or of the Certificate of Incorporation, the Board of Directors may, out of
funds legally available therefor, at any regular or special meeting, declare
dividends upon the capital stock of the Corporation as and when they deem
expedient. Before declaring any dividend there may be set apart out of any funds
of the Corporation available for dividends, such sum or sums as the directors
from time to time in their discretion deem proper for working capital, or as a
reserve fund to meet contingencies, or for equalizing dividends, or for the
purpose of repairing, maintaining or increasing the property or business of the
Corporation or for such other purposes as the directors shall deem conducive to
the interests of the Corporation. The Board of Directors may, in its discretion,
modify or abolish any such reserve at any time.
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SECTION 8. SEAL. The corporate seal shall be circular in form and shall
contain the name of the Corporation, the year of its creation and the words
"CORPORATE SEAL, DELAWARE." Said seal may be used by causing it or a facsimile
thereof to be impressed, affixed, reproduced, engraved, printed or otherwise
represented.
SECTION 9. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 10. EXECUTION OF INSTRUMENTS. All agreements, deeds, contracts,
proxies, covenants, bonds, checks, drafts or other orders for the payment of
money, bills of exchange, notes, acceptances and endorsements, and all evidences
of indebtedness and other documents, instruments or writings of any nature
whatsoever, issued in the name of the Corporation, shall be signed by such
officers, agents or employees of the Corporation, or by any one of them, and in
such manner, as from time to time may be determined, either generally or in
specific instances, by the Board of Directors or by such officer or officers to
whom the Board of Directors may delegate the power to so determine.
SECTION 11. STOCK OF OTHER CORPORATIONS. Subject to such limitations as the
Board of Directors may from time to time prescribe, any officer of the
Corporation shall have full power and authority on behalf of the Corporation to
attend, to act and vote at, and to waive notice of, any meeting of stockholders
of any corporations, shares of stock of which are owned by or stand in the name
of the Corporation, and to execute and deliver proxies and actions in writing
for the voting of any such shares, and at any such meeting or by action in
writing may exercise on behalf of the Corporation any and all rights and powers
incident to the ownership of such shares.
SECTION 12. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by
these By-laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
Corporation or these By-laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting, whether of stockholders (in person or
by proxy) or of directors or of any committee of the Board of Directors, shall
constitute a waiver of notice of such meeting, except when such person attends
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not legally called or convened.
SECTION 13. BOOKS, ACCOUNTS AND OTHER RECORDS. Except as otherwise provided
by law, the books, accounts and other records of the Corporation shall be kept
at such place or places (within or without the state of Delaware) as the Board
of Directors, the Chairman or the President may from time to time designate.
SECTION 14. INDEMNIFICATION. The Corporation shall, to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as the same
exists or may hereafter be amended, indemnify all persons whom it may indemnify
pursuant thereto.
ARTICLE VI
AMENDMENTS
These By-laws may be altered, amended or repealed and By-laws may be made
at any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or By-law or By-laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-law or By-laws
to be made, be contained in the notice of such special meeting.
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EXHIBIT 4.30
EXECUTION COPY
EIGHTH AMENDMENT AND CONSENT
EIGHTH AMENDMENT AND CONSENT dated as of January 6, 1995 (this
"AMENDMENT"), among FLAGSTAR CORPORATION, a Delaware corporation formerly known
as TW Services, Inc. ("FLAGSTAR"), TWS FUNDING, INC., a Delaware corporation
("FUNDING"), and each financial institution executing this Amendment as a
"Lender" (each, a "LENDER").
PRELIMINARY STATEMENTS:
1. Flagstar, Funding, the Lenders and the Co-Agents and Managing Agent
referred to therein have entered into an Amended and Restated Credit Agreement
dated as of October 26, 1992 (as amended to date, the "CREDIT AGREEMENT"; the
terms defined therein being used herein as therein defined unless otherwise
defined herein).
2. In accordance with Section 5.02(e)(viii) of the Credit Agreement,
Canteen Holdings, Inc. ("CANTEEN") proposes to sell IM Parks, Inc. and its
Subsidiary pursuant to a Stock Purchase Agreement dated November 2, 1994 (the
"PURCHASE AGREEMENT"), the principal terms of which are described on the
attached Schedule A (the "SALE TRANSACTION").
3. The Borrowers have requested that the Lenders agree (a) to permit the
Borrowers, following the reduction of the Working Capital Facility pursuant to
Section 2.04(b) of the Credit Agreement, to apply the proceeds of the Sale
Transaction to either prepay Funded Debt or to make additional Cash Capital
Expenditures and (b) to adjust the financial covenants to allow the Borrowers to
apply the proceeds of the Sale Transaction to make additional Capital
Expenditures.
4. The Borrowers have requested that certain Subsidiaries of Flagstar be
released from their obligations under the Guaranty.
5. The Lenders have expressed their willingness to grant the Borrowers'
request as set forth above on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
SECTION 1. CONSENT CONCERNING THE SALE TRANSACTION. (a) The Lenders hereby
agree that the condition set forth in Section 5.02(e)(viii)(i) of the Credit
Agreement shall be satisfied if Flagstar shall have returned to the Issuing
Banks for cancellation all Letters of Credit set forth on Schedule B hereto
other than the Letter of Credit marked with an asterisk on Schedule B (the "NY
LETTER OF CREDIT"), PROVIDED that within 60 days after the consummation of the
Sale Transaction, the Borrowers shall have returned to the applicable Issuing
Bank for cancellation the NY Letter of Credit or shall have deposited cash
collateral with such Issuing Bank in an amount equal to the Available Amount of
the NY Letter of Credit.
(b) The Lenders hereby agree that the conditions set forth in Section
5.02(e)(viii)(ii) of the Credit Agreement shall be satisfied if the Sale
Transaction is consummated upon substantially the terms described in the
attached Schedule A.
<PAGE>
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 1.01 is amended as follows:
(i) The definition of "Adjusted Cash Capital Expenditures" is amended
in full as follows:
"ADJUSTED CASH CAPITAL EXPENDITURES" means, for any period, Cash
Capital Expenditures less, for each of the Rolling Periods ending on the
last day of the fiscal quarters set forth below, an amount equal to the sum
of (i) the amount set opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED AMOUNT
<S> <C>
December 31, 1994 $ 75,000,000
March 31, 1995 105,000,000
June 30, 1995 125,000,000
September 30, 1995 125,000,000
December 31, 1995 110,000,000
March 31, 1996 65,000,000
</TABLE>
PLUS (ii) for each of the Rolling Periods ending March 31, 1995 through
March 31, 1996, an amount equal to $110,000,000 less the aggregate amount
as of the end of such fiscal quarter used by the Borrowers to prepay,
redeem, purchase, defease or otherwise satisfy Funded Debt in reliance on
Section 5.02(n)(i)(G).
(ii) The definition of "Spardee's" is amended in full as follows:
"SPARDEE'S" means Flagstar Enterprises, Inc., an Alabama
corporation and a direct, wholly owned Subsidiary of Spartan.
(b) Section 5.02(e)(viii) is amended by deleting the word "March"
therefrom and substituting therefor the word "December".
(c) Section 5.02(n) is amended by deleting the word "and" at the end
of clause (i)(E) thereof and substituting a comma therefor, adding the word
"and" at the end of clause (i)(F) thereof and adding a new clause (i)(G) to
read as follows:
(G) prepayments, redemptions, purchases, defeasances or other
satisfactions of Funded Debt, in an aggregate principal amount not to
exceed $110,000,000, PROVIDED that, both before and after giving effect
to any transaction permitted by this clause (G), no Default shall have
occurred and be continuing.
(d) Section 5.04(d) is amended by (i) deleting the amount set opposite
the Fiscal Year Ending In December 1995 and substituting therefor the
amount set opposite such period as set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING IN AMOUNT
<S> <C>
December 1995 $285,000,000
</TABLE>
and (ii) by adding to the end thereof the following:
PROVIDED, FURTHER, that the amount set opposite the Fiscal Year Ending In
December 1995 shall be reduced by an amount equal to the amount used during
such fiscal year to prepay, redeem, purchase, defease or otherwise satisfy
Funded Debt in reliance on Section 5.02(n)(i)(G).
SECTION 3. RELEASE OF CERTAIN GUARANTORS. The Lenders hereby agree that
Denny's Realty, Quincy's Realty and Spardee's Realty are released from their
respective obligations under the Guaranty.
SECTION 4. CONDITIONS OF EFFECTIVENESS. (a) This Amendment shall become
effective when, and only when (i) the Managing Agent shall have received
counterparts of this Amendment executed by Flagstar, Funding and the Required
Lenders or, as to any of the Lenders, advice satisfactory to the Managing Agent
that such Lenders have executed this Amendment, (ii) the Managing Agent shall
have received the Consent attached hereto, signed by each Subsidiary of Flagstar
and (iii) the Managing Agent shall have received a certificate, dated the date
of receipt thereof by the Managing Agent, in form and substance satisfactory to
the Managing Agent, signed by a duly authorized officer of each Loan Party,
stating that:
2
<PAGE>
(A) The representations and warranties contained in each Loan Document
and in Section 5 hereof are correct on and as of the date of such
certificate as though made on and as of such date, and
(B) No event has occurred and is continuing that constitutes a
Default.
(b) Section 2(a)(i), (c) and (d) hereof shall become effective when,
and only when (i) the conditions set forth in Section 4(a) above have been
satisfied or waived and (ii) the Sale Transaction shall have been
consummated on substantially the terms described on the attached Schedule
A.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Flagstar represents and warrants
as follows:
(a) The execution, delivery and performance by each Loan Party of this
Amendment and the Credit Agreement, as amended hereby, and the consummation
of the transactions contemplated hereby and thereby are within such Loan
Party's corporate powers, have been duly authorized by all necessary
corporate action and do not (i) contravene such Loan Party's charter or
by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934, as amended), rule, regulation (including,
without limitation, Regulation X of the Board of Governors of the Federal
Reserve System, as in effect from time to time), order, writ, judgment,
injunction, decree, determination or award applicable to any Loan Party,
(iii) conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument binding on or affecting any Loan Party, any of
its Subsidiaries or any of their properties or (iv) result in or require
the creation or imposition of any Lien (other than Liens created by or
permitted under the Loan Documents) upon or with respect to any of the
properties of any Loan Party or any of its Subsidiaries except, as to (ii)
and (iii) above, as would not, and would not be reasonably likely to, have
a Material Adverse Effect.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery, recordation,
filing or performance by any Loan Party of this Amendment or the Credit
Agreement, as amended hereby, or for the consummation of the transactions
contemplated hereby and thereby, except where the failure to obtain, take,
give or make such authorizations, approvals, actions, notices or filings
would not, and would not be reasonably likely to, have a Material Adverse
Effect.
(c) This Amendment and the Consent have been duly executed and
delivered by each Loan Party party thereto. Assuming that (i) this
Amendment is duly executed and delivered by, and is within the power and
authority of, the Required Lenders and (ii) the Credit Agreement has been
duly executed and delivered by, and is within the power and authority of
the Managing Agent, the Co-Agents and the Lenders, this Amendment and the
Credit Agreement, as amended hereby, are the legal, valid and binding
obligation of each Loan Party party thereto, enforceable against such Loan
Party in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting creditors' rights generally and subject to
general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
SECTION 6. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon the
effectiveness hereof, on and after the date hereof each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement and each reference in the other Loan Documents
to the Credit Agreement, "thereunder", "thereof" or words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement is and shall
continue to be in full force and effect and is hereby in all respects ratified
and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or Co-Agent or the Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
SECTION 7. GOVERNING LAW. This 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
3
<PAGE>
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWERS
FLAGSTAR CORPORATION
By
TITLE: VICE PRESIDENT AND TREASURER
TWS FUNDING, INC.
By
TITLE: TREASURER
LENDERS
[Print or type name of institution]
By
TITLE:
4
<PAGE>
CONSENT
DATED AS OF JANUARY 6, 1995
The undersigned, each a Guarantor under the Amended and Restated Guaranty
dated as of November 16, 1992 (as amended to date, the "GUARANTY") and a Grantor
under the Amended and Restated Security Agreement dated as of November 16, 1992
(as amended to date, the "SECURITY AGREEMENT") in favor of the Managing Agent
for the Lenders parties to the Credit Agreement referred to in the foregoing
Eighth Amendment and Consent, hereby consents to said Eighth Amendment and
Consent and hereby confirms and agrees that (i) each of the Guaranty and the
Security Agreement is, and shall continue to be, except as otherwise
specifically provided in said Eighth Amendment and Consent, in full force and
effect and is hereby ratified and confirmed in all respects except that, upon
the effectiveness of, and on and after the date of, the Eighth Amendment and
Consent, each reference in each of the Guaranty and the Security Agreement to
the Credit Agreement, "thereunder", "thereof" or words of like import shall mean
and be a reference to the Credit Agreement as amended by said Eighth Amendment
and (ii) the Security Agreement and all of the Collateral described therein do,
and shall continue to, secure the payment of all of the Obligations (as defined
therein).
SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES
CANTEEN HOLDINGS, INC.
DENNY'S HOLDINGS, INC.
SPARTAN HOLDINGS, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
CANTEEN SUBSIDIARY GROUP
CANTEEN MANAGEMENT SERVICES, INC.
IM PARKS, INC.
IM STADIUM, INC.
TW RECREATIONAL SERVICES, INC.
VOLUME SERVICES, INC. (A KANSAS CORPORATION)
VOLUME SERVICES, INC. (A DELAWARE CORPORATION)
By
VICE PRESIDENT OR TREASURER OF EACH
OF THE CORPORATIONS LISTED ABOVE
5
<PAGE>
DENNY'S SUBSIDIARY GROUP
CB DEVELOPMENT #6, INC.
C-B-R DEVELOPMENT CO., INC.
DANNY'S DO NUTS #10, INC.
DENNY'S, INC.
DENNY'S MANAGEMENT, INC.
DFC TRUCKING CO.
EAVES PACKING COMPANY, INC.
EL POLLO LOCO, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
DENNY'S RESTAURANTS OF IDAHO, INC.
By
TITLE: ASSISTANT TREASURER
HAROLD BUTLER ENTERPRISES #362, INC.
HAROLD BUTLER ENTERPRISES #607, INC.
LA MIRADA ENTERPRISES NO. 1, INC.
LA MIRADA ENTERPRISES NO. 5, INC.
LA MIRADA ENTERPRISES NO. 6, INC.
LA MIRADA ENTERPRISES NO. 7, INC.
LA MIRADA ENTERPRISES NO. 8, INC.
LA MIRADA ENTERPRISES NO. 9, INC.
LA MIRADA ENTERPRISES NO. 14, INC.
PORTIONTROL FOODS, INC.
PROFICIENT FOOD COMPANY
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
TWS 200 CORP.
TWS 300 CORP.
TWS 500 CORP.
TWS 600 CORP.
TWS 700 CORP.
TWS 800 CORP.
WDH SERVICES, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
6
<PAGE>
CB DEVELOPMENT #9, LTD.
DENNY'S OF CANADA LTD.
DENNY'S RESTAURANTS OF CANADA, LTD.
By
TITLE: VICE PRESIDENT
SPARTAN SUBSIDIARY GROUP
QUINCY'S RESTAURANTS, INC.
FLAGSTAR ENTERPRISES, INC.
FLAGSTAR SYSTEMS, INC.
SPARTAN REALTY, INC.
By
TREASURER OF EACH OF THE
CORPORATIONS LISTED ABOVE
SPARTAN MANAGEMENT, INC.
By
TITLE: TREASURER
ADDITIONAL GUARANTOR:
AMS HOLDINGS, INC.
By
TITLE: PRESIDENT OR VICE PRESIDENT
7
<PAGE>
EXHIBIT 4.31
NINTH AMENDMENT, WAIVER AND CONSENT
NINTH AMENDMENT, WAIVER AND CONSENT dated as of August 24, 1995 (this
"AMENDMENT"), among FLAGSTAR CORPORATION, a Delaware corporation formerly known
as TW Services, Inc. ("FLAGSTAR"), TWS FUNDING, INC., a Delaware corporation
("FUNDING"), and each financial institution executing this Amendment as a
"Lender" (each, a "LENDER").
PRELIMINARY STATEMENTS:
1. Flagstar, Funding, the Lenders and the Co-Agents and Managing Agent
referred to therein have entered into an Amended and Restated Credit Agreement
dated as of October 26, 1992 (as amended to date, the "CREDIT AGREEMENT"; the
terms defined therein being used herein as therein defined unless otherwise
defined herein).
2. In accordance with Section 5.02(e)(viii) of the Credit Agreement,
Canteen Holdings, Inc. proposes to sell its direct and indirect Subsidiaries
listed on Schedule A hereto (the "IM PARKS SUBSIDIARIES") pursuant to a Stock
Purchase Agreement dated July 14, 1995, the principal terms of which are
described on the attached Schedule B (the "IM PARKS TRANSACTION").
3. Denny's Holdings, Inc. proposes to sell its direct and indirect
Subsidiaries listed on Schedule C hereto (the "PROFICIENT FOOD SUBSIDIARIES")
pursuant to a Stock Purchase Agreement dated July 7, 1995, the principal terms
of which are described on the attached Schedule D (the "PROFICIENT FOOD
TRANSACTION" and collectively with the IM Parks Transaction, the
"TRANSACTIONS"). In anticipation of the Proficient Food Transaction, the
Borrowers have requested the amendment of Section 5.02(e) of the Credit
Agreement.
4. The Borrowers have requested that the Lenders agree (a) to clarify the
application of proceeds of the Transactions to the Obligations under the Loan
Documents and (b) waive, at the election of the Lenders, the required reduction
of the Working Capital Facility.
5. The Borrowers have requested that the Lenders agree (a) to permit the
Borrowers, following the reduction of the Working Capital Facility pursuant to
Section 2.04(b) of the Credit Agreement to the extent such reduction has not
been waived hereunder by the Lenders, to apply the proceeds of the Proficient
Food Transaction and the IM Parks Transaction to either prepay Funded Debt or to
make additional Cash Capital Expenditures and (b) to adjust the financial
covenants to allow the Borrowers to apply the proceeds of the Proficient Food
Transaction and the IM Parks Transaction to make additional Capital
Expenditures.
6. The Lenders have expressed their willingness to grant the Borrowers'
request as set forth above on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
SECTION 1. CONSENT TO IM PARKS TRANSACTION. (a) The Lenders hereby agree
that the condition set forth in Section 5.02(e)(viii)(i) of the Credit Agreement
shall be satisfied if Flagstar shall have returned to the Issuing Banks for
cancellation all Letters of Credit set forth on Schedule E hereto other than the
Letter of Credit marked with an asterisk on Schedule E (the "NY LETTER OF
CREDIT"), PROVIDED that within 60 days after the consummation of the IM Parks
Transaction, the Borrowers shall have returned to the applicable Issuing Bank
for cancellation the NY Letter of Credit or shall have deposited cash collateral
with such Issuing Bank in an amount equal to the Available Amount of the NY
Letter of Credit.
(b) The Lenders hereby agree that the conditions set forth in Section
5.02(e)(viii)(ii) of the Credit Agreement shall be satisfied if the IM Parks
Transaction is consummated upon substantially the terms described in the
attached Schedule B.
(c) The Lenders hereby agree that the condition set forth in Section
5.02(e)(viii)(iii) of the Credit Agreement shall be satisfied if, as a result of
the closing of the IM Parks Transaction, the Working Capital Facility is reduced
by an amount equal to the Net Proceeds (as defined below) from such Transaction
less the IM Parks Extension Amount (as defined below).
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<PAGE>
SECTION 2. CONSENT TO PROFICIENT FOOD TRANSACTION. (a) The Lenders hereby
agree that the condition set forth in Section 5.02(e)(ix)(i) of the Credit
Agreement (as amended hereby) shall be satisfied if Flagstar shall have returned
to the Issuing Banks for cancellation all Letters of Credit set forth on
Schedule F hereto.
(b) The Lenders hereby agree that the conditions set forth in Section
5.02(e)(ix)(ii) of the Credit Agreement (as amended hereby) shall be satisfied
if the Proficient Food Transaction is consummated upon substantially the terms
described in the attached Schedule D.
(c) The Lenders hereby agree that the condition set forth in Section
5.02(e)(ix)(iii) of the Credit Agreement (as amended hereby) shall be satisfied
if, as a result of the closing of the Proficient Food Transaction, the Working
Capital Facility is reduced by an amount equal to the Net Proceeds (as defined
below) from such Transaction less the PFC Extension Amount (as defined below).
SECTION 3. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 5 hereof, hereby amended as follows:
(a) The definition of "Adjusted Cash Capital Expenditures" in Section 1.01
is amended in full as follows:
"ADJUSTED CASH CAPITAL EXPENDITURES" means, for any period, Cash
Capital Expenditures less, for each of the Rolling Periods ending on the
last day of the fiscal quarters set forth below, an amount equal to the sum
of (i) the amount set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED AMOUNT
<S> <C>
September 30, 1995 $125,000,000
December 31, 1995 110,000,000
March 31, 1996 65,000,000
</TABLE>
PLUS (ii) for each of the Rolling Periods ending September 30, 1995 through
March 31, 1996, an amount equal to the Available Cash Proceeds from any
Permitted Sale Transactions consummated prior to the end of the applicable
Rolling Period less the aggregate amount used by the Borrowers to prepay,
redeem, purchase, defease or otherwise satisfy Funded Debt in reliance on
Section 5.02(n)(i)(G) prior to the end of the applicable Rolling Period
less the aggregate amount of prepayments of Advances required to be made
pursuant to Section 2.05(b)(ii) prior to the end of the applicable Rolling
Period less the aggregate amount of cash paid to the Managing Agent for
deposit in the Funding Cash Collateral Account pursuant to Section
2.05(b)(vi) prior to the end of the applicable Rolling Period.
(b) The following new defined terms are added to Section 1.01 to be
inserted therein in alphabetical order:
"AVAILABLE CASH PROCEEDS" means (i) with respect to the disposition of
IM Parks, Inc. and its Subsidiaries permitted by Section 5.02(e)(viii),
$93,000,000 and (ii) with respect to disposition of the Proficient Food
Companies permitted by Section 5.02(e)(ix), $118,000,000.
"PERMITTED SALE TRANSACTIONS" means (i) the disposition of IM Parks,
Inc. and its Subsidiaries permitted by Section 5.02(e)(viii) and (ii) the
disposition of the Proficient Food Companies permitted by Section
5.02(e)(ix).
"PROFICIENT FOOD COMPANIES" means Proficient Food Company, TWS 200
Corp. and DFC Trucking Co.
(c) Section 5.02(e) is amended by deleting from the end of clause (vii)
thereof the word "and", adding to the end of clause (viii) thereof the word
"and" and adding a new clause (ix) thereto to read as follows:
"(ix) disposition of the Proficient Food Companies on or before December
31, 1995, PROVIDED that (i) on or prior to the date of disposition of the
Proficient Food Companies, Funding shall have returned to the Issuing Banks
for cancellation, or shall have made other arrangements satisfactory to the
requisite Lenders in respect of, the Letters of Credit issued in support of
obligations of any of the Proficient Food Companies, (ii) any such
disposition shall be for an amount not less than fair market value and on
other terms and conditions reasonable and customary in similar
transactions, in each case as determined in the reasonable judgment of the
Required Lenders and (iii) the Net Cash Proceeds of such dispositions are
used to prepay Advances in accordance with Section 2.05;"
(d) Section 5.02(e) is further amended by deleting from the proviso clause
at the end thereof the phrase "clauses (iv), (v) and (viii)" and substituting
therefor the phrase "clauses (iv), (v), (viii) and (ix)".
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<PAGE>
(e) Section 5.02(n) is amended by deleting the word "and" at the end of
clause (i)(E) thereof and substituting a comma therefor, adding the word "and"
at the end of clause (i)(F) thereof and adding a new clause (i)(G) to read as
follows:
"(G) prepayments, redemptions, purchases, defeasances or other
satisfactions of Funded Debt, in an aggregate principal amount not to
exceed the Available Cash Proceeds from any Permitted Sale Transactions
consummated prior to such satisfaction of Funded Debt, PROVIDED that, both
before and after giving effect to any transaction permitted by this clause
(G), no Default shall have occurred and be continuing."
(f) Section 5.04(d) is amended by adding to the end thereof the following:
"PROVIDED, FURTHER, that the amount set opposite the Fiscal Year Ending In
December 1995 shall be (i) increased by an amount equal to the Available
Cash Proceeds from any Permitted Sale Transaction consummated prior to the
end of such Fiscal Year and (ii) reduced by the sum of (A) an amount equal
to the amount used to prepay, redeem, purchase, defease or otherwise
satisfy Funded Debt in reliance on Sections 5.02(n)(i)(G) prior to the end
of such Fiscal Year, (B) the aggregate amount of prepayments of Advances
required to be made pursuant to Section 2.05(b)(ii) prior to the end of
such Fiscal Year and (C) the aggregate amount of cash paid to the Managing
Agent for deposit in the Funding Cash Collateral Account pursuant to
Section 2.05(b)(vi) prior to the end of such Fiscal Year."
SECTION 4. EXTENSION OF WORKING CAPITAL COMMITMENTS. (a) DEFINITIONS. As
used in this Section 4, the following terms are defined as follows:
"EXTENSION AMOUNT" means, with respect to a Permitted Sale
Transaction, either the IM Parks Extension Amount or the PFC Extension
Amount, as the context may require.
"IM PARKS ELECTED COMMITMENT REDUCTION WAIVER" of a Lender means an
amount equal to (i) the amount of such Lender's Required Commitment
Reduction in respect of the IM Parks Transaction MULTIPLIED by (ii) such
Lender's Waiver Percentage.
"IM PARKS EXTENSION AMOUNT" means the aggregate amount of the IM Parks
Elected Commitment Reduction Waivers.
"NET PROCEEDS" means with respect to (i) the Proficient Food
Transaction, $90,000,000 and (ii) the IM Parks Transaction, $79,000,000.
"PFC ELECTED COMMITMENT REDUCTION WAIVER" of a Lender means an amount
equal to (i) the amount of such Lender's Required Commitment Reduction in
respect of the Proficient Food Transaction MULTIPLIED by (ii) such Lender's
Waiver Percentage.
"PFC EXTENSION AMOUNT" means the aggregate amount of the PFC Elected
Commitment Reduction Waivers.
"REQUIRED COMMITMENT REDUCTION" of a Lender means with respect to a
Permitted Sale Transaction the amount of the Net Proceeds from such
Permitted Sale Transaction that would be applied to reduce such Lender's
Commitment, determined by pro rating such Net Proceeds by reference to such
Lender's Working Capital Commitment as a percentage of the Working Capital
Facility on the date hereof.
"WAIVER PERCENTAGE" of a Lender means the percentage of such Lender's
aggregate Required Commitment Reductions in respect of the Permitted Sale
Transactions that such Lender elects to waive as indicated on such Lender's
signature page hereof.
(b) DETERMINATION OF IM PARKS AND PFC ELECTED COMMITMENT REDUCTION
WAIVERS. (i) On or before August 24, 1995, each Lender that elects a Waiver
Percentage shall deliver to the Managing Agent a copy of its signature page
to this Amendment, duly executed by such Lender and specifying in the space
provided on such page opposite the name of such Lender the Waiver
Percentage.
(ii) Promptly upon receipt of the signature pages as contemplated by
clause (i) above, the Managing Agent shall notify the Borrowers of the PFC
Extension Amount and the IM Parks Extension Amount, and shall promptly
notify each Lender that has a Waiver Percentage of the amounts of its IM
Parks Elected Commitment Reduction Waiver and its PFC Elected Commitment
Reduction Waiver. Promptly after the consummation of each Permitted Sale
Transaction, the Managing Agent shall notify each such Lender of its
Working Capital Commitment after giving effect to this Amendment, and shall
notify the Lenders and the Borrowers of the amount of the Working Capital
Facility after giving effect to this Amendment.
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<PAGE>
(c) EXTENSION OF WORKING CAPITAL COMMITMENTS. (i) Subject to the
satisfaction of the conditions precedent set forth in Section 5(b) hereof, each
Lender that has a Waiver Percentage hereby waives Section 2.04(b) of the Credit
Agreement to the extent of the amount of such Lender's PFC Elected Commitment
Reduction Waiver, whereupon (A) that portion of the Working Capital Facility
equal to the PFC Extension Amount that would otherwise be reduced by application
of the Net Cash Proceeds of the Proficient Food Transaction shall instead remain
outstanding and (B) the amount of the Working Capital Facility shall be reduced
by the amount of the difference, if any, between the Net Proceeds from the
Proficient Food Transaction and the PFC Extension Amount.
(ii) Subject to the satisfaction of the conditions precedent set forth in
Section 5(c) hereof, each Lender that has a Waiver Percentage hereby waives
Section 2.04(b) of the Credit Agreement to the extent of the amount of such
Lender's IM Parks Elected Commitment Reduction Waiver, whereupon (A) that
portion of the Working Capital Facility equal to the IM Parks Extension Amount
that would otherwise be reduced by application of the Net Cash Proceeds of the
IM Parks Transaction shall instead remain outstanding, and (B) the amount of the
Working Capital Facility shall be reduced by the amount of the difference, if
any, between the Net Proceeds from the IM Parks Transaction and the IM Parks
Extension Amount.
SECTION 5. CONDITIONS OF EFFECTIVENESS. (a) This Amendment shall become
effective when, and only when (i) the Managing Agent shall have received
counterparts of this Amendment executed by Flagstar, Funding and the Required
Lenders or, as to any of the Lenders, advice satisfactory to the Managing Agent
that such Lenders have executed this Amendment, (ii) the Managing Agent shall
have received the Consent attached hereto, signed by each Subsidiary of Flagstar
and (iii) the Managing Agent shall have received a certificate, dated the date
of receipt thereof by the Managing Agent, in form and substance satisfactory to
the Managing Agent, signed by a duly authorized officer of each Loan Party,
stating that:
(A) The representations and warranties contained in each Loan Document and
in Section 6 hereof are correct on and as of the date of such certificate as
though made on and as of such date, and
(B) No event has occurred and is continuing that constitutes a Default.
(b) Section 4(c)(i) shall become effective on and as of the date on or
prior to December 31, 1995 when, in addition to the conditions set forth in
clause (a) above, (i) the Proficient Food Transaction shall have been
consummated and (ii) Flagstar shall have paid to the Managing Agent, in
accordance with Section 2.10 of the Credit Agreement and for the account of each
Lender who elected a Waiver Percentage, an extension fee equal to 0.125% of such
Lender's PFC Elected Commitment Reduction Waiver.
(c) Section 4(c)(ii) shall become effective on and as of the date on or
prior to December 31, 1995 when, in addition to the conditions set forth in
clause (a) above, (i) the IM Parks Transaction shall have been consummated and
(ii) Flagstar shall have paid to the Managing Agent, in accordance with Section
2.10 of the Credit Agreement and for the account of each Lender who elected a
Waiver Percentage, an extension fee equal to 0.125% of such Lender's IM Parks
Elected Commitment Reduction Waiver.
SECTION 6. REPRESENTATIONS AND WARRANTIES. Flagstar represents and warrants
as follows:
(a) The execution, delivery and performance by each Loan Party of this
Amendment and the Credit Agreement, as amended hereby, and the consummation
of the transactions contemplated hereby and thereby are within such Loan
Party's corporate powers, have been duly authorized by all necessary
corporate action and do not (i) contravene such Loan Party's charter or
by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934, as amended), rule, regulation (including,
without limitation, Regulation X of the Board of Governors of the Federal
Reserve System, as in effect from time to time), order, writ, judgment,
injunction, decree, determination or award applicable to any Loan Party,
(iii) conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument binding on or affecting any Loan Party, any of
its Subsidiaries or any of their properties or (iv) result in or require
the creation or imposition of any Lien (other than Liens created by or
permitted under the Loan Documents) upon or with respect to any of the
properties of any Loan Party or any of its Subsidiaries except, as to (ii)
and (iii) above, as would not, and would not be reasonably likely to, have
a Material Adverse Effect.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery, recordation,
filing or performance by any Loan Party of this Amendment or the Credit
Agreement, as amended hereby, or for the consummation
4
<PAGE>
of the transactions contemplated hereby and thereby, except where the
failure to obtain, take, give or make such authorizations, approvals,
actions, notices or filings would not, and would not be reasonably likely
to, have a Material Adverse Effect.
(c) This Amendment and the Consent have been duly executed and
delivered by each Loan Party party thereto. Assuming that (i) this
Amendment is duly executed and delivered by, and is within the power and
authority of, the Required Lenders and (ii) the Credit Agreement has been
duly executed and delivered by, and is within the power and authority of
the Managing Agent, the Co-Agents and the Lenders, this Amendment and the
Credit Agreement, as amended hereby, are the legal, valid and binding
obligation of each Loan Party party thereto, enforceable against such Loan
Party in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting creditors' rights generally and subject to
general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
SECTION 7. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon the
effectiveness hereof, on and after the date hereof each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement and each reference in the other Loan Documents
to the Credit Agreement, "thereunder", "thereof" or words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement is and shall
continue to be in full force and effect and is hereby in all respects ratified
and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or Co-Agent or the Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
SECTION 8. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 9. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment, Waiver and Consent.
5
<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
FLAGSTAR CORPORATION
By
TITLE: VICE PRESIDENT AND TREASURER
TWS FUNDING, INC.
By
TITLE: TREASURER
LENDERS
<TABLE>
<S> <C>
Waiver Percentage: % of the [Print or type name of institution]
Aggregate Required Commitment
Reductions
By
TITLE:
</TABLE>
6
<PAGE>
CONSENT
DATED AS OF AUGUST 24, 1995
The undersigned, each a Guarantor under the Amended and Restated Guaranty
dated as of November 16, 1992 (as amended to date, the "GUARANTY") and a Grantor
under the Amended and Restated Security Agreement dated as of November 16, 1992
(as amended to date, the "SECURITY AGREEMENT") in favor of the Managing Agent
for the Lenders parties to the Credit Agreement referred to in the foregoing
Ninth Amendment, Waiver and Consent (the "AMENDMENT") hereby consents to said
Amendment and hereby confirms and agrees that (i) each of the Guaranty and the
Security Agreement is, and shall continue to be, except as otherwise
specifically provided in said Amendment, in full force and effect and is hereby
ratified and confirmed in all respects except that, upon the effectiveness of,
and on and after the date of, the Amendment, each reference in each of the
Guaranty and the Security Agreement to the Credit Agreement, "thereunder",
"thereof" or words of like import shall mean and be a reference to the Credit
Agreement as amended by said Ninth Amendment and (ii) the Security Agreement and
all of the Collateral described therein do, and shall continue to, secure the
payment of all of the Obligations (as defined therein).
SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES
CANTEEN HOLDINGS, INC.
DENNY'S HOLDINGS, INC.
SPARTAN HOLDINGS, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH OF
THE CORPORATIONS LISTED ABOVE
CANTEEN SUBSIDIARY GROUP
CANTEEN MANAGEMENT SERVICES, INC.
IM PARKS, INC.
IM STADIUM, INC.
TW RECREATIONAL SERVICES, INC.
VOLUME SERVICES, INC. (A KANSAS CORPORATION)
VOLUME SERVICES, INC. (A DELAWARE CORPORATION)
By
VICE PRESIDENT OR TREASURER OF EACH
OF THE CORPORATIONS LISTED ABOVE
7
<PAGE>
DENNY'S SUBSIDIARY GROUP
CB DEVELOPMENT #6, INC.
C-B-R DEVELOPMENT CO., INC.
DANNY'S DO NUTS #10, INC.
DENNY'S, INC.
DENNY'S MANAGEMENT, INC.
DFC TRUCKING CO.
EAVES PACKING COMPANY, INC.
EL POLLO LOCO, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH OF
THE CORPORATIONS LISTED ABOVE
DENNY'S RESTAURANTS OF IDAHO, INC.
By
TITLE: ASSISTANT TREASURER
HAROLD BUTLER ENTERPRISES #362, INC.
HAROLD BUTLER ENTERPRISES #607, INC.
LA MIRADA ENTERPRISES NO. 1, INC.
LA MIRADA ENTERPRISES NO. 5, INC.
LA MIRADA ENTERPRISES NO. 6, INC.
LA MIRADA ENTERPRISES NO. 7, INC.
LA MIRADA ENTERPRISES NO. 8, INC.
LA MIRADA ENTERPRISES NO. 9, INC.
LA MIRADA ENTERPRISES NO. 14, INC.
PORTIONTROL FOODS, INC.
PROFICIENT FOOD COMPANY
By
PRESIDENT OR VICE PRESIDENT OF EACH OF
THE CORPORATIONS LISTED ABOVE
TWS 200 CORP.
TWS 300 CORP.
TWS 500 CORP.
TWS 600 CORP.
TWS 700 CORP.
TWS 800 CORP.
WDH SERVICES, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH OF
THE CORPORATIONS LISTED ABOVE
8
<PAGE>
CB DEVELOPMENT #9, LTD.
DENNY'S OF CANADA LTD.
DENNY'S RESTAURANTS OF CANADA, LTD.
By
TITLE: VICE PRESIDENT
SPARTAN SUBSIDIARY GROUP
QUINCY'S RESTAURANTS, INC.
FLAGSTAR ENTERPRISES, INC.
FLAGSTAR SYSTEMS, INC.
SPARTAN REALTY, INC.
By
TREASURER OF EACH OF THE
CORPORATIONS LISTED ABOVE
SPARTAN MANAGEMENT, INC.
By
TITLE: TREASURER
ADDITIONAL GUARANTOR:
AMS HOLDINGS, INC.
By
TITLE: PRESIDENT OR VICE PRESIDENT
9
<PAGE>
EXHIBIT 4.32
[EXECUTION COPY]
TENTH AMENDMENT, WAIVER AND CONSENT
TENTH AMENDMENT, WAIVER AND CONSENT, dated as of November 21, 1995 (this
"AMENDMENT"), among FLAGSTAR CORPORATION, a Delaware corporation formerly known
as TW Services, Inc. ("FLAGSTAR"), TWS FUNDING, INC., a Delaware corporation
("FUNDING"), and each financial institution executing this Amendment as a
"Lender" (each, a "LENDER").
PRELIMINARY STATEMENTS:
1. Flagstar, Funding, the Lenders and the Co-Agents and Managing Agent
referred to therein have entered into a Credit Agreement dated as of October 26,
1992 (as amended to date, the "CREDIT AGREEMENT"; the terms defined therein
being used herein as therein defined unless otherwise defined herein).
2. Pursuant to the Ninth Amendment, Waiver and Consent dated as of August
24, 1995, the Lenders agreed that the conditions set forth in Section
5.02(e)(viii)(ii) of the Credit Agreement would be satisfied if the sale by
Canteen Holdings, Inc. ("CANTEEN") of IM Parks, Inc. and its Subsidiary pursuant
to a Stock Purchase Agreement dated July 14, 1995 (the "PARKS PURCHASE
AGREEMENT")(the "PARKS SALE TRANSACTION"), were consummated substantially on the
terms described on Exhibit A attached to the Ninth Amendment, Waiver and
Consent. The terms of the Parks Sale Transaction have been amended to, among
other things, reduce the purchase price from $110,000,000 to $104,100,000 (in
each case, subject to adjustment). Flagstar has requested the Lenders to approve
the revised terms of the Parks Sale Transaction.
3. Canteen proposes to sell its Volume Services Business by selling IM
Stadium, Inc. and its Subsidiaries (the "SUBJECT SUBSIDIARIES") pursuant to a
Stock Purchase Agreement proposed to be entered into on November 27, 1995 (the
"VOLUME SERVICES PURCHASE AGREEMENT") and having terms substantially similar to
those set forth on Schedule A hereto (the "VOLUME SERVICES SALE TRANSACTION").
Flagstar has asked the Lenders to approve the Volume Services Sale Transaction
in accordance with Section 5.02(e)(viii) of the Credit Agreement (as amended
hereby).
4. The Borrowers have requested that the Loan Documents be amended to
permit the issuance of Letters of Credit having an expiration date later than 60
days prior to the expiration of the Working Capital Commitments on a cash
collateralized basis. In addition, the Borrowers have requested that the Credit
Agreement be amended to adjust certain of the financial covenants.
5. The Borrowers have further requested that the Lenders agree to permit
one or more of the Lenders to waive any or all of the reduction of their
respective Commitments that would otherwise result from the consummation of the
Volume Services Sale Transaction.
6. The Lenders have expressed their willingness to grant Flagstar's request
to grant the requisite waivers and consents to permit the consummation of the
Parks Sale Transaction and the Volume Services Sale Transaction and to amend the
Credit Agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
SECTION 1. WAIVER AND CONSENT FOR THE PARKS SALE TRANSACTION. (a) By
execution of this Tenth Amendment, Waiver and Consent, the Lenders hereby agree
that the condition set forth in Section 5.02(e)(viii)(i) of the Credit Agreement
with respect to the Parks Sale Transaction shall be satisfied if Flagstar shall
have returned to the Issuing Banks for cancellation all Letters of Credit set
forth on Schedule B hereto other than the Letters of Credit marked with an
asterisk on Schedule B (the "PARKS REMAINING LETTERS OF CREDIT"), PROVIDED that
within 60 days after the consummation of the Parks Sale Transaction, the
Borrowers shall have returned to the applicable Issuing Bank for cancellation
the Parks Remaining Letters of Credit or shall have deposited cash collateral
with such Issuing Bank in an amount equal to the Available Amount of the Parks
Remaining Letters of Credit.
(b) The Lenders hereby agree that the conditions set forth in Section
5.02(e)(viii)(ii) of the Credit Agreement with respect to the Parks Sale
Transaction shall be satisfied if the Parks Sale Transaction is consummated upon
substantially the terms described in the attached Schedule C.
1
<PAGE>
(c) For the purposes of clarification, the Lenders agree to amend Section
4(c)(ii) of the Ninth Amendment, Consent and Waiver by deleting therefrom the
phrase "each Lender that has a Waiver Percentage" and substituting therefor the
phrase "the Lenders".
SECTION 2. WAIVER AND CONSENT FOR THE VOLUME SERVICES SALE TRANSACTION. (a)
The Lenders hereby agree that the condition set forth in Section
5.02(e)(viii)(i) of the Credit Agreement (as amended hereby) with respect to the
Volume Services Sale Transaction shall be satisfied if Flagstar shall have
returned to the Issuing Banks for cancellation all Letters of Credit set forth
on Schedule D hereto other than (x) the Letters of Credit marked with an
asterisk on Schedule D (the "VOLUME SERVICES REMAINING LETTERS OF CREDIT"),
PROVIDED that within 60 days after the consummation of the Volume Services Sale
Transaction, the Borrowers shall have returned to the applicable Issuing Bank
for cancellation the Volume Services Remaining Letters of Credit or shall have
deposited cash collateral with such Issuing Bank in an amount equal to the
Available Amount of the Volume Services Remaining Letters of Credit; and (y)
Letters of Credit issued for the account of Flagstar to support retained
liabilities in respect of the Volume Services Sale Transaction, PROVIDED that
the aggregate Available Amount of such Letters of Credit is deducted from cash
received in respect of the Volume Services Sale Transaction for purposes of the
determination of the amount of Net Cash Proceeds required pursuant to subsection
(b) below.
(b) The Lenders hereby agree that the conditions set forth in Section
5.02(e)(viii)(ii) and 5.02(e)(viii)(iii) of the Credit Agreement (as amended
hereby) with respect to the Volume Services Sale Transaction shall be satisfied
if (x) as a result of the closing of the Volume Services Sale Transaction, the
Working Capital Facility is reduced (prior to giving effect to any waivers of
Commitment reduction pursuant to Section 5 below) by an amount equal to the Net
Cash Proceeds, but not less than $60,000,000, from the Volume Services Sale
Transaction and (y) Flagstar shall have delivered to the Managing Agent a
certificate representing that the aggregate retained liabilities in respect of
the Volume Services Sale Transaction (including, without limitation, retained
liabilities which are payable as drawings under Letters of Credit as provided in
subsection (a) above) are payable in an amount of not more than $5,000,000 in
any twelve consecutive months.
SECTION 3. AMENDMENT OF 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 6 hereof, hereby amended as follows:
(a) Section 2.13(a) is amended by deleting therefrom the second sentence
thereof and substituting therefor the following:
No Letter of Credit shall have an expiration date (including all rights of
Funding or the beneficiary to require renewal) later than the earlier of 60
days before the then scheduled Working Capital Facility Termination Date
and one year after the issuance thereof, but may by its terms be renewable
annually with the consent of the Issuing Bank thereof, PROVIDED that an
Issuing Bank may agree in its sole discretion to permit any Letter of
Credit to have an expiration date not later than 60 days before the first
anniversary of the then scheduled Working Capital Termination Date,
PROVIDED, FURTHER that Funding shall deposit into the Funding Cash
Collateral Account at least five Business Days prior to the Working Capital
Facility Termination Date an amount equal to 105% of the sum of (i) the
aggregate Available Amount of all Letters of Credit that have an expiration
date (after giving effect to any renewal) that extends beyond the scheduled
Working Capital Facility Termination Date and (ii) the aggregate amount of
all fees and expenses owing on or in respect of such Letters of Credit.
(b) Section 2.13(f)(ii) is amended by deleting the phrase "and on the
Working Capital Termination Date" and substituting therefor the phrase "and on
the date of the full drawing, expiration, termination or cancellation of the
last of such Letters of Credit to remain outstanding."
(c) Section 5.02(e)(viii) is amended by deleting the date "December 31,
1995"and substituting therefor the date "January 31, 1996".
(d) Section 5.04(a) is amended to delete therefrom the figure "5.90:1.00"
and substituting therefor the figure "6.50:1.00".
(e) Section 6.01 is amended by adding to the end of clause (q) thereof the
word "or" and adding a new clause (r) thereto to read as follows:
(r) any Loan Party or any of its Subsidiaries shall pay an aggregate amount
in any period of twelve consecutive months in excess of $5,000,000 in
respect of any liabilities retained in connection with the sale of IM
Stadium, Inc. and its Subsidiaries in accordance with Section
5.02(e)(viii);
2
<PAGE>
SECTION 4. AMENDMENT OF SECURITY AGREEMENT. Section 8 of the Security
Agreement is amended in full as follows:
SECTION 8. RELEASE OF AMOUNTS. (a) So long as no Event of Default
shall have occurred and be continuing on any date prior to the fifth
Business Day prior to the Working Capital Facility Termination Date, the
Managing Agent will pay and release to Flagstar or Funding, as applicable,
at the request of Flagstar, the amount, if any, by which the credit balance
of the Cash Collateral Accounts exceeds all amounts then due and payable
under the Loan Documents, together with all accrued and unpaid interest and
fees under the Credit Agreement; PROVIDED, HOWEVER, that any funds paid
into the Cash Collateral Accounts pursuant to Section 2.05(b) of the Credit
Agreement shall in no event be paid or released as aforesaid until such
amounts are due to be applied pursuant to the prepayment of Advances in
accordance with such Section 2.05(b).
(b) On each date (x) during the continuance of any Event of Default
and (y) after the fifth Business Day prior to the Working Capital Facility
Termination Date, the Managing Agent will pay and release to (i) the
applicable Issuing Bank (A) an amount equal to each drawing made on such
date under any Letter of Credit issued by such Issuing Bank and (B) an
amount equal to the fees and expenses accrued but unpaid to such Issuing
Bank on such day and (ii) Funding an amount equal to the excess, if any, of
the credit balance of the Funding Cash Collateral Account over an amount
equal to 105% of the sum of (A) the aggregate Available Amount of all
Letters of Credit then outstanding and (B) the aggregate amount of all fees
and expenses owing on or in respect of such Letters of Credit. On the date
that all of the Letters of Credit have been fully drawn, expired,
terminated or cancelled and all of the fees and expenses of each Issuing
Bank have been fully paid, all amounts remaining in the Funding Cash
Collateral Account shall be released to Funding or as Flagstar shall so
direct.
SECTION 5. CONSENT TO COMMITMENT REDUCTION WAIVERS. Effective as of the
date hereof, the Lenders hereby consent to the waiver by any Lender of any or
all of the reduction of its Commitment that would otherwise result from the
consummation of the Volume Services Sale Transaction.
SECTION 6. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when (a) the Managing Agent shall have received
counterparts of this Amendment executed by Flagstar, Funding and the Required
Lenders or, as to any of the Lenders, advice satisfactory to the Managing Agent
that such Lenders have executed this Amendment, (b) the Managing Agent shall
have received the Consent attached hereto, signed by each Guarantor and each
Grantor, (c) the Managing Agent shall have received a certificate of a duly
authorized officer of Flagstar to the effect that each of the representations
and warranties set forth in Section 7 hereof shall be true and no event shall
have occurred and be continuing that, immediately prior to the effectiveness
hereof, constituted a Default and (d) Flagstar shall have paid to the Managing
Agent in accordance with Section 2.10 of the Credit Agreement and for the
account of each Lender an amendment fee equal to 0.125% of the amount of such
Lender's Working Capital Commitment.
SECTION 7. 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 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 and do not (i) contravene such
Loan Party's charter or by-laws, (ii) violate any law (including, without
limitation, the Securities Exchange Act of 1934, as amended), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System, as in effect from time to time),
order, writ, judgment, injunction, decree, determination or award
applicable to any Loan Party, (iii) conflict with or result in the breach
of, or constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or affecting
any Loan Party, any of its Subsidiaries or any of their properties or (iv)
result in or require the creation or imposition of any Lien (other than
Liens created by or permitted under the Loan Documents) upon or with
respect to any of the properties of any Loan Party or any of its
Subsidiaries except, as to (ii) and (iii) above, as would not, and would
not be reasonably likely to, have a Material Adverse Effect.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery, recordation,
filing or performance by any Loan Party of this Amendment or the Credit
Agreement and the Security Agreement, each as amended hereby, or for the
consummation of the transactions contemplated hereby, except where the
failure to obtain, take, give or make such authorizations, approvals,
actions, notices or filings would not, and would not be reasonably likely
to, have a Material Adverse Effect.
3
<PAGE>
(c) This Amendment and the Consent have been duly executed and
delivered by each Loan Party party thereto. Assuming that (i) this
Amendment is duly executed and delivered by, and is within the power and
authority of, the Required Lenders and (ii) the Credit Agreement has been
duly executed and delivered by, and is within the power and authority of
the Managing Agent, the Co-Agents and the Lenders, this Amendment and the
Credit Agreement 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 8. 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. Upon the effectiveness hereof, on and after the
date hereof each reference in the Security Agreement to "this Agreement",
"hereunder", "hereof" or words of like import referring to the Security
Agreement and each reference in the other Loan Documents to the Security
Agreement, "thereunder", "thereof" or words of like import referring to the
Security Agreement, shall mean and be a reference to the Security Agreement 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-Agent or the Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
SECTION 9. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 10. 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.
4
<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
FLAGSTAR CORPORATION
By
TITLE: VICE PRESIDENT AND TREASURER
TWS FUNDING, INC.
By
TITLE: TREASURER
LENDERS
[Print or type name of institution]
By
TITLE:
5
<PAGE>
CONSENT
DATED AS OF NOVEMBER 21, 1994.
The undersigned, each a Guarantor under the Amended and Restated Guaranty
dated as of November 16, 1992 (as amended to date, the "GUARANTY") and a Grantor
under the Amended and Restated Security Agreement dated as of November 16, 1992
(as amended to date, the "SECURITY AGREEMENT") in favor of the Managing Agent
for the Lenders parties to the Credit Agreement referred to in the foregoing
Tenth Amendment, Waiver and Consent, hereby consents to said Tenth Amendment,
Waiver and Consent and hereby confirms and agrees that (i) each of the Guaranty
and the Security Agreement is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that, upon
the effectiveness of, and on and after the date of, said Tenth Amendment, Waiver
and Consent, each reference in each of the Guaranty and the Security Agreement
to the Loan Documents or any thereof, "thereunder", "thereof" or words of like
import shall mean and be a reference to the Loan Documents or such Loan Document
as amended by said Tenth Amendment, Waiver and Consent and (ii) the Security
Agreement and all of the Collateral described therein do, and shall continue to,
secure the payment of all of the Obligations (as defined therein).
SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES
CANTEEN HOLDINGS, INC.
DENNY'S HOLDINGS, INC.
SPARTAN HOLDINGS, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
CANTEEN SUBSIDIARY GROUP
CANTEEN MANAGEMENT SERVICES, INC.
IM PARKS, INC.
IM STADIUM, INC.
TW RECREATIONAL SERVICES, INC.
VOLUME SERVICES, INC. (A KANSAS CORPORATION)
VOLUME SERVICES, INC. (A DELAWARE CORPORATION)
By
VICE PRESIDENT OR TREASURER OF EACH
OF
THE CORPORATIONS LISTED ABOVE
6
<PAGE>
DENNY'S SUBSIDIARY GROUP
CB DEVELOPMENT #6, INC.
C-B-R DEVELOPMENT CO., INC.
DANNY'S DO NUTS #10, INC.
DENNY'S, INC.
DENNY'S MANAGEMENT, INC.
DFC TRUCKING CO.
EAVES PACKING COMPANY, INC.
EL POLLO LOCO, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
DENNY'S RESTAURANTS OF IDAHO, INC.
By
TITLE: ASSISTANT TREASURER
HAROLD BUTLER ENTERPRISES #362, INC.
HAROLD BUTLER ENTERPRISES #607, INC.
LA MIRADA ENTERPRISES NO. 1, INC.
LA MIRADA ENTERPRISES NO. 5, INC.
LA MIRADA ENTERPRISES NO. 6, INC.
LA MIRADA ENTERPRISES NO. 7, INC.
LA MIRADA ENTERPRISES NO. 8, INC.
LA MIRADA ENTERPRISES NO. 9, INC.
LA MIRADA ENTERPRISES NO. 14, INC.
PORTIONTROL FOODS, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
TWS 300 CORP.
TWS 500 CORP.
TWS 600 CORP.
TWS 700 CORP.
TWS 800 CORP.
WDH SERVICES, INC.
By
PRESIDENT OR VICE PRESIDENT OF EACH
OF
THE CORPORATIONS LISTED ABOVE
7
<PAGE>
CB DEVELOPMENT #9, LTD.
DENNY'S OF CANADA LTD.
DENNY'S RESTAURANTS OF CANADA, LTD.
By
TITLE: VICE PRESIDENT
SPARTAN SUBSIDIARY GROUP
QUINCY'S RESTAURANTS, INC.
FLAGSTAR ENTERPRISES, INC.
FLAGSTAR SYSTEMS, INC.
SPARTAN REALTY, INC.
By
TREASURER OF EACH OF
THE CORPORATIONS LISTED ABOVE
SPARTAN MANAGEMENT, INC.
By
TITLE: TREASURER
ADDITIONAL GUARANTOR:
AMS HOLDINGS, INC.
By
TITLE: PRESIDENT OR VICE PRESIDENT
8
<PAGE>
EXHIBIT 10.41
12/28/95
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN FLAGSTAR CORPORATION AND JEROME J. RICHARDSON
This Amended and Restated Employment Agreement ("Agreement") is entered
into as of January 1, 1996, effective as of May 2, 1995, amending and restating
the Amended and Restated Employment Agreement entered into as of January 10,
1995 between Flagstar Corporation (formerly, TW Services, Inc.), a Delaware
corporation (the "Company"), and Jerome J. Richardson (the "Executive"),
residing at 1116 Woodburn Road, Spartanburg, South Carolina.
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company as its
Chairman; and
WHEREAS, the Company and the Executive desire to amend and restate the
Amended and Restated Employment Agreement dated as of January 10, 1995 and to
provide for the Executive's continuing employment as an advisor to the Company
following his resignation as Chairman, on the terms, and subject to the
conditions, as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties agree as follows:
1. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT
The Employment Agreement dated as of July 26, 1989 will terminate and be of
no further force or effect upon the closing (the "Closing") of the purchase, by
Kohlberg Kravis Roberts & Co. or one or more of its affiliates of common stock
("Common Stock") of Flagstar Companies, Inc. (formerly TW Holdings, Inc.)
("Holdings") and warrants to purchase shares of Common Stock pursuant to that
certain Stock and Warrant Purchase Agreement (the "Purchase Agreement") dated
concurrently herewith; the date on which the Closing occurs is hereinafter
referred to as the "Closing Date".
2. EMPLOYMENT
The Executive hereby resigns as Chairman and a member of the Company's
Board of Directors and agrees to serve as an advisor to the Company and shall be
employed as such until the close of business on the fifth anniversary of the
Closing Date, unless his employment is earlier terminated pursuant to section 6.
(The Executive's period of employment under this Agreement, whether ending on
the fifth anniversary of the Closing Date or earlier pursuant to section 6 is
hereinafter referred to as the "Employment Term.") The Executive will serve the
Company subject to the general supervision, advice and direction of the
Company's Board of Directors (the "Board") and upon the terms and conditions set
forth in this Agreement.
3. DUTIES
The Executive shall devote such reasonable time and efforts to the business
affairs of the Company as may be requested by the Board, to the extent not
inconsistent with the Executive:
(i) serving as a director or member of a committee of any
not-for-profit organization or engaging in other charitable or community
activities;
(ii) serving as a director or member of a committee of the
corporations or organizations that the Executive presently serves and such
corporations and organizations that the Executive upon approval of the
Board may serve in the future;
(iii) managing his personal investments, including, but not limited
to, Richardson Sports, TriArc Foods, and Isotechnology, Inc.; and
(iv) serving as a director or officer of, or otherwise engaging in
activities related to, the National Football League;
provided, that the Executive may not accept employment with any other individual
or other entity, or engage in any other venture which is in conflict with the
business of the Company.
<PAGE>
4. COMPENSATION AND BENEFITS
(a) BASE COMPENSATION. The Company shall pay the Executive an annual base
salary (the "Base Salary") as compensation for his employment, in equal
installments and at least twice in each calendar month. The Base Salary for the
Employment Period shall be at the annual rate of $750,000.
(b) BONUS. For calendar years after 1994, the Executive's bonus
compensation during the Employment Period shall be determined by the Board in
its reasonable discretion.
(c) LOAN. Within 60 days after the Closing Date, provided that Nations Bank
shall transfer to the Company or Holdings, in accordance with the provisions of
Regulation G under Section 7(a) of the Securities and Exchange Act of 1934
relating to transfers of margin loans, all of the collateral which it shall then
hold to secure its loan (the "NB Loan") made to the Executive in 1989 to finance
the Executive's purchase of 675,475 shares (the "Shares") of Common stock and
which collateral shall consist of at least the Shares and provided that the
Executive shall consent to such transfer of collateral, the Company or Holdings,
respectively, shall extend to the Executive a loan (the "Loan") in an amount
equal to the lesser of the original principal of the NB Loan, approximately
$13.5 Million, or the amount of the outstanding principal of the NB Loan on the
date the Executive repays the NB Loan. The Executive shall use the proceeds of
the Loan, and such other of his funds which may be required, to pay all of the
current outstanding principal and interest due on the NB Loan. The Loan shall be
evidenced by a recourse promissory note (the "Note") from the Executive to the
Company or Holdings, as the case may be, which shall be secured by the Shares
pursuant to a Pledge Agreement to be entered into by the Executive and the
Company or Holdings. The terms of the Note shall be as follows:
(i) All principal and interest on the Note shall be due and payable on
the fifth anniversary of the Closing Date, provided, however, that in the
event of a payment to the Executive pursuant to Section 7(a), the amount of
such payment, less any applicable federal, state or local taxes payable by
the Executive with respect thereto, shall be immediately offset to pay
principal and interest on the Loan to the extent of such payment, with the
balance of the Loan being payable on the fifth anniversary of the Closing
Date; and provided, further, at the election of the Company or Holdings, as
the case may be, in its sole and absolute discretion, all such principal
and interest shall become due and payable on the termination of the
Executive's employment with the Company in a Termination for Cause or by
reason of a Voluntary Termination, as each is defined in Section 6(c).
(ii) The interest rate shall be fixed at an annual rate equal to the
applicable federal rate pursuant to Internal Revenue Code section 7872 for
five-year term loans as in effect on the date the Note is executed.
(d) STOCK OPTIONS. Effective as soon as practicable after the Closing,
subject to the termination of the Executive's stock option dated as of December
6, 1989 (the "1989 Option") for 160,000 shares of Common Stock, the Company
shall grant to the Executive a new option for 160,000 shares of Common Stock
(the "Exchange Option") and a new option for 440,000 shares of Common Stock (the
"Additional Option") (the Exchange option and the Additional Option are
hereinafter collectively referred to as the "New Options"). The New Options
shall be granted subject to the following terms and conditions: (i) the exercise
price with respect to 100,000 shares under the Exchange Option shall be $15.00
per share, (ii) the exercise price with respect to 60,000 shares under the
Exchange Option and all of the shares under the Additional Option shall be 17.50
per share, (iii) the New Options shall be exercisable at the rate of 20% per
year beginning on the first anniversary of the Closing Date, conditioned on the
Executive's continuing to be employed by the Company, PROVIDED, HOWEVER that if
the Company terminates the Executive's employment other than in a Termination
for Cause, or if the Executive dies, the New Options shall be immediately and
fully exercisable, (iv) the New Options shall be granted under and subject to
Holdings' 1989 NonQualified Stock Option Plan (the "Option Plan"), (v) all
shares of Common Stock acquired by the Executive upon any exercise of the New
Options shall be subject to the Richardson Shareholder Agreement (the
"Shareholder Agreement") entered into by the Executive and the Company, and (vi)
the grant of the New Options shall be subject to approval by Holdings,
shareholders.
(e) VACATION. During each calendar year during the Employment Term, the
Executive shall be entitled to no fewer than four weeks paid vacation, as
determined by the Board, unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks paid vacation under the Company's generally applicable vacation policy.
(f) BENEFITS. During the Employment Term, the Executive shall be entitled
to participate in all pension, profit sharing and other retirement plans, all
incentive compensation plans and all group health, hospitalization and
disability insurance plans and other employee welfare benefit plans in which
other senior executives of the Company may participate on terms and conditions
no less favorable than those (i) which apply to such other senior executives of
the Company and (ii) which
2
<PAGE>
are substantially equivalent on an aggregate basis to those which are currently
in effect, except in any case to the extent the Executive may otherwise agree in
writing. The Executive will continue to be provided with office space and
secretarial assistance at 311 East Main Street, Spartanburg, South Carolina.
(g) INSURANCE POLICY. During the Employment Term the Company shall continue
in effect the agreement dated January 2, 1975 between the Executive and Spartan
Food System, Inc. covering Massachusetts Mutual Life Insurance Company policy
number 5-215831 and the Company shall not terminate said agreement without the
written consent of the Executive.
5. REIMBURSEMENT OF EXPENSES
(a) EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT. In addition to the
compensation provided for under section 4 hereof, upon submission of proper
vouchers, the Company will pay or reimburse the Executive for all normal and
reasonable expenses, including travel expenses, incurred by the Executive during
the Employment Term in connection with the Executive's responsibilities to the
Company.
(b) FEES AND EXPENSES IN RELATION HERETO. The Company agrees to reimburse
the Executive for the reasonable professional fees and expenses incurred in
relation to this Agreement, its subject matter, and the attendant agreements
relating to the Executive's Common Stock and stock options of Holdings.
6. TERMINATION
(a) Notwithstanding Section 2 hereof, the Employment Term shall terminate
upon the occurrence of any of the following events:
(i) immediately upon the death of the Executive; provided, however,
that in such event and in addition to any other death benefits, the
Executive's surviving spouse shall be paid the Base Salary in monthly
installments for a period of one (1) year commencing immediately upon the
death of the Executive;
(ii) upon the close of business on the 180th day following the date on
which the Company gives the Executive written notice of the termination of
his employment as a result of a Permanent Disability (as defined in
subsection (c)); provided, however, that the Executive shall be paid
one-half of the Base Salary and Bonus for a period of two years after the
termination of the Executive's employment;
(iii)upon the close of business on the effective date of a "Voluntary
Termination" (as defined in subsection (c)) by the Executive of his
employment with the Company;
(iv) upon the close of business on the date on which the Company gives
the Executive written notice of "Termination for Cause" (as defined in
subsection (c)) of his employment.
(b) In the event of the termination of the Employment Term pursuant to
subsection (a), the Company shall pay the Executive (or, in the case of his
death, his estate or other legal representative), not later than 90 days after
such termination, in a lump sum (except for additional payments due under
clauses (i) and (ii) of subsection (a), all accrued but unpaid Base Salary and
Bonus and other accrued benefits pursuant to section 4 through the date of his
termination.
(c) For purposes of this Agreement:
(1) "Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical
or mental disability or infirmity which has continued for more than 180
consecutive days. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the
Company.
(2) "Termination for Cause" shall mean any termination of the
Executive's employment for "cause." For purposes of this Agreement,
termination of the Executive's employment shall be deemed to have been for
cause only if termination of his employment shall have been the result of
(i) an act or acts by him, or any omission by him, constituting a felony,
and the Executive has entered a guilty plea or confession to, or has been
convicted of, such felony, or as a result of any proven act of fraud or
dishonesty by the Executive which results or is intended to result in any
material financial or economic harm to the Company, or (ii) breach of a
material provision of this Agreement or of the Shareholder's Agreement by
the Executive.
(3) "Voluntary Termination", shall mean any voluntary termination by
the Executive of his employment with the Company; the Executive shall give
the Company at least 120 days' prior written notice of the effective date
of any
3
<PAGE>
Voluntary Termination. For the purposes of this Agreement, the Executive
shall not be deemed to have terminated his employment with the Company
voluntarily if (i) the Executive terminates his employment with the Company
as a result of a material breach by the Company of a material provision of
this Agreement which the Company does not take measures to correct within
60 days after the Executive notifies the Board in writing of the action or
omission which the Executive believes constitutes such a breach and (ii)
within 10 days of the expiration of the 60-day period referred to in (i)
above, the Executive gives 30 days' prior written notice to the Company of
his intention to terminate his employment.
7. ACCELERATION OF BENEFITS; NO MITIGATION
(a) In the event that the Executive's employment is terminated for any
reason other than as set forth in section 6, then all remaining Base Salary,
Bonus and other benefits for the remaining Employment Term of this Agreement
(assuming Executive's employment had continued until the fifth anniversary of
the Closing Date) shall be immediately due, owing and payable in a lump sum to
the Executive without mitigation; for the purposes of this section only, the
Executive's annual Base Salary and Bonus, in the aggregate, shall be deemed to
be payable at a rate of $1,500,000 for each full year of the Employment Term
(assuming Executive's employment had continued until the fifth anniversary of
the Closing Date). The Company shall also be obligated to provide health and
welfare benefits to the Executive and his dependents for the remainder of the
Employment Term (assuming Executive's employment had continued until the fifth
anniversary of the Closing Date), on terms no less favorable than those in
effect for continuing senior executives of the Company, and shall provide the
Executive with service credit under any retirement plan in which the Executive
participates for the remainder of the Employment Term (assuming Executive's
employment had continued until the fifth anniversary of the Closing Date). In
the event that the Executive's participation in any health, welfare or
retirement plan is prohibited by law or the terms of the plan after his
termination of employment, the Company shall provide the Executive with the cash
equivalent of the benefits under such plan to which he would be entitled
pursuant to the preceding sentence.
(b) In the event that the Company terminates the Executive's employment
within one year after the Closing Date for any reason other than as set forth in
section 6, if any of the payments or other benefits (collectively, the
"Payments") payable to the Executive hereunder are held to be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, the Company shall pay to the Executive an additional amount such
that the net amount retained by the Executive, after deduction of any Excise Tax
on the Payment and any federal, state or local income tax and Excise Tax upon
the payment provided by this section, shall be equal to the Payments.
8. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that during the course
of his employment by the Company, the Company has disclosed and will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas, processes, inventions and devices, that such confidential
or proprietary information has been developed and will be developed through the
Company's expenditure of substantial time and money, and that all such
confidential information could be used by the Executive and others to compete
with the Company. The Executive hereby agrees that all such confidential or
proprietary information shall constitute trade secrets, and further agrees to
use such confidential or proprietary information only for the purpose of
carrying out his duties with the Company and not otherwise to disclose such
information. No information otherwise in the public domain shall be considered
confidential.
(b) The Executive hereby agrees, in consideration of his employment
hereunder and in view of the confidential position to be held by the Executive
hereunder, that during the Employment Term and for the period ending on the date
which is three years after the later of (1) the termination of the Employment
Term and (2) the date on which the Company is no longer required to provide the
payments and benefits described in section 4, the Executive shall not, without
the written consent of the Company, knowingly solicit, entice or persuade any
other employees of the Company or any affiliate of the Company to leave the
services of the Company or such affiliate for any reason.
(c) The Executive further agrees that, in the event of the Termination for
Cause or the Voluntary Termination of his employment with the Company, he shall
not (except as to the activities described in section 3) for a period of three
years following such termination enter into any relationship whatsoever, either
directly or indirectly, alone or in partnership, or as an officer, director,
employee or stockholder (beneficially owning stock or options to acquire stock
totaling more than five percent of the outstanding shares) of any corporation
(other than the Company or Holdings), or otherwise acquire or agree to acquire a
significant present or future equity or other proprietorship interest, whether
as a stockholder, partner, proprietor or otherwise, with any enterprise,
business or division thereof (other than the Company or Holdings), which is
4
<PAGE>
engaged in the restaurant or food services business in those states within the
United States in which the Company, holdings and any of its subsidiaries is at
the time of such termination of employment conducting its business and which has
annual sales of at least $50,000,000.
(d) So long as the Executive is employed by the Company and so long as the
restrictions of this section apply, prior to accepting any engagement to act as
an employee, officer, director, trustee, principal, agent or representative of
any type of business or service (other than as an employee of the Company), the
Executive shall (i) to the extent not described in Section 3, disclose such
engagement in writing to the Company and (ii) disclose to the other entity with
which he has agreed to act as an employee, officer, director, trustee, agent or
representative, or to other principals together with whom he proposes to act as
a principal in such business or service, the existence of the covenants set
forth in this section and the provisions of section 9.
(e) The restrictions in this section 8 shall survive the termination of
this Agreement and shall be in addition to any restrictions imposed upon the
Executive by statute or at common law.
(f) The parties hereby acknowledge that the restrictions in this section 8
have been specifically negotiated and agreed to by the parties hereto and are
limited to only those restrictions necessary to protect the Company from unfair
competition. The parties hereby agree that if the scope or enforceability of any
provision, paragraph or subparagraph of this section 8 is in any way disputed at
any time, and should a court find that such restrictions are overly broad, the
court may modify and enforce the covenant to the extent that it believes to be
reasonable under the circumstances. Each provision, paragraph and subparagraph
of this section 8 is separable from every other provision, paragraph, and
subparagraph and constitutes a separate and distinct covenant.
9. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or threatened
breach by the Executive of any of the terms set forth in sections 3 and 8 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this section
shall survive the Employment Term.
10. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs and his
personal representative or representatives, and upon the Company and its
successors and assigns. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Executive.
11. NOTICES
Any notice required or permitted by this Agreement shall be in writing,
sent by registered or certified mail, return receipt requested, addressed to the
Board and the Company at its then principal office, with a copy to TW
Associates, L.P., c/o Kohlberg Kravis Roberts & Co., Nine West 57th Street, New
York, New York, Attention: Clifton S. Robbins, or to the Executive at the
address set forth in the preamble, as the case may be, or to such other address
or addresses as any party hereto or TW Associates, L.P. may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this section. Notices shall be deemed given when received.
12. GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without regard to conflict of
law principles.
13. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest extent permitted
by the laws of the State of Delaware, as in effect at the time of the subject
act or omission, and he will be entitled to the protection of any insurance
policies the Company may elect to maintain generally for the benefit of its
directors and officers against all costs, charges and expenses incurred or
sustained by him in connection with any action, suit or proceeding to which he
may be made a party by reason of his being or having been a director, officer or
employee of the Company or any of its subsidiaries or his serving or having
served any other enterprise as a director, officer or employee at the request of
the Company (other than any dispute, claim or controversy described in section 9
of this Agreement except that the Executive shall be entitled to reimbursement
of his reasonable attorneys' fees and expenses if he is the prevailing party).
5
<PAGE>
14. PUBLIC ANNOUNCEMENTS
The Company and the Executive agree that neither shall make any public
announcement concerning the terms of this Agreement or the relinquishment by the
Executive of the position of Chief Executive officer of the Company without the
consent of the other party, unless required to do so by law.
15. MISCELLANEOUS
This Agreement contains the entire agreement of the parties relating to the
subject matter hereof. This Agreement supersedes any prior written or oral
agreements or understandings between the parties relating to the subject matter
hereof. No modification or amendment of this Agreement shall be valid unless in
writing and signed by or on behalf of the parties hereto. A waiver of the breach
of any term or condition of this Agreement shall not be deemed to constitute a
waiver of any subsequent breach of the same or any other term or condition. This
Agreement is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations. If any
provision of this Agreement, or the application thereof to any person or
circumstance, shall, for any reason and to any extent, be held invalid or
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. The compensation provided to the Executive pursuant to this
Agreement shall be subject to any withholdings and deductions required by any
applicable tax laws. Any amounts payable under this Agreement to the Executive
after the death of the Executive shall be paid to the Executive's estate or
legal representative. The headings in this Agreement are inserted for
convenience or reference only and shall not be a part of or control or affect
the meaning of any provision hereof.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
FLAGSTAR CORPORATION
By: /s/ RHONDA PARISH
Title: Sr. V.P., General Counsel &
Secretary
/s/ Jerome J. Richardson
JEROME J. RICHARDSON
6
<PAGE>
AGREEMENT TO FURNISH
FACILITIES AND SERVICES
THIS AGREEMENT made and entered into as of January 1, 1996, by and between
Flagstar Corporation (formerly TW Services, Inc.), a Delaware corporation
("Company"), Jerome J. Richardson ("Executive"), residing at 1116 Woodburn Road,
Spartanburg, South Carolina, and Richardson Sports Limited Partnership ("RS"), a
North Carolina limited partnership with offices in Charlotte, North Carolina.
WITNESSETH
WHEREAS, Company and Executive entered into an "Amended and Restated
Employment Agreement" effective as of January 10, 1995 (hereinafter the "Amended
Agreement"), some of the terms of which require that Company provide Executive
with office space and secretarial assistance; and
WHEREAS, Executive is the principal owner of RS which owns and operates a
franchise for a professional football team in the National Football League; and
WHEREAS, Executive, as allowed under the terms of the Amended Agreement, is
spending substantial time on business related to RS; and
WHEREAS, RS has agreed to assume Company's obligations to provide office
space, secretarial assistance and certain support services related to
Executive's activities and Company has agreed to pay RS for assuming those
liabilities; and
WHEREAS, Executive is agreeable to the assumption of Company's liability by
RS;
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, Company, Executive and RS have agreed as
follows:
1. EFFECTIVE DATE AND TERM. This Agreement shall be effective as of January
1, 1996, and shall extend through November 16, 1997, subject to termination in
the event the Amended Agreement terminates. If the Amended Agreement is
terminated other than at the end of the term, November 16, 1997, this Agreement
shall also terminate and the obligations of Company to Executive and to RS shall
cease in accordance with the terms of the Amended Agreement as to Executive, and
this Agreement as to RS.
2. TRANSFER AND ASSUMPTION OF OBLIGATIONS. Section 4(f) of the Agreement
requires Company to provide Executive with office space and secretarial
assistance at 311 East Main Street, Spartanburg, South Carolina. RS hereby
assumes the obligation imposed on Company to furnish office space, secretarial
assistance, equipment (except for that described on Exhibit A) and supplies, and
Executive hereby releases Company from any further liability or responsibility
to provide office space, secretarial assistance, equipment and supplies, and RS
hereby agrees to assume full responsibility for those obligations. In
consideration of RS' undertakings hereunder, Company shall during the term of
this Agreement pay a fixed fee per month to RS pursuant to Paragraph 3 below.
Company shall continue to provide equipment as described on Exhibit A, which is
attached to and made a part hereof, and the fixed fee shall include the costs of
maintenance of the equipment described on Exhibit A. Upon the expiration of this
Agreement, RS shall have the right to purchase all or any part of the equipment
listed on Exhibit A at book value, as reflected on the Company's books.
3. COMPENSATION TO RS. During the term of this Agreement, beginning January
1, 1996, and continuing on the first day of each month thereafter through
October 1, 1997, Company agrees to pay RS the sum of $19,167.22 per month in
1996 and $19,469.32 per month beginning January 1, 1997, through October 1,
1997, which includes (a) rent at $5,000 per month, (b) secretarial compensation
(including salaries and all fringe benefits) at $9,607.22 per month for 1996 and
$9,909.32 beginning January 1, 1997, and on November 1, 1997, the sum of
$9,954.66; and (c) the provision of office equipment and supplies at the rate of
$4,560 per month throughout the term hereof in full compensation and
satisfaction of the assumption of Company's obligations by RS as herein set
forth. RS will reimburse the Company monthly for telephone lease payments, T-1
connection charges, additional telephone line fees, fax machine lease charge and
telephone service charges, the totals of which averaged $3,062 per month in
1995.
4. CONSENT FOR RS TO HIRE COMPANY EMPLOYEES. To assist RS in meeting its
obligations to provide secretarial service for Executive, Company hereby grants
permission to RS to hire one or both of the following Company employees: Diane
Hoch and Natalie Rossi.
7
<PAGE>
5. AMENDMENT OF AMENDED AGREEMENT. Except as herein specifically provided,
the Amended Agreement between Company and Executive shall remain in full force
and effect.
6. BINDING NATURE OF AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
7. GOVERNING LAW. The terms of this Agreement shall be governed by the laws
of the State of North Carolina.
IN WITNESS WHEREOF, Company, Executive and RS have duly executed this
Agreement as of the date first set forth above.
FLAGSTAR CORPORATION
By: /s/ RHONDA PARISH
Title: Sr. Vice President, General
Counsel & Secretary
(Company)
/s/ JEROME J. RICHARDSON
Jerome J. Richardson
(Executive)
RICHARDSON SPORTS LIMITED PARTNERSHIP
By: PFF, INC., GENERAL PARTNER
By: /s/ MARK S. RICHARDSON
Mark S. Richardson
VICE PRESIDENT
(RS)
8
<PAGE>
EXHIBIT 11
FLAGSTAR COMPANIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1991 (A) 1992 (A) 1993 (A) 1994 1995 (A)
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Adjustment of common and equivalent shares:
Average number of common shares outstanding
before adjustments...................................... 22,212 24,883 42,370 42,369 42,431
Assumed exercise of stock warrants and options............. -- -- -- 9,854 --
Total average outstanding and equivalent common
shares................................................ 22,212 24,883 42,370 52,223 42,431
Adjustment of net income (loss) applicable to common
shareholders:
Loss from continuing operations............................ $(54,122) $ (39,225) $(1,238,564) $(16,820) $(132,906)
Interest on senior debt, net............................... -- -- -- 23,939 --
Dividends on preferred stock............................... -- (6,064) (14,175) (14,175) (14,175)
Adjusted loss from continuing operations................... (54,122) (45,289) (1,252,739) (7,056) (147,081)
Income (loss) from discontinued operations................. (13,453) (12,550) (409,671) 392,670 77,241
Adjusted income (loss) before extraordinary item and
cumulative effect of change in accounting principle..... (67,575) (57,839) (1,662,410) 385,614 (69,840)
Extraordinary items, net................................... -- (155,401) (26,405) (11,757) 466
Cumulative effect of change in accounting principle, net... -- (17,834) (12,010) -- --
Adjusted net income (loss) applicable to common
shareholders............................................ $(67,575) $(231,074) $(1,700,825) $373,857 $ (69,374)
Primary earnings (loss) per share applicable to common
shareholders:
On continuing operations................................... $ (2.44) $ (1.82) $ (29.56) $ (0.14) $ (3.47)
On discontinued operations, net............................ (0.60) (0.50) (9.67) 7.52 1.82
On income (loss) before extraordinary items and cumulative
effect of change in accounting principle................ (3.04) (2.32) (39.23) 7.38 (1.65)
On extraordinary items, net................................ -- (6.25) (0.62) (0.22) 0.01
On cumulative effect of change in accounting principle,
net..................................................... -- (0.72) (0.29) -- --
On net income (loss)....................................... $ (3.04) $ (9.29) $ (40.14) $ 7.16 $ (1.64)
</TABLE>
(A) The assumed exercise of the Company's warrants and options is not presented
because such exercise would produce an anti-dilutive result.
<PAGE>
EXHIBIT 11
FLAGSTAR COMPANIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1991 (A) 1992 (A) 1993 (A) 1994 1995 (A)
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Adjustment of common and equivalent shares:
Average number of common shares outstanding
before adjustments...................................... 22,212 24,883 42,370 42,369 42,431
Assumed exercise of stock warrants and options............. -- -- -- 9,854 --
Assumed conversion of convertible debentures............... -- -- -- 4,136 --
Assumed conversion of preferred stock...................... -- -- -- 8,562 --
Total average outstanding and equivalent common
shares................................................ 22,212 24,883 42,370 64,921 42,431
Adjustment of net income (loss) applicable to common
shareholders:
Loss from continuing operations............................ $(54,122) $ (39,225) $(1,238,564) $(16,820) $(132,906)
Interest on senior debt, net............................... -- -- -- 23,939 --
Interest on convertible debentures, net.................... -- -- -- 9,628 --
Dividends on preferred stock............................... -- (6,064) (14,175) -- (14,175)
Adjusted income (loss) from continuing operations.......... (54,122) (45,289) (1,252,739) 16,747 (147,081)
Income (loss) from discontinued operations................. (13,453) (12,550) (409,671) 392,670 77,241
Adjusted income (loss) before extraordinary item and
cumulative effect of change in accounting principle..... (67,575) (57,839) (1,662,410) 409,417 (69,840)
Extraordinary items, net................................... -- (155,401) (26,405) (11,757) 466
Cumulative effect of change in accounting principle, net... -- (17,834) (12,010) -- --
Adjusted net income (loss) applicable to common
shareholders............................................ $(67,575) $(231,074) $(1,700,825) $397,660 $ (69,374)
Fully diluted earnings (loss) per share applicable to common
shareholders:
On continuing operations................................... $ (2.44) $ (1.82) $ (29.56) $ 0.26 $ (3.47)
On discontinued operations, net............................ (0.60) (0.50) (9.67) 6.05 1.82
On income (loss) before extraordinary items and cumulative
effect of change in accounting principle................ (3.04) (2.32) (39.23) 6.31 (1.65)
On extraordinary items, net................................ -- (6.25) (0.62) (0.18) 0.01
On cumulative effect of change in accounting principle,
net..................................................... -- (0.72) (0.29) -- --
On net income (loss)....................................... $ (3.04) $ (9.29) $ (40.14) $ 6.13 $ (1.64)
</TABLE>
(A) The assumed exercise and conversion of the Company's warrants, options, 10%
Convertible Debentures, and $2.25 Preferred Stock is not presented because
such exercise and conversion would produce an anti-dilutive result.
<PAGE>
EXHIBIT 12
FLAGSTAR COMPANIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Loss from continuing operations before income taxes.......... $(69,596) $(45,469) $(1,317,892) $(19,033) $(132,920)
Add:
Net interest expense excluding capitalized interest........ 236,372 232,058 203,709 220,985 221,645
Amortization of debt expense............................... 11,249 9,362 9,416 6,453 7,504
Interest factor in rents................................... 13,450 14,814 16,290 16,411 16,090
Total earnings (losses)............................... 191,475 $210,765 $(1,088,477) $224,816 $ 112,319
Fixed charges:
Gross interest expense including capitalized
interest................................................ 236,602 $232,348 $ 203,987 $221,245 $ 221,726
Amortization of debt expense............................... 11,249 9,362 9,416 6,453 7,504
Interest factor in rents................................... 13,450 14,814 16,290 16,411 16,090
Total fixed charges................................... 261,301 $256,524 $ 229,693 $244,109 $ 245,320
Ratio of earnings (losses) to fixed charges.................. -- -- -- -- --
Deficiency in the coverage of fixed charges by earnings
(losses) before fixed charges.............................. $ 69,826 $ 45,759 $ 1,318,170 $ 19,293 $ 133,001
</TABLE>
For purposes of these computations, the ratio of earnings to fixed charges
has been calculated by dividing pretax earnings by fixed charges. Earnings, as
used to compute the ratio, equals the sum of income before income taxes and
fixed charges excluding capitalized interest. Fixed charges are the total
interest expenses including capitalized interest, amortization of debt expenses
and a rental factor that is representative of an interest factor (estimated to
be one third) on operating leases.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF FLAGSTAR COMPANIES, INC.
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
<S> <C>
Flagstar Corporation Delaware
TWS Funding, Inc. Delaware
Denny's Holdings, Inc. New York
Spartan Holdings, Inc. New York
AMS Holdings, Inc. New York
Canteen Holdings, Inc. New York
TWS 800 Corp. Delaware
TWS 300 Corp. Delaware
TWS 500 Corp. Delaware
TWS 600 Corp. Delaware
TWS 700 Corp. Delaware
TWS 200 Corp. Delaware
El Pollo Loco, Inc. Delaware
Portiontrol Food, Inc. Texas
Denny's, Inc. California
DFO, Inc. Delaware
Denny's Realty, Inc. Delaware
Quincy's Restaurant, Inc. Alabama
Flagstar Enterprises, Inc.* Alabama
Spartan Realty, Inc. Delaware
Flagstar Systems, Inc. Delaware
Spartan Management, Inc. Delaware
Quincy's Realty, Inc. Alabama
Spardee's Realty, Inc. Alabama
La Mirada Enterprises No. 1, Inc. Texas
La Mirada Enterprises #5, Inc. Wisconsin
La Mirada Enterprises #6, Inc. Wisconsin
La Mirada Enterprises #7, Inc. Wisconsin
La Mirada Enterprises #8, Inc. Wisconsin
La Mirada Enterprises #9, Inc. Wisconsin
Denny's, Inc. Charitable Fund California
Denny's of Canada, Ltd. British Columbia
Denny's Restaurants of Canada, Ltd. Federal (Canada)
</TABLE>
* Flagstar Enterprises, Inc. of Delaware is an assumed name for use only in
Ohio.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-35098 and 33-35099 of Flagstar Companies, Inc. on Form S-8 of our report
dated February 14, 1996 appearing in this Annual Report on Form 10-K of Flagstar
Companies, Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL INFORMATION INCLUDED HEREIN AS OF DECEMBER 31, 1994 AND FOR THE
YEAR ENDED DECEMBER 31, 1994 HAS BEEN RECLASSIFIED TO CONFORM TO THE 1995
PRESENTATION.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FLAGSTAR COMPANIES, INC. AS CONTAINED IN ITS FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C> <C>
<PERIOD-TYPE> 12-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995
<PERIOD-START> DEC-31-1994 DEC-31-1995
<PERIOD-END> DEC-31-1994 DEC-31-1995
<EXCHANGE-RATE> .001 .001
<CASH> $66,720 $196,966
<SECURITIES> 0 0
<RECEIVABLES> 41,942 32,350
<ALLOWANCES> 4,561 2,506
<INVENTORY> 62,293 32,445
<CURRENT-ASSETS> 263,390 285,243
<PP&E> 1,743,485 1,750,218
<DEPRECIATION> 547,134 645,857
<TOTAL-ASSETS> 1,587,467 1,507,751
<CURRENT-LIABILITIES> 391,648 407,530
<BONDS> 2,067,648 1,996,111
<COMMON> 21,185 21,218
0 0
630 630
<OTHER-SE> (1,084,315) (1,152,825)
<TOTAL-LIABILITY-AND-EQUITY> 1,587,467 1,507,751
<SALES> 0 0
<TOTAL-REVENUES> 2,665,966 2,571,487
<CGS> 0 0
<TOTAL-COSTS> 2,454,474 2,473,253
<OTHER-EXPENSES> 3,087 2,005
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 227,438 229,149
<INCOME-PRETAX> (19,033) (132,920)
<INCOME-TAX> (2,213) (14)
<INCOME-CONTINUING> (16,820) (132,906)
<DISCONTINUED> 392,670 77,241
<EXTRAORDINARY> (11,757) 466
<CHANGES> 0 0
<NET-INCOME> 364,093 (55,199)
<EPS-PRIMARY> 7.16 (1.64)
<EPS-DILUTED> 6.13 (1.64)
</TABLE>
